Why Debt Might Be Your Secret Weapon for Building Wealth

Growing up, I was taught that debt was the enemy. My father was the perfect example of someone who avoided debt at all costs. He paid off his house in 18 years and always paid for his cars in cash. I remember watching him bring $10,000 in bills to a car dealership back in 1990, and I thought that was the right way to handle money. This mindset followed me into adulthood. I remember freaking out the first time I used my bank’s overdraft account. I had a credit card but never used it because I believed that if I didn’t have cash, I shouldn’t buy it. My church even taught to “avoid debt like the plague.” But what if everything we’ve been taught about debt is wrong? What if debt, when used wisely, could actually be the key to building wealth?

Debt Is Neither Good Nor Evil

The truth is, debt itself is neutral. It’s not inherently good or bad—it’s simply a tool. How you use debt determines whether it helps or hurts your financial future. The wealthy understand this concept deeply. Look at major corporations like Apple, which had billions in debt even while sitting on billions in cash reserves. Or consider Elon Musk, who uses debt against his stock as collateral to pay his income rather than selling shares and paying higher taxes. Even football coach Jim Harbaugh received a $2 million annual bonus structured as a loan to his life insurance policy. These wealthy individuals and organizations aren’t debt-averse—they’re strategic about using it.

Why Banks Want You to Pay Off Debt Quickly

Here’s something that shocked me when I learned it: Banks actually want you to pay off your loans faster. This contradicts what many financial gurus teach. Think about it—banks offer lower interest rates on 15-year mortgages compared to 30-year mortgages. If they truly wanted to keep you in debt longer, wouldn’t they incentivize the 30-year option? The reason is simple: Banks operate on the fractional reserve banking system. For every dollar you pay back, they can loan out up to $10 to someone else. They want their money back faster so they can put it to work again. This is why paying off your mortgage early might not be the most brilliant move. You’re giving the bank exactly what they want while potentially limiting your own wealth-building opportunities.

Understanding True Debt vs. Liabilities

Most people confuse debt with liabilities. A liability is something you owe, but it’s only true debt when you’re “upside down”—when you owe more than the asset is worth. My friend Sam owns $50 million in real estate with $30 million in loans against those properties. Many would say he has $30 million in debt, but that’s not accurate. If he sold everything tomorrow, he’d have zero debt and $20 million in cash. He’s actually debt-free because his assets exceed his liabilities. This distinction is crucial. The problem in the last recession wasn’t that people had mortgages—it was that they had no equity in their properties. When values tanked, they were underwater.

How the Wealthy Use Debt as Leverage

The wealthy use debt as an amplifier for their investments. When I buy a property with 20% down and it appreciates by 10%, I don’t make a 10% return—I make a 50% return because I only put down a fifth of the purchase price. This leverage is why there are so many “accidental millionaires” in real estate. With an FHA loan at 3.5% down, you get a 30x multiplier on equity gains. That’s how my starter home helped me upgrade to my next home, and so on. Here’s how the different money mindsets approach debt:

• Spenders should avoid debt because they’ll likely misuse it
• Savers fear debt because they’ve been conditioned to see it as evil
• Stewards use debt strategically to accelerate wealth building

The key is becoming a wise steward of your money rather than operating from fear or impulse.

When to Use Debt Wisely

So when does it make sense to use debt? Here are some guidelines I follow:

1. When the investment will generate more income than the cost of the debt
2. When you maintain sufficient liquidity to handle payments even if things go wrong
3. When you’re using it to acquire appreciating assets, not depreciating ones
4. When the terms allow you flexibility (like being able to pay it off without penalties)

For example, I don’t mind using a mortgage on a rental property as long as the rent covers the payment with a surplus. I’m comfortable using life insurance loans because they’re almost like zero-net debt—the policy is earning interest that offsets much of the loan cost. The question isn’t “Is debt good or bad?” but rather “Am I being a wise steward in this situation?” Would using this loan help me build wealth, or would it put me at unnecessary risk? Don’t approach financial decisions from a scarcity mindset. Instead, think like the wealthy do—from abundance. This perspective shift alone could make you millions more than the average person who lives in fear of debt and wonders why they’re always financially trapped.

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Frequently Asked Questions

Q: Isn’t it safer to just avoid debt completely?

While avoiding debt might feel safer, it can limit your wealth-building potential. The key is using debt strategically for investments that generate more than the cost of borrowing. Complete debt avoidance is often rooted in fear rather than financial wisdom.

Q: How do I know if I’m using debt wisely?

You’re using debt wisely when: 1) The asset you’re financing generates more income than the debt costs, 2) You maintain enough liquidity to handle payments if things go wrong, and 3) You’re acquiring assets that have potential to appreciate, not just consume.

Q: What’s the difference between good debt and bad debt?

Rather than labeling debt as “good” or “bad,” think about whether it’s productive or unproductive. Productive debt helps you acquire assets that generate income or appreciate. Unproductive debt finances consumption or depreciating assets without providing a financial benefit.

Q: How much debt is too much?

The amount of debt that’s appropriate varies by individual, but a good rule is to ensure your debt payments don’t prevent you from saving and investing. Watch your debt-to-income ratio and make sure you have positive equity in your assets. When your liabilities exceed your assets, that’s when you have true debt and should be concerned.