??Step by step guide to debt recycling & building passive income

In today's newsletter, we will discuss debt recycling, what it is, why you should use it, and how to best take advantage of this strategy.

In its simplest form, debt recycling is when you turn non-tax-deductible debt like your home loan into a tax-deductible debt that you can claim against your personal income and reducing your overall tax liability.?

This allows you to fund some of the costs associated with financing that debt through your tax.?

What does all this mean?

You could, in essence, use debt recycling to turn all that debt into something you can then claim in your annual tax return and reduce your overall tax liability.?

However, the two most common questions I am asked are, “how do I pay off the debt on my family home faster?”??

And “what is the best way to build wealth and create passive income?”??

The answer to both of these questions is debt recycling.

Traditionally, people wait until their home loan is repaid before they start investing in their future.?

Unfortunately, due to the growing size of home loans, most people start investing way too late in life.?

People are also retiring earlier, and the time between paying off the family home and retirement has been eroded, limiting the growth potential of investing and building your asset base.

Using debt recycling, you can simultaneously pay off your home loan whilst maximising your home equity to build your asset base faster and eventually fund your retirement sooner.??

So how does it work?

This strategy works by directing all your surplus cash flow to reduce the non-tax-deductible debt on your home loan, thereby rapidly increasing your home equity.

Let's say you have a savings plan in place, and every year, you save fifty thousand dollars to invest in income-producing shares.

Instead of immediately putting the savings into those shares, you first pay down your home loan with the savings. You then pull that amount back out via an investment loan and then start investing with it.?

In so doing, you make that part of your home loan tax-deductible, hence the term debt recycling.

Over time, amounts equivalent to the increase in equity can be drawn down and invested into income-producing investments such as direct shares, ETFs, and managed funds.

OK so what are the major benefits?

If you are a high-income earner, you benefit even more from your now tax-deductible debt as you are in the highest tax bracket, and you can claim against higher amounts of tax.

Furthermore, the historical returns from the share market will generally beat you only paying off the debt.

And you also get the added benefits of claiming the costs associated with that portion of the loan or all of it, including interest and fees.?

Now, debt recycling goes hand in hand with the power of compounding earnings and dollar cost averaging.?

If you are considering debt recycling, it’s important to seek financial advice to ensure it’s the right strategy for you and that it is done correctly.

Thank you for subscribing to?The Money Accelerator?and I look forward to sharing and discussing more strategies that can help you retire sooner.

If you would like to know how to apply this strategy to your situation grab an obligation free?Strategy Call

Until next time.