When should you use debt?

By Cameron Micallef

October 27 2020
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Despite record-low interest rates and changes to credit regulation making it easier for consumers to get a loan, a wealth educator has urged Australians to keep their debt low in order to build wealth.

In a conversation with nestegg, Minnik Chartered Accountants director and wealth educator Leah Oliver has urged Aussies trying to get ahead financially to break up with debt.

In a time when debt is freely available through record-low interest rates as well as various other services, including buy now, pay later and lines of credit, Ms Oliver advised investors that high levels of debt hurt when it comes to accumulating wealth.

“Any debt that is used to fund a lifestyle where you don’t have the cash available to buy something at the time is going to hold you back when it comes to accumulating wealth,” she said.

“You will never get ahead of the game when you rely on debt funding for lifestyle.”

The chartered accountant pointed out the only time to go into debt is when buying assets that accumulate in value.

“The only time we should be using debt is to acquire a modest home, and once paid out, we may use debt to add strong growth assets to our wealth portfolio. This is called stepping up,” she said.

Ms Oliver believes Australians are using debt wrongly, often using credit cards which is costing them in the long run.

“People are very attached to their credit cards. But credit cards are essentially debt. It’s confronting for someone to be advised to cut up the cards.”

She also pointed to the traps many consumers fall into with online shopping and tap-and-go services, resulting in people churning through money.

“These things have become the norm and, in the majority of cases, are presenting as an addiction.

“Your personal accounting file reveals all, your number demonstrates clearly the impact of overspending and debt addiction on the ability to achieve surplus and accumulate wealth. Once people can read the numbers, they enter into a whole new level of awareness,” Ms Oliver concluded.

About the author

Cameron Micallef

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

Cameron Micallef

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

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