Contrary to what you may think, debt is not necessarily bad. Don’t believe it? Well, consider how you can use debt to create passive income.
When you hear the word “debt,” what comes to mind? To most of us, debt is something that brings momentary relief but leaves you miserable for many years to come, sometimes even for the rest of your life. Yet, no matter how hard we try to avoid debts, unexpected events, emergencies, and financial strains usually lead us to borrow loans, eventually getting into debt.
However, the truth of the matter is that debt is not always a bad thing. In fact, you can use debt to increase your income and build more wealth. How so? Consider these 5 simple tips on how to create passive income using debt.
Buy Alternative Cash-Flowing Assets – An Effective Way to Use Debt to Create Passive Income
Several income-producing assets can generate passive income for you. These include cars, billboards, ATMs, vending machines, blogs, and inflatable bounce houses, just to mention a few.
Use your debt to finance these assets and use them to generate income. For example, you could buy a car and rent it on platforms like Hyrecar. Or you could get a license to put on billboards and earn money as people advertise on these. However, ensure that the asset you invest in brings you more money than your financing costs.
Buy Rental Properties To Use Debt For Passive Income
An example of a good debt that you can get is a mortgage. Using your mortgage, you can buy several housing properties and invest in real estate. And the good news is that, nowadays, mortgage providers only require you to put down a small percentage of the overall housing cost (about 15%) to qualify for the loan.
Real estate offers appreciation and tax advantages, saving you a lot of cash in the long run. Therefore, when you buy rental properties, you can expect to profit from your debt. Alternatively, use your debt to invest in REITs; the best stock advisor newsletter can help you identify the most profitable stocks worth investing in.
Engage in Peer-to-Peer Lending
Peer-to-peer lending (or P2P lending) involves lending cash to individuals, firms, or companies, usually via online platforms that match borrowers with lenders. Online platforms that provide P2P lending services include Peerform, Lending Club, Upstart, and Prosper.
You can charge your set interest rates when you lend out debts to other individuals or businesses. And once your debtors pay back, the platform pays you the loan and the interest payment that the debt accumulated. And the more debts you lend out, the more interest and passive income you generate.
Get Cashback Credit Cards
You probably have heard of cashback credit cards, where the credit card companies pay you back a percentage of the total amount of cash you spend. As an alternative, there are many companies that give reward points to their customers.
While it might not be much, the payback provided by these cashback reward programs can prove to be a good source of passive income. However, to qualify for the cash benefits, ensure that you always pay off your balances monthly. Also, never exceed your credit card limit for a better chance of earning these cashback profits.
Buy Bonds or Dividend Stocks
Another way you can use debt to generate significant profits is by buying bonds or dividend stocks using margin. Contrary to a basic brokerage account, a margin account gives you access to a line of credit, which you can then use to buy additional securities.
Fortunately, many brokers are currently offering margin accounts with low-interest rates. This provides a perfect opportunity to borrow funds and then use them to buy bonds or dividends. To ensure you make the best choice of what stocks or bonds to buy, you would do well to use the best stock advisor newsletter. Doing so will ensure you make enough profit to pay back your debts and even make more profitable investments.
Unless you want to lead a challenging and financially-strained life, you should use your debts wisely. And what better way to use debt than using it to generate more income? This article has discussed 5 practical tips on using debt to create passive income. So if you currently have any debts you have borrowed, turn these into worthwhile investments by applying the tips explained above.