How can I use good debt?

If your aim is to minimise your tax bill especially if you are paying the top rate of tax then gearing may be appropriate debt strategy.

The main benefit of gearing is that the amount you have available to invest is increased by the amount you have borrowed, so you earn investment returns on a larger amount.

Depending on your circumstances, there may also be tax advantages associated with this type of investment. Beware though, gearing is not suitable for everyone.

The main risk is that by increasing the amount you have invested, you increase your potential losses. If your investments perform poorly, you may be left paying off a loan that is larger than the value of your investments.

Negative gearing is when interest payments and other investment costs exceed the income you receive from your investments such as shares or property.

You can claim a tax deduction for incurred losses and this may reduce the overall tax you might pay on your other income. 

 

Debt buster tips

Taming debt can seem hard to accomplish, particularly when it seems to take on a life of its own. But it’s often small changes which can really work magic.

 

Focus on the long term

What’s the real cost of an item purchased through debt once interest repayments are factored in?

 

What are your money beliefs?

We often have beliefs about money based on our parent’s financial behaviour. Unless we try to modify our habits, they form our ‘money personality’, which may explain a disposition to a spending, saving or investing mentality.

 

Develop a repayment plan and stick to it

Which debts charge the most interest and which are the priorities? Generally, credit and store cards carry the highest rates, followed by personal and car loans.

 

Try to repay more than the minimum repayments

Lenders have designed debt products to make money, so simply making minimum repayments isn’t enough.

 

Credit card point schemes

Many credit cards offer the promise of reward points, but as a result charge higher annual fees. Would you be better off saving the money and purchasing the item outright?

Back to Choosing Investments

This information is not advice and has been prepared without taking account of the objectives, financial or taxation situation or needs of any particular individual. For this reason, any individual should, before acting on this information, consider the appropriateness of the information, having regards to the individual's objectives, financial or taxation situation and needs, and, if necessary, seek appropriate professional advice. Commonwealth Securities Limited ABN 60 067 254 399 AFSL 238814 (CommSec) is a wholly owned but non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945 and a Participant of the ASX Group and Chi-X Australia.

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© Commonwealth Securities Limited ABN 60 067 254 399 AFSL 238814 (CommSec) is a wholly owned but non-guaranteed subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945. CommSec is a Market Participant of ASX Limited and Cboe Australia Pty Limited, a Clearing Participant of ASX Clear Pty Limited and a Settlement Participant of ASX Settlement Pty Limited.

The information on this page has been prepared without taking into account your objectives, financial situation or needs. For this reason, any individual should, before acting on this information, consider the appropriateness of the information, having regards to their objectives, financial situation or needs, and, if necessary, seek appropriate professional advice.

CommSec does not give any representation or warranty as to the accuracy, reliability or completeness of any content on this page, including any third party sourced data, nor does it accept liability for any errors or omissions.

 

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