Want to know how to use good debt to MAKE money??
Then read on………
If you are still in a lot of debt that’s charging huge sums of interest then please read “get out of debt fast” and look at my actions plans to help you get clear of BAD debt before you start looking at how to get and use GOOD debt to generate cash.
If however you have executed all the advice and resources available to you to optimise your income, minimise your outgoings and hopefully improve your credit rating, you can now start to use other people’s money to make some for yourself.
There is a HUGE caveat with this in that you really shouldn’t do it if you are not comfortable, you should also be very careful how you invest the money, keep the risk as low as possible especially as it’s not really your money!
Most importantly, keep it balanced! If you ever owe more than you have in savings you are in debt, this is a business model not a licence to spend.
By way of a disclaimer please note that this does not in any way constitute financial advice. Before you do anything please get actual advice from an independent financial adviser. This tactic is just something I have employed in the past to make a little bit of extra cash. Although over the years I have found a number of other advantages in structuring my finances this way, these include:
- Having available funds to take advantage of short term investment opportunities (e.g. short turnaround on tangible assets such as cars or auction items)
- Being prevented from going under or needing to borrow as a knee jerk reaction to demanding life events such as having kids or being out work through extended periods of illness
- Being able to muster deposits for houses in very short time scales
- Being able to maintain a decent credit rating despite how broke I am as I have never missed a payment – EVER!
- Getting better mortgage rates because I have a long term very good credit record
- Reducing my LTV on mortgages to get better rates whilst paying 0% on credit cards
- Being able to afford to develop properties for sale or let in the short term.
If you get this concept and you are comfortable with the management of it, you might want to think about how you can start to MAKE money by having debt.
On the home page we discussed using 0% cards to pay off higher interest ones. If you’ve already done this or are debt free, you can now transfer a 0% card balance into your current account.
Protect your credit score
Please make sure that you:
- Don’t use more that 49% of your available balance
- Don’t apply for loads of new cards in a short period of time (too many HARD credit searches looks very bad!)
- Don’t take on more debt than you can service, i.e. you might be able to get $10k out of some existing and / or new cards on 0% but your minimum monthly payment to them would probably be about $200. Make sure you can afford this within your budget – defaulting would be a very very bad idea.
- Do set calendar and phone alerts for when the 0% runs out, letting these cards fall into interest charging instead of being the interest generators would not be good.
- DO invest the money safely; remember it’s not really yours.
Please do not start to feel like this is your money, it’s not as you have a debt for that same value. Don’t be seduced by looking at your credit balance and thinking that you have money: you don’t. Your saved money is like your employee that’s earning you an income via interest payments and it all belongs to your debt, not you. If you spend it, that’s like eating the golden goose and making a monstrous debt enemy at the same time.
The following example shows how a 3 year 0% card with a 2.9% transfer fee on $5k might be used to earn $643 over the term.
So here you can see that you’ve taken $5k out on a 0% transfer for 3 years, you’ve paid $145 to transfer it and you’ve paid the minimum monthly repayments over the 3 years totalling $2,608.
When the 3 years is up, you liquidate your savings (total of $5,788), pay off the final balance on the card of $2,537 and bank the remaining $3,251 which; given that you paid into the credit card over the year, provides you with a ….
…..total profit of $643 ($3,251-$2,608).
All from money that was never yours!
So to summarise what we’ve covered:
- Get your head in the right place.
- Make the decision that you want to be debt free & financially secure. Be very clear with yourself about how much you want it and remind yourself daily!
- If you are not fully committed to the decision; do some work on yourself to understand why. Examine the language you use when you speak about money and get to the root of your subconscious beliefs and expectations. Don’t skip this step!
- Read or listen to some books, blogs, podcasts or watch you tube, there is some amazing content out there these days and it’s mostly free so go and feed yourself with loads of good uplifting and sustaining beliefs. This is especially useful if you know you are surrounded by people who are a negative influence on you when it comes to your ability to handle money.
- Get a practical grip on all your debt, how much you owe, who to and how much it’s costing – and don’t panic, it’s still only money!
- Switch as much expensive debt as you can to 0% or low cost, if you can’t do this fully; get the next lowest possible, find some professional advice, look at debt charities and consider an IVA or bankruptcy if it’s really that bad, but again – don’t panic, there is always a way.
- Get your credit rating sorted and make sure that the information they hold about you is correct and keep it that way.
- Minimise outgoings and maximise income. You don’t have to achieve this all at once but have a timed plan of when you with take action on each step.
- Do one small thing every day that aligns with your new goals.
- Decide on the maximum monthly “payment” you can make to your “future you” pot. This might be for clearing debts or regular investment deposits, or both. Either way, decide what you can afford (at a stretch) and put it in a separate account.
- Finally get some free or really cheap debt (in line with what you can afford to service each month) and invest it at the lowest possible risk in a higher interest fund or account.
- Check weekly, then monthly to make sure it all stays on track
- Retire rich and happy!
If you remain unconvinced that using debt to make money is a real thing, watch this multi millionaire explain it……..