Debt Intelligence: Using Debt As Financial Leverage In 2019

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By: Money Pedals

I have always wondered why people act like debt is bondage or a curse. Well, it is an obligation. And if you borrow unwisely, you can easily get under a great burden of debt. But if used wisely, debt is not bondage. Debt is financial leverage.

Having loads of personal debt can bring a lot of financial stress to unto you. I strongly recommend that you look into your lifestyle for readjustments that can help you shed off personal and unintelligent debts.

Obviously living a debt free life or going into debt is a choice. But, it’s wise to find the balance for your financial goal in between the two extremes. If you just want to have enough put aside to feed yourself after retirement, you might choose to live debt free but if you are ambitious and want to attain great financial prosperity you need to understand the intelligent use of debt as financial leverage.

1. Understand The Intelligent Use Of Debt.

Perhaps a closer look at some example might help clear your view on this. From generations to generations, wise people have always found ways to use other people money and resources to build great wealth for themselves and prosper financially.

Now let take a few examples of how people and governments are using debt as financial leverage.

How The Billionaires Uses Debt As Financial Leverage

The millionaires and billionaires don’t just save and save to wake up one morning to find a billion buck in their account. No, it doesn’t work that way. They save and invest, borrow and reinvest, payback from the income and borrow again. This is simply how to get money for mega projects. They use debt as financial leverage and not bondage.

Let me ask you, does Donald Trump look like he is in financial bondage, as he flies from mansion to mansion in his helicopter? I don’t think so. He has built his financial empire using a great deal of money from other people and from banks. He uses other people’s money – debt – as leverage.

Yes, he could take several years, and save up a billion dollars (which I don’t think it’s possible). Then he pays cash to have some big hotel and resort built. But he doesn’t. He borrows the money, builds the resort, promotes the facility, is awash in paying customers, and the money comes rolling in. And then he uses the incoming cash to quickly pay down the debt, while at the same time, borrowing another billion to build the next resort or real estate venture.

Donald Trump has prospered and prospered and prospered by using other people’s money.

He understands that intelligent use of debt is not bondage. It is leverage by which he is able to accomplish a major undertaking that would be impossible – even for him – if it was all done by cash on the barrelhead.

How Government Uses Debts As Financial  Leverage

States borrow money by issuing bonds so that they can go ahead and complete a road building project. With the project completed, traffic increases, business opportunities arise, commerce increases, which in turn increases tax receipts. Before they know it, enough money has come in to pay off the obligation, and more money comes in over and above that.

Now take this down from the billionaire level, and governmental level, to our level.

Let Look At A Friend – He Sees Debt As Bondage

Assuming a friend wants to buy a $100,000.00 house. He doesn’t have a penny. And he is convinced that debt is bondage and he doesn’t want to get into it. So he rents a house, paying $500.00 per month rent, and begins saving money to buy a house. Let’s say he is able to save $500.00 per month. Some months he is able to put $1k aside. Other months, he can’t. And sometimes he has unexpected expenses arise. Let’s assume it takes him 20 years to save up $100k to buy his dream house.

How much money has he paid in rent?

$120,000.00!

So he saved up $100k and paid cash for a house. But he threw away in rent $120k.

Why?

Did he have an extra $120k to throw away?

No. He was misguided enough to believe that debt is bondage, and to go into debt for anything under any circumstances.

What If He Had Uses Debt As Financial Leverage?

What if he had approached this financial goal, seeing intelligent use of debt as financial leverage rather than bondage?

He could have gotten a First Time Homebuyer’s Loan at a low rate, with no down payment required. He could have moved into his new $100,000.00 house within days. Rather than paying $500.00 per month in rent, and saving $500.00 per month towards a house, he could have paid $1,000.00 per month in a mortgage payment.

At the end of 20 years, he would have wasted not one penny, and would probably have the house paid off, owning it free and clear. And depending on the interest rate of the loan, he might have $20k or more in cash, not counting the $120k he would not have spent on rent.

So you tell me. Which is wiser:

Throwing away $120k in rent, and living in a cracker box for 20 years, but eventually bought a $100k house for cash.

Or,

Leveraging yourself into a $100k house immediately, wasting nothing, saving $120k that you would have thrown away in rent, plus having possibly an additional $20k on top of everything else.

I think the answer is obvious.

Many people have not prospered because they have thrown tens of thousands of dollars away, avoiding intelligent debt.

Here is a video by Grant Cardone explaining – How to Leverage Debt.

Create a Good Credit Rating.

Another benefit of the intelligent use of debt is establishing and maintaining a good credit rating. Many expenses in life today are tied into your credit rating. If you have a good credit rating, you will probably not have to put up deposits on utilities, cell phones, and in other situations of ongoing expenses. By having a good credit rating, you will also be offered car insurance and property insurance at a more favorable rate. If you have a good credit record, you are more likely to be hired for certain kinds of jobs whereas a part of their background check, they also check your credit.

There are many advantages to having a good credit record, none of which you can take advantage of if you are debt free year after year and have no credit rating at all.

It is extremely detrimental and very limiting financially to live this supposedly wondrous “debt-free life.”

No legitimate professional financial advisor in the world will recommend that you absolutely refuse to ever borrow money.

