She's On The Money - Debt Recycling 101: What It Actually Is and Whether It’s Right for You

Episode Date: February 10, 2026

If you believe the finance bros on TikTok, debt recycling is the magic wealth building hack everyone with a home should already be using. But is it really that simple? So, in this episode, we’re looking beyond the hype to explain what debt recycling actually is, how it works in the real world, when it can work well and why it’s not a shortcut or a strategy that suits everyone. In this ep: 💰Why debt recycling looks like a no brainer on TikTok💰What it actually means for your mortgage (and your cash flow)💰The risks of the strategy finance bros don’t talk about💰How to tell if it’s smart move for you, or a stress bomb waiting to go off💰The foundations you need before even thinking about it💰When debt recycling can build wealth and when it can backfire**Note: This episode was recorded last year in preparation for Victoria’s maternity leave, so it was recorded before last week’s cash rate rise. If you’re wondering what that change might mean for your mortgage, we’ve got a free mortgage tracker you can use here. FIND A FINANCIAL ADVISOR: Get matched with a financial advisor that matches your situation here. NEW HERE?: Take our Money Personality Quiz and we will send you free resources based on how YOU actually manage money here.  Join our Facebook Group AKA the ultimate support network for money advice and inspiration. Ask questions, share tips, and celebrate your wins with a like-minded crew of 300,000+.And follow us on Instagram for Q&As, bite-sized tips, daily money inspo... and relatable money memes that just get you.Acknowledgement of Country By Nartarsha Bamblett aka Queen Acknowledgements The advice shared on She's On The Money is general in nature and does not consider your individual circumstances. She's On The Money exists purely for educational purposes and should not be relied upon to make an investment or financial decision. If you do choose to buy a financial product, read the PDS, TMD and obtain appropriate financial advice tailored towards your needs. Victoria Devine and She's On The Money are authorised representatives of Money Sherpa PTY LTD ABN - 321649 27708, AFSL - 45128See omnystudio.com/listener for privacy information.

My name is Natasha Bamblett, I'm a proud First Nations woman, and I'm here to acknowledge country. Tii, gilinyan ganya, nianakaka yao yinbina waka, nianakai nianbina yakarumja, duminyagumiga dumiga ithawaka nirawamundamun imalan. Mumu bangada boma ininyalan waka, kaanon yakarumja, wutunarana. Hello beautiful friends. We gather on the lands of the Aboriginal people. we thank acknowledge and respect the aboriginal people's land that we're gathering on today take pleasure in all the land and respect all that you see she's on the money podcast acknowledges culture country community and connections bringing you the tools

knowledge and resources for you to thrive she's on the money she's on the money Hello and welcome to She's on the Money, the podcast that's here to make sense of all the money things that don't really make sense at all. And one of those confusing things we get asked all the time is about debt recycling, because it's one of those topics that feel like you need a financial advisor to even begin to understand it. That's crazy. Luckily, we actually have one in our midst. Well, I used to be one. Does it count? Used to be. How long do you reckon I can flog that dead horse? I think for at least 30 more years. Okay. Well, that's good because I reckon that's how much longer my career has. Oh, perfect. At least. Well, you might retire early knowing you.

Well, I did retire from financial advice. So anyway. Well, I'm Bex Iyad and of course we have ex-financial advisor Victoria Devine with us today. Hello Vy. Which is very exciting because I really love talking about debt recycling and I've been trying to get this episode into the mix for a very long time but with like scheduling and like topic demands it just hasn't it yet. Yes. And now's our time to shine. I don't understand it at all so I'm really sorry. That's actually good. That's good because I think oh we're gonna have a mix of people listening to this episode today. So if you picked it up and you're like debt recycling does that mean I can recycle my debt and like basically chuck it in the trash and not have it anymore.

No, I'm really sorry. This isn't the episode for you. But then there'll be people who have maybe gone down the TikTok wormhole of like debt recycling and they'll have been in a way sold a dream. Cause I feel like once I explain it, you might be like, wow, why doesn't everyone do this? And the reality is risk. So when I was a financial advisor, said, this was a very valid strategy that I used with a number of clients. Yeah. But not every client, even though on paper you might go, oh, but V, that sounds so incredible. And I also want to say up at the top, even though we have a official disclaimer on this podcast as well, this is not financial advice. Past performance cannot be a reliable predictor of future performance.

