Nobody wants to get stuck in debt. However, sometimes it is inevitable (ie. your mortgage). But debt doesn’t necessarily have to be a bad thing for our financial future. 

While debt might be unavoidable, there are many ways you can manage these debts for better financial outcomes – including tax optimisation.

Debt can be a very useful tool to build your wealth and achieve your financial goals. But if you borrow beyond your means without a clear reason or plan, or if your debt is not soundly structured, it could affect many areas of your life, not just your finances.

Know the Difference Between Good and Bad Debt

At Hyland Financial Planning, we believe not all debt is equal. Debt can be good debt or bad debt. 

• Good debt is debt that positively enhances your finances and helps you grow your wealth (ie. HECS and educational debts, mortgage, business ownership loans).
• Bad debt is used to purchase items that decline in value. This kind of debt usually comes with additional interest costs as well (ie. car loans, personal loans, credit card debt). 

It is this bad debt that you should avoid at all costs.

If you use debt for an investment that will eventually grow and pay itself back, then this can be a good financial move.

Know How Much Debt You Owe

No matter what type of debt you have, it’s important to know what you owe, so you can make the right decisions to pay down your debt quickly. 

To improve your debt management skills, you first have to know how much debt you have. Make a list of everything and everyone you owe money for, and try to assess whether you’ve accumulated more good debt or bad debt.

The first step to financial planning is knowing what you are planning for. While it might not be the most positive experience, laying it all down will make the picture much clearer. Make a note of interest rates and fees as well, so you know what debts to prioritise.

Assess Your Financial Health

After you’ve consolidated all of your debts, try to compare what you earn, owe and spend. Get an overall assessment of your financial health by asking yourself how much money you will have, how much money you need for necessities, and how to allocate the rest for debt and other expenditures.

If you don’t have a budget to work with, starting with this will help you make better financial decisions in the long run. If you know where to spend and where not to spend, you can assess which expenditures are necessary and which you can do away with.

Work Out If You Can Save on Tax

With a few smart choices, you can transform inefficient debt into efficient debt to improve your tax return. 

You can also choose to use debt strategically to build wealth. 

At Hyland Financial Planning, we can help you transform non-deductible debt into deductible debt, improving your overall tax position while investing in your future.

Work with a Financial Planner to Manage Your Debts Today

When done correctly, debt can be something you don’t have to stress about. It can even be a useful tool for growing your wealth. As long as you know what things to invest in and debts to avoid, you can reap its benefits. 

Our financial planners can support you to:

• Save on tax through efficient debt management strategies
• Pay your mortgage off quicker through our proven payment plan that defines the frequency, amount, and source of repayments
• Consolidate debt for interest efficiency
• Use debt to build wealth and invest in your future

Looking for a financial adviser in Hornsby to help you with debt management?

Hyland Financial Planning is here to help. We provide collaborative financial consultation to help you manage and grow your own wealth. Consult with us today!