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Written by gemma    23 Jan    Category:

Debt Recycling

Debt Recycling can be an effective strategy to accumulate wealth over the long-term. It is a process of using surplus capital or cash flow to reduce inefficient debt and then redrawing it with efficient debt in the form of an investment loan. The investment loan proceeds are then invested to form part of your investment portfolio. The inefficient debt is eventually extinguished and an investment loan with fully tax deductible interest remains.

There are no tax benefits available on debt used for personal purposes, but a tax deduction is available on the interest expenses on investment loans, where the loan is used to purchase income producing assets. Debt recycling therefore results in a more tax efficient outcome and wealth accumulation benefits through accumulation of an investment portfolio. You should note that the investment loan would need to be repaid at some point in time. To implement this strategy, your tolerance for risk should allow you to feel comfortable with borrowing to invest. There are two ways debt recycling can be undertaken: 

Lump Sum Debt Recycling

If you have available capital such as bank account savings, this can be used to repay any inefficient debt, such as a home mortgage or personal loan. An investment loan can then be taken for the same amount and be used to invest in an investment portfolio. 

Regular Debt Recycling

If you have regular surplus income, this can be used to increase the regular repayments on your inefficient debt, such as your home mortgage or personal loan. An investment loan can then be drawn by a corresponding amount and the proceeds
used to invest in an investment portfolio.

If you would like to know more about how Connolly Wealth Management can help with managing your debt, contact us on 03 9591 8000 to arrange your Financial Review Meeting.

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I came to Connolly Wealth Management to explore the options that were available to me for future financial planning. I have now been a client for 7 years and would highly recommend their services. They have assisted with my financial structures and have helped prepare me for retirement.

Brad
Belmont Vic

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Christopher Connolly (280099) and Connolly Wealth Management Pty Ltd (333350) are Authorised Representatives of WealthSure Financial Services Pty Ltd AFSL 326450

The information contained within the website is of a general nature only. Whilst every care has been taken to ensure the accuracy of the material, Connolly Wealth Management will not bear responsibility or liability for any action taken by any person, persons or organisation on the purported basis of information contained herein. Without limiting the generality of the foregoing, no person, persons or organisation should invest monies or take action on reliance of the material contained herein but instead should satisfy themselves independently of the appropriateness of such action.

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