And we're not saying that this is a strategy for everybody. We just want you to understand what it is. And then if you're like, oh, that actually fits. This is one of those strategies that I would not DIY. Yes. So this is one of those strategies that if you're like, wow, I listened to this whole episode and I got to the end and I thought this is for me. That means you're probably in the financial position to be able to afford advice. At which point I would say, please go and get advice on debt recycling, because if you do it wrong, you will be in a really terrible position. Yes. Yes, absolutely. Okay. So we know for sure that it's confusing and it might not be for everyone, but for sure it is for me. We haven't even explained what it is. We're like, it's not

for you. It might be for you. Do you know what it is? I used to do it, but did you used to do it? So like elusive, so mysterious. So I guess let's start with the most simple explanation of what debt recycling actually is. Debt recycling is replacing non-deductible home loan debt with tax deductible investment debt, but it's way more complicated than that. It's more complicated than that. And that already sounds like if you've got a home loan and you're looking at your mortgage and you're like, Oh, let's pretend it's like $500,000. You can't claim that on tax. No. But what you can claim on tax is investment debt if you had it. Okay. So sometimes we use a debt recycling strategy to replace non-deductible debt, which is your

home loan, with tax deductible debt to build an investment portfolio. Okay, okay, okay, okay. So I'll run you through the basics. Thank you. So let's backtrack a little bit. It's kind of like creating a mini business. Okay. So if I've got a business, my expenses inside my business before profit, we're not talking

about profit because I have to pay tax on that. They are tax deductible. So I'm basically creating a tiny little business inside my home loan that is going to mean that some of my costs now to creating wealth can be claimed on tax. It's like the investment property, right? So because it's an investment, you can claim the interest paid as a tax deduction because it was helping you generate wealth. And I think that's quite sexy. Yeah, that's really, really cool. Here's how it works. Number one, you have to have a home loan for this. So you can't just debt recycle if you've got personal consumer debt. That's not going to work. You have to have

an owner-occupier mortgage, which is not tax deductible. So that's when you buy a house and you live in the house. It cannot be your investment property. Yes. So that is already tax deductible because it's an investment property and then they will put it on your personal tax return. Okay. Step two is pay down the loan and build some equity. Yeah. So paying down the loan means that you own more of the property. So you might make extra repayments to reduce the home loan balance faster than it's required. So you might have 30 years and you're like, well, if I make extra payments, it will be done in 25 years. And then once you've got equity, which I think is a concept most people understand. So say you own that $500,000 property bet and you coughed up $100,000

for your deposit. So when you go to the bank, they go, well, property is 500 grand. You actually only need to borrow $400,000 from us. Well, you have $100,000 in equity. You can't use that though, because that's your deposit amount, but then you start paying it back. And let's say you're down to $350,000 on your mortgage, but you've got this $500,000 house. You might have $50,000 in equity. And that's where people might go, wow, I can use my equity to buy another house. And I don't need to cough up that deposit again, which is quite sexy, right? Yeah. Okay. That's how people might build their investment portfolios through property. Well, instead of doing that, you then borrow against your own mortgage instead of for a house deposit

to buy an investment property, you then borrow an equivalent amount against the available equity and invest that money in assets that produce income. Oh. So you might go and borrow that 50 grand from the bank. Yes. And put it into the share market. I understand. I understand. So you're not buying property. You're not getting another mortgage. You're going, okay, cool. I'm going to borrow against that. I want my equity. I want my equity to help me build wealth. And I'm going to invest it into, you know, for example, for you, you would pull it out and put it on your Sharesies app. The way my brain's picturing it, it's like, you know, when you go to like Thailand and you want to borrow a motorcycle and you have to give your license to

them as like a deposit, let's say. Yeah. My friend has given me a hundred dollars and I've given them 50 cents as a deposit, just so they know that they can trust me, whatever. I can't, I can't touch that 50 cents. That's the deposit, but I've paid off $30 of this hundred dollars. So now with that $30, I can take it back. Literally. Exactly. And use it for something else. Exactly. Okay. Cool. Exactly. Nailing it. Oh my God. Amazing. Amazing. But the thing with that is then obviously if you've pulled out your equity. Yeah. Your home loan is now back at $400,000. Yes. Got you. Which is okay. But we need to be very aware of that. This isn't like free money where you go, oh, I've got equity and I pulled it out. Hurrah. Sure. Like when you pull equity out of a property,