Who knows how many millions of people have let opportunity after opportunity slip past them because they refused to borrow money in order to accomplish a particular financial goal.

Is it any wonder that so many people have failed to prosper? They have declined financially because they followed the foolish advice of Financial Prosperity Preachers rather than the sound advice of their banker, accountant, lawyer, and financial advisor.

Wrap It Up!

History has proven to us that wise men and women are using debt as financial leverage from generations to generation. One of the core secrets of people who have been able to accumulate tremendous wealth is their ability to see and use debt as financial leverage and not financial bondage.

Having read thus far, I believe you can see from where I am coming from and where I am driving to on this. Using debt intelligently can help attain your financial goals quickly. But, a word of caution here though – if you are not sure of what you are using the money for, it is always better to take your time and review the possibilities deeply before proceeding with a loan.

If your income and your savings are sufficient to take you to your financial dream, it’s far better to stay debt free and stick to your saving plans.  But, if peradventure you are someone like me – with dreams and aspiration for great financial height, it is important to learn how to use debt as financial leverage.

It is important to know how to attract other people’s money for your investment – the ultimate financial leverage.

Republished with the permission of MoneyPedals.com.

6 thoughts on “Debt Intelligence: Using Debt As Financial Leverage In 2019”

  1. As a bit of “Devils’ advocate” I’d remind that the amount of rent is now entirely “thrown away”. With a mortgage, MOST of your mortgage payment is interest for the first few years, so in essence, you’re not building much, if any, equity for years 1-5, when you factor closing costs, etc. Not that this means “renting is better” necessarily, only that it is NEVER as simple as “Buying means you’re building equity, renting means you’re throwing your money away.”

  2. Debt (leverage) is a very sharp double-edged sword.
    We need to wield it carefully.
    Most of us aren’t capable of doing that.
    Great post though. I’m a huge Grant Cardone fan but hadn’t seen that video. Thanks for including it.

  3. Whenever someone uses Donald Trump as an example of how we should order our finances, I immediately tune out. Trump managed to blow a fortune with bad business deal after bad business deal and only got whole again by laundering money for mobbed-up Russians. If Trump had taken the millions of dollars his father gave him and invested in index funds, he’d have far more wealth than he does today. His university and “charitable” foundation have been shut down for fraud. He and his family also defrauded the U.S. treasury out of some $400 million in taxes. He bankrupted multiple casinos. Using him as an example to follow in personal finance shows a profound lack of judgment. Maybe use Warren Buffett or any of the countless people whose success in business is well documented and did not depend on engaging in fraudulent business practices.

  4. So this $100k mortgage is interest free… (ignoring the negative effect of buying a house)

    And this man doesn’t earn interest or invest the $500/month he saves for 20 yrs…(ignoring the positive effect of renting)

    I must be missing something

  5. You forgot to include the part of Trump’s financial success how he stiffed many contractors and small businesses when he built his resorts. Oh….and hiring low-cost illegal aliens in some of his resorts was also a factor — hey, every cost shaved helps, right?

    I love your writing but please don’t use Trump as an example of anything — or lose at least one reader here.

  6. Home ownership is a useful tool in asset accumulation. While I am all for owning instead of renting, I highly recommend readers do more research after reading this before taking the jump into ownership. Before buying that home with only 5% equity and no financial buffer, give some thought to other parts of the equation not mentioned in this article, such as major home repairs (but the roof was good according to the inspector, or/and how can a 7 year old furnace just quit and need replacing NOW in January?), increasing property tax, increasing interest rates, falling property values, and maybe think a bit about job stability. So long as a prospective home owner has enough of a buffer to navigate over some inevitable bumps without increasing debt load to an unmanageable level, home ownership can be good. It is very challenging for those who are forced to sell at a loss and go back to renting plus paying down outstanding mortgage debt. A good rule of thumb is to have 25% of the principle saved up before buying. Maybe pay 15% down and retain 10% in more fluid assets to buffer against the rainy days, and a prospective home owner will likely be fairly secure. Your friend who would like to buy a home but doesn’t have a penny at this time is a very smart person to avoid home ownership at this time. If he saves an average of $500/month for four to five years, he’ll have $ 24,000 to $ 30,000 plus compound interest or investment gains (he’s smart so he’ll have his money working for him), plus he’ll have watched the housing markets so that he can act when there is a good deal to be had. He’ll have an idea of which neighborhood is likely to hold or gain value, and by doing some research he’ll have some knowledge of how to assess a house. He might even have established a good relationship with a home inspector and a real estate agent who will let him know ASAP when a house is listed at a great price for the buyer.

    An important factor in how beneficial ownership is learning the pros and cons of variable vs fixed rate mortgages, and open vs closed mortgages. Some people have a sense of security with a five year closed mortgage, and banks like being to renegotiate only once every five years. Expensive choice for owners if they have to sell at two or three years in or have an emergency and need to access equity. Some people like short, two years or less, open (variable rate) or fixed rate terms for the flexibility. The more home owners are aware of and understand, the more successfully the home can be used for asset accumulation. If they don’t know the basics they are very vulnerable and telling them to go buy now may be setting them up for financial loss and emotional distress.

    Your friend is showing good judgement by renting for now. He’ll take the time to learn the basics and will likely be successful in using home ownership to build wealth.

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