© MEDIQ Financial Services - a Corporate Authorised Representative of Synchron AFS Licence No. 243313 for Investment, SMSF and Risk Insurance advice.
September 7th, 2015
Doctors generally carry a high level of debt, and it seems overspending and trying to keep up with their peers is the main reason. But how can you overcome your debt hurdles? Debt recycling could be the answer.
The family home is often considered one of the largest debts you have, but it is not the most efficient type of debt. It does not generate an income, and any interest repayments are not tax deductible.
Debt recycling changes this by recycling your home loan debt into a new tax-deductible debt. Essentially, you are investing for the future while paying off your home loan.
The investment loan is interest-only, so any payments that would have traditionally been made on that loan, plus the earnings on the investment, help pay the private home loan.
It’s important to note however, that while debt recycling can potentially help generate long-term wealth, it is a high-risk strategy as you’re using your family home to invest.
There are a number of strategies that are used to recycle debt. However the basics should always be the same.
The most common strategy is:
Remember, this strategy is not for everyone, as some people will not feel comfortable using the family home to invest. It’s always wise to speak to experts before committing to anything.
While a risky strategy, there are several benefits to recycling your debt.
As with any financial decision, there is a lot to consider when looking to recycle your debt.
According to experts, the main reason doctors traditionally carry a high level of debt is overspending. There is a strong desire in the medical community to maintain a lifestyle consistent with peers. Plus, the banks are willing to lend, especially to those in the medical community with a consistent and reliable income.
Because of their relatively high income, it is believed that doctors can harbour a false sense of financial security. This is especially the case when banks readily increase loans as expenses rise.
Usually, the debt rises significantly over a period of time until one day, later in life, they realise that the debt is larger than they originally thought.
It’s at this point where those in the medical profession need to deal with their expenses. What is coming in and what is going out? Do they equate? Is there a surplus or are you spending more than you’re earning?
While it’s clear that doctors are often quite conservative when it comes to borrowing money for establishing their private practice, it’s often the home loan that is the root cause of debt problems.
Again, it goes back to peer pressure and what is expected, with doctors buying expensive homes in expensive suburbs. The problem is two-fold.
As with anything in life, don’t be afraid to ask for help. Nowadays, there seem to be generational differences, with younger doctors seeking help earlier. This is especially problematic when looking at the older generation, on the cusp of retirement. When there is work, money is plentiful, but work will not be there forever. It’s important to seek professional help, but there are also a number of steps you can take.
If you’d like to find out more about debt recycling, or if you think it could be the answer for your finances, contact the financial experts at MEDIQ Financial today. Our professional team can help you get your finances in order.