your loan is going to increase again. Yeah. So you would have the $350,000 that is still owing on the house and you would have the $50,000 that you've pulled out as cash, which would be chucked into the mortgage and in the mix. So your debt is back to $400,000, but you've now got 50 grand of cash that you've cashed out of that property that we can now use to build wealth. So it's sitting to the side. So yes, your debt over here is still high, but we've got some flexibility and we've got some ability to create wealth. And for a lot of people who have home loans, and I feel like I'm going off my list. This can be a very attractive option because we're all trying to smash down our homes. Maybe you are trying to build wealth and you don't have any additional

cashflow, but your area has increased in value over the last 12 months. And all of a sudden, you've got some equity and you're like, well, this might actually help me get ahead because I can't invest a thousand dollars a month. Like we don't have that free cashflow, but we have some equity in our property and we could invest that. And over the long term, this might come out in a wash in a way better way. Yeah. Once we've got that cash out and we'll talk about the actual assets that you purchase in a minute, but you earn, you save, and then you repeat. So the investments, ideally, like in a perfect world, generate returns that you then use along with any tax savings from interest deductibility to further pay down your remaining home loan.

So you take that 50 grand, you put it into your investment account, your ETF on average will perform it. We all know the Australian share market performs at about 10%, but we would never, ever, ever use that as a baseline, but let's pretend it performs at 6%, right? So that performs at 6%. You take that instead of reinvesting the dividends, you take that 6%, you pay off your mortgage. So you withdraw it? Yes. You pull that cash out and pay off your mortgage. I understand. And we start smashing our mortgage down again. So over time, that $50,000 that you've put into the share market, you know, it's still 50 grand, it's recycling, it's making you some money. You're taking that money, you're paying off your debt. And hopefully we get to a point where we

have another $50,000 in equity. We can do it again and then have $100,000 in our share portfolio. So we're kind of swapping one debt for the other and cashing it out in cash. We're paying back the original loan to make sure that, you know, we're not screwing ourselves over. But the 6% is important right now because our interest rate is less than 6%. Oh my God. So the debt that you're paying for. So if you've got a good mortgage broker, they will be on it. It will be definitely less than 6% if not come and see Zella Money and we will fix that up for you. But on average, we know that you will kind of take some cream off the top of that, be able to pay your mortgage back quicker. But the amount that you're making back from your investments, is that not taxable?

Yes, but your interest payable on that now becomes tax deductible because it's an investment. So you're right, you'll have more income. That's fantastic. But you'll also have a tax deductible debt, whereas before you did not. Okay. So why would someone debt recycle? Good question. Number one answer is to make money. Like if we do the numbers on paper, even on the back of an envelope, your interest rate on your home loan, let's pretend is 5%. The average rate of return of the Australian share market is 10%. Yes, we're not going to rely on 10% when I'm talking about debt recycling or when I was talking about debt recycling with my financial advice clients. I'm so conservative and I'm conservative because I never want you to

screw yourself over. Yeah. And I don't want to be party to that either. Right. So we would always use numbers like 6% because that's very conservative. When we're talking about the Australian share market, you might see me say, oh, the average rate of return is 11% for the Australian share market over the last 30 years. But I really like to rely on 7.5% when projecting a very vanilla investment portfolio. But when we're talking about debt recycling, because there's another layer of risk, there's your home loan and your cashflow playing about, I drop it down again to about 6% just to make sure we're all merry and bright. Like I just don't want anyone to be in a financial pickle. And if the numbers don't work at 6%, then I would say, please don't do it

because it's probably too risky. Cause if the market changes or we, you know what the interest rates have done recently? Yes, they're dropping now, but they went through the roof. Can you imagine somebody who was like, okay, this works for me, but only if the share market returns 11% and then their mortgage interest rate doubled. Like, oh no, that would be stressful. They might have been forced to sell their home or like change their strategy or sell down their entire investment portfolio that they've just invested money in when the market's off, thus losing a heap of money so that they can save the house and they're in a worse off financial position. We don't want that for our community, Bec. So that is why we're conservative. It's not because

