For most Australians, borrowing money is almost unavoidable if they wish to grow their wealth.
At Suncow Wealth we categorise debt into good and bad debt. Good debt is tax deductible debt such as a mortgage to buy an investment property or a margin loan to build a share portfolio.
Bad debt is non-deductible debt such as personal loans, credit cards, etc. Not surprisingly, bad debt usually attracts a much higher interest rate than good debt.
As a general rule of thumb, re recommend debt levels should not exceed 30% of your gross income.
There are many ways to constructively use debt. The options are almost endless. Regardless of how an investor chooses to use debt the most important principle we promote is the need to stress test all debts, especially in a low-interest rate environment!
What we mean by this is working out what will be the repayments on a loan if interest rates move back to 9 or 10%. We believe the most important advice we can give a client is to show them what their cash flow situation will look like if and when interest rates increase.
Not only do we find this practice to be very prudent but it also prevents a client from panicking and selling an asset which they could otherwise hold on to when interest rates increase. In other words, it gives a client real peace of mind…and sleep!
If you would like to discuss ways to manage or reduce your debt more quickly then we invite you to contact our office on 02-9810 8832 to organise an appointment.