Tax Tip: Debt Recycling 'Retirement’ can arrive sooner if you can pay off non deductible debt faster. Interest on a loan used to purchase the main residence is not deductible - some call this bad debt. While interest on loans used to purchase investment properties (shares, business etc too) is deductible. So wouldn’t it be good if you could change bad debt into good debt? Well, you can!! As an example, most people would be paying PI on their home loan. The balance would be slowly decreasing. Some are paying extra paying it down faster. If you could reborrow this money paying off the loan and then invest it you would be charged around 4.5% pa in interest. This interest would then be deductible against the income from the investment. If the investment earns more than 4.5% pa then you would be in front and the extra money received could then be used to pay down the bad debt even faster. Further reduction in bad debt would potentially mean more funds are available to be borrowed to invest. This in turn would potentially lead to more income to pay off the bad debt which could then be turned into good debt by borrowing again to invest. If all goes well this could enable the bad debt to be paid off much quicker. This could be done with property, but most property would end up negative cash flow. But it could also be done with this and just hanging on for a few years and then selling and using the proceeds to pay down the bad debt and then reborrowing. Or you could speak to a licenced financial planner about using shares to do this. Shares are much easier to buy and the costs in and out are very low. But they can also be very volatile and potentially dangerous. But there are relatively safe ways to do this.. Carefully planned, debt recycling can get you where you want to go sooner.