I'm like, oh, just be conservative. No, it's because I'm trying to save your ass, Bec. Yep. Obviously, because you're making money in the share market and you're taking some of that money and putting it on your mortgage in addition to your regular repayments, you will probably, and I have to use words like probably, or maybe, or can, because I can't say guaranteed, you will probably pay off your home faster. Sure. Money win. It gives you the opportunity to diversify further than just having property. You get to go into other asset classes and build an investment portfolio sooner. Because as I said before, if you've got a mortgage, you're usually pretty hamstrung. But let's be honest, like we are chucking all our free cash flow there,

especially in this economy. So to then go, hey, Bec, have you got an extra $500 or $1,000 to invest in the share market? You're like, no, queen, I have to pay off my mortgage first and then I'll do that. But we say on the show all the time, the value is time in the market, not timing the market. So the sooner you get started, the better off you are. And why not both? They say. Por que no los dos? That's what I was trying to think. Got you, got you, got you.

We also do it, obviously previously mentioned, to convert part of the home loan interest into tax deductible investment interest. That's going to lower your tax bill, money win. Obviously, I want you to be in a better financial position and something like this could help to improve your long-term wealth creation. And the other thing, which is probably a little bit more complex and something that people aren't looking at, but I definitely do, is to hedge against inflation. Okay. And just to like quickly explain that, because I always think it's really important because I've probably said a million times on the show, if you're just saving your money, you are going behind. There is a concept that says a dollar today is not worth a dollar tomorrow.

So if you are offering me a dollar back, I have more value in that dollar today if I go, yeah, just give it to me now than if you gave it to me in a month or a year or 10 years. Because the cost of goods and services rises over time. So today, if I took that dollar to the shops, I could buy more than I could do with that dollar. Not if it had any interest or anything. It's just like a straight dollar in a year. Yeah. Right. So a dollar today is worth more than a dollar tomorrow. And we know that over time, inflation reduces the value of money. So if you borrowed at a fixed rate and then use that money to invest in assets that actually grow above the rate of inflation, the real value of your original debt decreases with inflation,

while your investment potentially increases, meaning that you're paying off tomorrow's debt with today's cheaper dollar. Got you. We're using money that we don't currently have to invest to be ahead in the future. It does sound like a good deal. I mean, making money is good, huh? So why are you always saying that people who want to debt recycle should get professional advice first? If it's like, you know, it kind of feels like a kind of logical because you're just swapping one for the other, right? Yeah. You're paying interest on your debt. Yeah. And you can't deduct that. that's just a cost. But on the flip side, you'll be making interest in the share market. You're like, well, I'm swapping one for the other and I want to make money. And I'm happy to,

as we've said a million times on the show, I'm happy to pay tax because if I'm paying tax, I'm making money. The more tax I'm paying, the more money I'm making. And that's a really good deal. People don't like talking about tax positively though, when they can't manage their cashflow because they go, oh my God, I got this big tax bill. And it's like, well, that tax money was never yours to spend, but you didn't now we're in a pickle. Sure. So it sounds simple and it sounds logical to swap one for the other and go, what a clean little switcheroo, money win. And when you first hear about it, and that's why I said some people listening to this could have gone down the TikTok wormhole, you might think,

well, why isn't every single person doing this? Why isn't everyone using their equity to get ahead? But the reality is debt recycling is a really high risk strategy. There are so many different places along the road where this could go wrong or this could fall off track. in a perfect world, the return on your investments needs to be higher consistently than the after-tax cost of your home loan. Got you, got you, got you. So let's say you're borrowing at, I'm going to use the same example numbers because I'm just a consistent girly. Sometimes when I'm talking to ex-financial advice clients, they're like, I listen to your podcast sometimes. And it's just like going back in time, like you still

use the same examples. And I'm like, don't out me. I just have my numbers in my head of how these things work. So I've calculated how things work at 5% and at 7.5%. If you asked me about 6.5%, I'm like, those numbers don't live in my head. But let's say you borrow at 5%, right? Just to use round numbers and things that maybe Victoria Devine is comfortable with. And you're in a 30% tax bracket, which most of us are. After tax, that interest effectively costs you only three and a half percent instead of five. Okay. So you've dropped that interest rate from five to three and a half percent, which sounds very sexy. Sure. That means your investment needs to consistently return you more than three and a half percent per year just to break even.

