In the 4th quarter of 2022, total household debt in the United States reached a whopping $16.9 trillion. That reflects an increase of $394 billion from the previous quarter.
That may seem like a massive problem, but having debt isn’t always negative.
On the contrary, using debt to build wealth is possible. However, borrowers must first learn how to utilize debt properly.
Below, we’ve shared strategies for making money and building wealth using good debt, so read on.
Pay High-Interest Debt With Low-Interest Debt
Bad debt includes high-interest credit card debts and payday loans. They’re “bad” because they come with exorbitant interest rates and fees. Another is because people often use them to finance purchases of items that decline in value.
Worse, such high-interest rates also often force borrowers to make minimum debt repayments. As a result, the amount they owe keep growing and compounding.
If you have high-interest debts, consider paying them off with a low-interest loan. That way, you can stop paying sky-high interest rates.
You still need to repay your new loan, but at least you can save more since it has lower interest payments. The more you save, the more wealth you can build.
Use Debt to Fund Investment Property Purchases
One of the best advice for first time investors is to put their money into real estate. After all, such properties typically appreciate than depreciate. This appreciation lets owners earn more than they initially spent buying the property.
That’s also why mortgages classify as good debt. They let you borrow money to buy assets that can gain significant value over time. And as their worth increases, so does your wealth.
You can make more money on property investments by renting them out. You can use part of the rental payments to pay off the debt you took on to purchase the property. Then, put the rest in a high-interest savings account and let it earn even more.
You can also use debt to improve properties you own, such as your home. Doing so allows you to build wealth since improvements can increase property value. This also means you can sell them for way more than their initial purchase price.
Get a Loan to Start a Business
According to a study, debt can help raise the survival rate of businesses in their first year. It also found that firms that took on debt are more likely to make more profits in their first three years.
Those findings show that you can make money using debt if you use it to fund a business startup. Just make sure the business you decide to launch is in demand and will solve consumer problems. Otherwise, it may flop, causing you to be in debt for something that no longer has value.
Start Using Debt to Build Wealth
As you learned in this guide, using debt to build wealth is possible with the right strategies. For example, you can use low-interest loans to pay off high-interest debt and save more. You can also use it to invest in rental properties, improve your home, or start a business.
So as early as now, consider implementing those tactics to make yourself wealthier.
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