It’s OK to face up to your fear of debt

DEBT has been used as a tool to create wealth by most of the world’s richest investors, yet many Australians are afraid to take on debt beyond their mortgages, credit cards and personal loans.

Investment debt carries risks, but rewards are there for those who use it wisely.

For example, if you invest $20,000 for three years and enjoy 8 per cent annual returns, your wealth grows by more than $5000. But if that $20,000 is combined with $80,000 of borrowed money, it increases your wealth by almost $26,000, before tax-deductible borrowing costs.

But if the investment loses value by 8 per cent each year, you are left with more debt than asset – this is known as negative equity and scares many people.