Yeah. So if the market, for some reason, one year was completely off and your share portfolio returned 1%, baby, you're behind. And that can be scary. But when you have a good logical financial plan and backup options and someone on your team helping to make sure that this works properly, not as much of an issue, but if you're raw dogging it and doing it on your own, I can promise that when that time comes, you're not going to have that plan and that strategy in place. If they don't, you're losing money. Got you. And the gap between what your investments are earning and what you're paying in interest just don't add up and you're not actually in a better financial position. So unless your returns are comfortably higher than that over the long-term,

debt recycling won't actually create a financial benefit, which is why when I was a financial advisor, debt recycling wasn't a short-term strategy. It was always a long-term strategy. So we're doing debt recycling minimum 10 years, because you know how I say you would never invest in the share market for less than 10 years because you know, the share market ebbs and flows. we need to be able to smooth all of that out and the only thing that can do that for us is time yeah okay you can't do it by picking good investments because beck if you could just pick good investments i'd be so rich yeah yeah i'd be filthy rich i wouldn't even need a podcast that's a lie i'm a white girl with a podcast and i need to keep it you need it but even if that

maths works on paper real life isn't smooth no like you know what it's like you can make a budget and then at the end of the month you're like, how did I blow that? That is so crazy. I got invited out to drinks four times and I went all four times. I'll get back on the savings train next month. So it's not that the share market is going to screw you around. It's not that your home loan is going to change. Life is bumpy. Life is lumpy. What happens when life happens and you have a child? What happens if you want to save for a marriage? What happens if you just want to go on a big holiday or you want to buy your partner a really fancy big Christmas gift. Like life gets in the way. And we've already seen, zooming out and looking at

actual economics, we've already seen a lot of volatility in the global markets while Trump has been back in power. It's psychotic, Bec. I know you don't follow it, but like, girl. No, I know. Investment tea is piping over there. Like it is so interesting watching him basically set fire to everything. For sure. It drives me insane, but also I can't look away. I literally can't look away. So if we have another market dip, your investments in your share portfolio could fall really sharply. Sure. And while your debt stays exactly the same, that doesn't necessarily put you in the best position. Does that mean it's a bad thing long-term? No, because we build in a

buffer for volatility and all of that fun stuff. But that's the core risk, right? Like you're using borrowed money to invest. It wasn't cash that you go, oh, it's down. So tomorrow back, if you logged into your share portfolio and you saw that your investments were down, let's pretend, let's be dramatic. Your investments are down 50%. Sure. You feel gross, right? Like that's not good. You're like, oh shit. Scary. Yeah. But like, we're not going to sell. Cause like we know enough about investing to know we still own the same amount of shares and over time it'll come back. Right. Totally. But what if that money was borrowed?

Yeah, yeah, yeah. Think about the additional layer of stress that you've got. You're like, well, that is stressful. I am now paying back the same amount that I have to pay back for that money that I borrowed and it's not even performing. That's even more stressful, right? Than just seeing your share portfolio go down. And we need to take that into consideration.

So when you're using borrowed money to invest and when markets go against you, that magnifies the downside. it makes it even worse. So you still have to repay the loan. The loan doesn't care about what the market is doing. They're like, no, no, no. We had an agreement over here. You don't just get out of paying interest because your market's down. That was your choice, baby cakes. So even if your returns completely disappear or worse, go negative, that's on you. And that's why I'm like, oh, it's a bit risky. I'm not saying it'll be guaranteed to happen because I can almost guarantee the comments on Spotify today are going to have people being like, debt recycling's

amazing. I've been doing it for years. I don't know why she's so negative. I'm not being negative. I just need to tell you all of the risks and put on the table a very clear picture so you can make a decision that works for you. And if it works for you, queen, that's because you're high risk. That's cool. But can you imagine all the really conservative people listening to this going, oh, I thought because it was my home loan and it was like a bit more of a conservative like solution. Sure. But in reality, it's actually more risky than just investing cash into the market. So what else do we need to be aware of? You want me to be more negative. You want like more like bad news stories. You're just like, you know what, let's fire these people up in

