Most people (including me!) at some stage in their life will have to deal with debt - it's a fact of life, no matter where you come from. There are three different types of debt:
- Good Debt that will eventually being you a positive return, such as investment debt.
- Bad Debt that keeps you in a cycle of owing money, such as your own home loan.
- Ugly Debt that actually prevents you from getting anywhere with your financial future, such as credit card debt, personal loans, car loans
Debt is a great way to leverage your investment, but it can easily be abused and it has gotten many of my clients into a whole lot of trouble.
Using debt to create wealth is by far the most effective way to leverage your money, as you are using Other Peoples Money.
One of the best forms of leverage is that of an investment property loan (good debt). The banks will loan you upto 95% of the purchase price, which means that you only have to put down 5%. The greatest benefit is that you'll be getting the returns on 100% of the value of the property as opposed to the 5% deposit you actually put down.
My advice is to purchase your first property as soon as you can. You need to get the ball rolling, as wealth creation is all about momentum. Once you have purchased your first property, you will then be able to leverage the equity you create and use it as the deposit for your next property and this positive cycle of good debt continues.
A great article published by the Finance-Guru explains in a bit more detail exactly how to deal with your debt and get the wealth creation ball rolling.
"If you have Debt, then you need to deal with it. You need to seek out counsel from professional services who can examine your current debt situation, and provide you with a short term, mid-range, and long-term plan to get you debt-free forever."
Debt can be such a burden in your life, that sometimes it's hard to take that first step - to admit that there is a problem, and accept that you can't solve it alone. Often, the debt cycle weighs so heavily on you and your family, that it blinds you to the big picture.
Where to start?
So, I'm suggesting that it's time you simply make the decision to see the forest from the trees. Accept that you could be doing things better, seek the right advice and GO GET IT!
There are lots of debt-assistance programs out there. Most of them are non-profit, or you may need legal assistance through an attorney. But, don't put this off any longer.
Plain and Simple: You just CAN NOT become a millionaire, if you are encumbered with debt. This is goal one. Go get some solid advice from those you trust.
Hopefully this has given you an insight into the process that needs to be taken in order to start dealing with your debt, and then start creating some wealth. Just keep in mind, that it's one step at a time!
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Scott Parry, founder and CEO of Crown Lending, has been helping Australians manage their finances for close to a decade. Since launching his mortgage and debt management business from scratch in 2004, Parry has provided an alternative to the big banks that has consumer interests firmly at its core.
From a one-man office in Perth, Crown Lending has expanded to a national company that manages more than $250 million in home loans. This growth can be attributed to Parry’s radically simple approach to personal finance, addressing the number one financial concern for most Australians – debt reduction.