Debt Intelligence: Using Debt As Financial Leverage In 2019

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.

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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.

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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.

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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.

Over To You

So, have you used debt as financial leverage before? What is the other advice, tips, strategies, techniques or methods that have worked for you? Please share with us in the comment below. Believe me; I sincerely value your opinion more than mine.

And don’t forget there is love in sharing!

See You At The Top!!!

The MoneyPedals Editorial Team is a group of Business and Financial experts led by Simon Abolaji. Page maintained by Simon Abolaji you can connect with him on his social media handles below.

6 comments On Debt Intelligence: Using Debt As Financial Leverage In 2019

  • Simply put, wealthy people have a lot of money and a ton of debt, and they live the lifestyle that they want that most people would envy. They believe in themselves, and they love challenges.

    • Hi bernz,
      Thanks for dropping by and for your contribution.
      Yes you are right. Rich people uses other people’s money. They see debt as leverage and not bondage as most poor people sees debt.

  • Excellent post. The way i look at finance is the two opposites of Dave Ramsey on the right and Robert Kiyosaki on the left. Dave is debt averse, and the main propagator of the no debt ever philosophy. Robert Kiyosaki and the likes of Trump use debt a lot as leverage.

    I do believe there are many ways to reach the same destination. Some prefer the old fashion driving, it might take a long time, but they will get to their destination. You might be This I will liken to the Dave Ramsey group.

    Some prefer to fly, that way, you get to your destination quicker. However,if you crash, it is not as survivable.

    What method do I use, it is somewhere in between. I do use leverage but not to the extent of getting buried in debt.

    Here is our take – https://drbreatheeasyfinance.com/12-toddler-steps-to-financial-freedom/

    • Hi Dr. Breathe Easy Finance,
      Great to have you here.
      I totally agree with you on staying debt free or using debt as leverage. As stated in the post, the best thing is for invividuals to find the balance for their lives between the two extremes.
      If its needed (really needed) why not go for it? But, if its not really needed (if there other ways around) why going into debt?
      It is important to think through before making some crucial financial decisions. like going into debt – when necessary, it is better to seek professional advise.

      Thanks for your insight.

  • I agree. Not all debt is bad. Also, Ramsey and Orman don’t seem to mention they likely used debt as leverage before they became millionaires. We talked about it briefly on our blog, BossManJax.com last week. Using OPM (Other’s People Money) is as leverage is win-win; the OPM’s get a return and so does the borrower, if the debt is used wisely.

    For our situation, we did the research and the math WRT a home mortgage (posted about it this month). It is by far better to maintain a mortgage below 4% interest than paying it off. Ric Edelman has a good analysis on this topic and he did the math for sure. He puts it this way, “You wouldn’t stuff ten grand under your mattress, so why stash $400,000 in the walls of the house?” – good question you need to consider.

    Thanks for posting. I think there is a lot of misleading info on FIRE blogs about debt.

    • Hi Greg,
      I am glad to see you here.
      Using OPM is a fantastic way to leverage but many people has been sold the idea that all debt are bad. It’s good to stay debt free, if you don’t really need it. But, if you need more than you have for a huge project why not use other people’s money?
      The main aim of this article is to correct the notion amoung many people who beleive all debts are bondage. We all need to keep improving our financial skills.
      Thanks for stopping by and for your insightful contributrion.

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