Change Bad Debt into Good Debt

Change Bad Debt into Good Debt

good debt bad debt

This strategy is all about changing bad debt into good debt. Bad debt is defined as debts which don't help you build wealth and where the interest expense is non-deductible. This includes personal credit card debts, personal loans, HECS debts, primary residence home loans, etc. In contrast, good debt is debt which works to help you build wealth and where the interest expense is tax deductible. This includes debts used to finance investments in shares, rental properties, and businesses. 

Implementation process:

 

  1. Firstly, use all available cash flow to pay down bad debt as quick as possible.
  2. Until bad debt is eliminated good debt should be structured as interest only payments, or ideally capitalised completely (i.e. no repayments at all).
  3. Utilise business goodwill to pay out your private mortgage.
  4. When purchasing investments with good debt they should ideally be financed with 100% debt. 
  5. Redraw facilities should not be used to pay private expenses or debts.  
  6. Selling debt free investments to pay out bad debt. Beneficial ownership of the investments can be kept by selling them to a related party (spouse or entity).

Similar posts you may like

  • Change to a 4-day Work Week

    A 4-day workweek, where employees work the same number of hours but are condensed into four days instead of five, has gained popularity and Read more

  • Tax support for serious hardship

    The ATO might give you extra time to pay your tax or remove penalties if you experience financial difficulties. Further to these support measures, Read more

  • 8000 years of tax

    Taxation has existed for over 8,000 years. Mesopotamia, a historical region covering the Tigris–Euphrates river system, introduced a Bala tax in 6,000 BC. The Read more

  • Personal branding

    Personal branding is the practice of people marketing themselves and their careers as brands. Personal branding is essentially the ongoing process of establishing a Read more

"You’d be stupid not to try to cut your tax bill and those that don’t are stupid in business"

- Bono: U2