What is debt recycling?

Debt recycling in Australia is a financial strategy that involves converting non-deductible debt, such as a home loan, into tax-deductible investment debt over time. The goal is to simultaneously reduce personal debt and build wealth by investing in income-generating assets, such as shares or property.

1. Home Loan Offset or Redraw: You maintain or pay down your existing home loan.
2. Investment Loan Setup: You borrow against the equity in your home to invest in income-producing assets.
3. Income from Investments: The returns, including dividends, can be used to help pay down the home loan faster.
4. Interest Deduction: The interest on the investment loan may be tax-deductible because it is used for income-producing purposes.