Is a debt optimisation strategy right for you?

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debt optimisation strategy

Check this formula out!

Business + Home Loan = Debt Optimisation Strategy

You might be wondering what the above equation means.

Well, many of you have a small business and some of you also have a home loan but did you know that with the right structuring of these two by using a debt optimisation strategy you can not only own your home sooner but at the same time pick up a tax deduction along the way.

Let me explain this concept further …

Debt optimisation (sometimes referred to as “Debt Recycling”) is a financial strategy which creates wealth over time and improves an individual’s debt structure. In the majority of cases, this is achieved by:

• Using all surplus income to reduce the home loan (non-tax deductible “bad debt”);
• Creating or increasing investment debt (tax deductible “good debt”) by drawing against equity in the home using a special loan product; and
• Using this borrowed money to build an investment portfolio.

The strategy can be adapted to suit different goals and time horizons, however, it is important to note that borrowing money to invest and budgeting are the key components.

Many small businesses that are well run, are flushed with cash at different times of the year. If your business structure allows you to periodically transfer cash out, without any tax consequences, this cash could then be used to reduce your home loan to increase your ‘equity’ – the portion where the market value of your home exceeds your home loan. The special loan product that is set up for the debt optimisation purpose then allows that part of your equity up to your mortgage limited to be drawn out and used for investment purposes, say by a loan back to your business – making the interest on this part of the loan tax deductible!

The non-deductible debt has now been converted into tax-deductible debt and, the best part of this strategy yet, the tax man now gets to start helping you pay down this loan.

Now, this is general advice and this strategy is not for everyone. For example, some home loans might be fixed and a break-fee will be charged if this loan is changed etc.

But if you would like to know more about debt optimisation and how it might apply to your own personal situation let me know, and we can arrange a meet up to discuss this.

Have a great day!

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