If you don’t have a 100% offset account and one easy to manage loan, then considering alternative debt management strategies might be a good idea.
Debt management strategies
Debt or borrowed money can play an important role in helping you achieve your lifestyle goals and objectives. However, it is important it be managed and structured effectively to minimise borrowing costs.
The way debt is managed may depend on whether it is considered ‘efficient’ or ‘inefficient’.
Efficient debt (tax deductible)
In most cases, debt used to purchase assets that produce income (for example, a portfolio of shares or an investment property) qualify for a tax deduction in relation to interest costs. This form of debt is considered to be ‘efficient’.
Inefficient debt (non tax deductible)
Loans taken out to purchase services or assets which do not generate income (for example, to purchase a principal residence, a car or fund a holiday) do not qualify for a tax deduction in relation to the interest costs. In these cases the debt is considered to be inefficient from a wealth creation perspective and is often draining on your long-term wealth accumulation capacity when not managed properly.
If your debt management strategy is keeping you up at night, speak with us; our initial meeting is complimentary.
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