the Spotify comments. Yeah, yeah, yeah. Interest rate changes is a good one to talk about. They can have a really big impact on your cash flow, as we already know, because they directly affect whether debt recycling is going to stack up financially or not. Like if your interest rate increases, right? You could go from paying $1,000 a month on your mortgage to $1,200 on your mortgage. Where is that extra $200 going to come from? How does that work? Is that meaning that you're like a little bit more hamstrung? Cause we've also further leveraged that debt. Like you can't just pull out some equity at that point. Like it's already been used. So this strategy um, was very appealing when I was a financial advisor, right? Like when I was a financial

advisor, which is so terrifyingly eight years ago, like when I was really, really in it. Like a whole decade almost. I'm going to cry. Like I was looking at this the other day because someone was like, how old is Zella? Like how old's your mortgage broking business? Because I feel like it's been in the background for so long. And I was like, oh, actually let me, let me have a look. Cause like, there's been some like business changes over the time. Like I've got new entities So like, you know, if you look up my ABN, it'll be like, oh, established in XYZ. It's 10 years, Bec. That's crazy. I know. Like time flies when you're doing finance. But when I was an active financial advisor, this was a very sexy strategy for a lot of my clients because we had a period

of very low interest. So from like 2010 to maybe 2021, you could borrow money for like 3%. 3%. So home loans were like 3% and that's really sexy. Yeah. Even leveraged like share portfolio options, different conversation. They were really low interest and the markets were returning more than 7% consistently. The math's math's there. Yeah, totally. That makes sense. I had lots of clients that would be like, this makes sense. And that type of gap, you go money win. Yeah. I'm not sure what's going to go on this year with interest rates, but we will see, because we've seen them last year drop a few times, but then the market got a bit rocky, Trump's crazy, all of that fun stuff. But recent peaks in interest rates have seen people paying

even seven or 9% on their mortgages. And they didn't have a choice. No one signs up to a 9% mortgage going, oh, good deal. But like they were forced into it because their interest rates just increased after COVID. And then the numbers wouldn't have been stacking up. So this is where a financial advisor steps in and makes sure that you're financially sound. So I know a lot of my clients, because to be honest, I'm just friends with them now. A lot of them who were debt recycling during the like late 2010s through to 2021, those people often wound down their debt recycling plan because they were like, wait, interest rates are going up. This is a little bit more risky. We're not going to leverage that even further. Yes, we've got a bit more equity,

but we're not going to take that out anymore. But they're working with a financial advisor to make that financial strategy really work for them instead of going, what do we do? How do we do it? Because everything's sunshine and roses when you set it up perfectly. Yeah. But what happens when the market shakes? What happens when things move? What happens when your leveraged option isn't as good as it used to be? And you need someone there to help you through that because now your borrowing costs are much higher. It is so much harder for your investments to outperform the tax and the fees and everything else associated. So you're not just building in like, oh yeah, it's cut clean. You're still going to pay tax because you're making money on that investment. You're still

going to pay your loan repayments. We just need to make sure it's all coming out in the wash. And then there's the fact that it adds, I would say, a very clean level of complexity to your finances. No longer is it cashing cash out. If you are not good at record keeping and it is not like you're not making clear and consistent records for your bookkeeper or for your accountant you probably don't have a bookkeeper unless you're a business owner but for your accountant right you could actually lose the tax deductibility of the interest altogether because you haven't tracked it well and if you haven't tracked it we can't claim it yeah okay and if I can't claim it because we haven't tracked it what was the point in bothering because that was where the benefit

was totally right and I've seen that so many times because people just don't keep clean records and then it's 12 months later and they haven't done their tax return. And they're like, I can claim a heap. And I'm like, cool. Where's the information? They're like, I don't know. And I'm like, well, if you can't find it, I can't claim it. Not that I'm an accountant, but like I've had these conversations before with people. I'm like, well, you need to take that to your accountant. They're not going to claim it if you can't prove it. You can't be like, oh yeah, that was tax deductible cough. Like the ATO doesn't put up with that, unfortunately. Otherwise I'd be pulling Swifties left, right and center. And I would say maybe like trying to wrap this

up real quick, but it's not quick because I really like talking about it. I'm so sorry. Maybe the biggest risk of all is that if things go badly, Bec, you're putting your home on the line. Got you. Yeah, that's true. Like at the end of the day, it's not about the cashflow. It's not about the benefit. It's ultimately, we're not just putting share money into the share market. And if we lost it, we'd be okay. Cause like life happens. And I'm not saying that's a valid outcome, but like you're leveraging against your family home. And I'm assuming you bought your family home for the same reasons most people do. And that is security. It is to put a roof over your family's head. It is to create that level of security that you craved.

