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What is debt recycling? A simple strategy that produces a significant outcome

Tim Russell | February 28, 2018

Debt recycling is a simple strategy that is underutilised by wealth creators. In this post, I want to explain how it works so you can consider if it’s something you might want to use for yourself.

How does debt recycling work?

The financial services industry is not known for its creative endeavours, so this strategy is as the name suggests i.e. transforming bad debt (non-deductible) into good debt (deductible). I must stress this is not a way to pay off your home loan sooner. Unfortunately, if you research this topic, there are many misleading headlines out there such as, “How to pay off your home loan inside 10 years” etc.

In any event, the basic premise is an additional loan such as a line of credit facility is set up against your family home. This facility will fund either the purchase or ongoing repayments associated with an investment asset and all rent/dividends from the investment asset are redirected directly into the family home loan in order to pay it down quicker.

Over time, the family home loan is redrawn and added to the investment loan, which will increase at the same rate.

Eventually the debt associated with the family home loan will be paid off, replaced or ‘recycled’ with a loan that you can now claim an interest deduction against.

What is the benefit to a debt recycling strategy?

The obvious benefit with this strategy is the more interest you can claim a deduction on, the larger your tax return will be. This money can then be used to pay down further debt or acquire other investment assets.

What’s the best loan structure?

Before deciding to proceed with a debt recycling strategy, it’s important to obtain independent financial advice from either an accountant or financial planner. It is critical that they are happy with the strategy and can also provide some modelling and projections to make sure everyone is on the same page.

Kind regards,

Tim Russell

Call: (0400) 530-868
Email: tim@multipartfinance.com.au
Visit: https://multipartfinance.com.au

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Tim Russell

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Mortgage Broker

Multipart Finance

www.multipartfinance.com.au

North Sydney, New South Wales

0400530868

► Who is Multipart Finance?
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Put Simply, We assist those who want to grow their wealth through property investment.

When it comes to being a wealth creator, our experience is that those that do, like to push the boundaries. And when you push the boundaries, there is generally a finance hurdle that needs to be overcome.

Our offering specialises in identifying that hurdle and solving it for our clients in the quickest and most stress free way possible.

► How we help can help you
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In this tough regulatory environment, what we have seen is an emergence of smaller funders who can do things that the big 4 can't. Whilst we still deal with the major banks on a daily basis, we have also aligned ourselves with lenders who have a niche offering we know the majors can't solve.

Bottom line, we'll either get you the best finance solution or we'll tell you why now's not the right time and provide a game plan for you on what you need to do in order to achieve your goal.

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Call: ✆ (0400) 530 868
Email: ✉ tim@multipartfinance.com.au
Visit: ☛ https://multipartfinance.com.au

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