A clever way to borrow: Making your money work for you
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If you’re like most Australians, you’ll have some level of debt. But how much of it is really working in your interest? While some debt can help boost wealth, some can put a massive and unnecessary drain on your finances.
Clever debt management strategies can help you take control and use loans to your real advantage.
The good and the bad
Most people would be shocked to realise they pay hundreds of thousands of dollars in interest on loans over their lifetime, not to mention fees and charges. Some interest – such as that paid on loans for investments in shares, managed funds or investment property – may be tax deductible. And the assets being purchased have potential to appreciate in value, as well as generate an income.
That’s why this sort of debt is sometimes called ‘good debt’. But other interest – such as that on credit cards, personal loans and a mortgage on your own home – doesn’t have such a positive side to it. The items this ‘bad debt’ pays for, such as living expenses, cars, holidays and your home, usually do not generate an income and you cannot claim a tax deduction on interest costs. Many, apart from the family home for example, actually depreciate in value.