Most people who have properties that they live in aren't living in them because they're like, oh, this is a great wealth creation strategy because your family home is not a wealth creation strategy. Can be because it might increase significantly in value, but to access that value, you have to sell it. Yeah. And like, if I've just bought my family home and it's my dream family home, it doesn't matter whether it's worth $10 or $10 million. I don't want to move house. Yeah. I don't want to like downsize. Downsizing, valid strategy, but not for most people once they've reached the goal of buying their dream home, right? Of course. You're leveraging your biggest asset to invest and that carries very very real consequences if markets

drop or your situation changes or things aren't going as smoothly and as vanilla as they could so I would say and this is why I'm so not negative but just apprehensive and want you to have all of the like pieces of the puzzle to make a decision and that's why you should never use this strategy just because it sounds clever or because you watched a TikTok or because you're like I really want a huge tax break. And this is so smart and it works out on paper. You need to fully understand the risks and be completely comfortable with them before you dive in. So I feel like let's take a really quick break because I think that's a lot to absorb. And when we come back, let's get into the juicy stuff. How do you actually debt recycle successfully? Okay, we're back. And so first half

this episode, we really got into the nitty gritty of it. If you're still unsure, I want to know who does this suit and what other information can you give us? Okay. So there are two sides to this. And if you want to debt recycle, you need to look at both your financial situation. We need to have a look at your personality and your behavioral type. And personally, I wouldn't be considering it if it doesn't fit both. Okay. So like if financially you're like, oh, that makes sense. And I really want to take a risk because I'm not really a big risk take up. Nope. You're out. Okay. You're out. It has to match both. And if it doesn't match both, it's not your strategy and that's fine. we'll find a different one for you to create wealth. Sure. From a financial perspective,

debt recycling might suit you. And I've done a list so that I can smash it out for you, Bec. Yes. It might suit you if you're a homeowner and you have available equity. Yeah. Might suit you if you have stable, predictable income. If you already have really strong budgeting habits, positive cashflow, know what's coming in, know what's going out. You don't have a budget. Don't even consider this. Sorry. Like if you don't know what's coming in and coming out, you're out. You have to have an emergency fund. That's like not a legal requirement. That's a Victoria requirement. If you do not have an emergency fund, I will not allow you to do this. In addition, you don't have consumer debt. Like you don't have high levels of personal or consumer debt. So like

you're not relying on a credit card because that would go in direct opposition to you being good at cashflow. Yeah. You have a long-term investment horizon. So you're like, okay, cool. Like I know this isn't a two-year strategy. I know this is a 10 plus year strategy and I'm in for the long haul. And you can afford to meet all of your loan obligations, even if the interest rate increases or if the market dips. Yeah. Like, and we need to map out both of those situations. Like, like what happens if interest rates increase and you have to pay more for your loan? Okay. Could you still afford that? And you go, yeah, great. No worries. Like, I mean, you don't want to, but yes, I could. And on the flip side, what if the market dips and we're not

generating that income to pay off your loan quicker? What happens then? Are you still financially sound? You'd be like annoyed, but financially sound. Okay. We can go ahead. Then from the personality and like the behavioral side, it might suit you if you are comfortable taking on a bit more risk. So like I would not be talking to somebody about this strategy if they've never invested in the share market. I need you to have that experience before. Doesn't mean you need to have invested thousands and thousands, but I want to say that, you know, you know what the market does, how it works. You maybe have toyed with it a few times. You might not have had the cashflow to keep that consistent, but you're comfortable taking on risk

so that market volatility doesn't make you panic or lose sleep. You need to be a long-term thinker and you're not going to be tempted to bail out early when a downturn happens and you're like, oh my God, this is not what I signed up for. I know you have to ride that roller coaster through the low bit. That's how it works. You need to be pretty financially disciplined. So I need to make sure that you're not going to go and dip into your investment loans because like often what we'll do is cash out that 50 grand, put it into an investment account because we don't dump 50 grand into the share market all in one go. But that means that you Beck would have access to $50,000 in cash because maybe we've decided to dollar cost average that money into the market

and we're doing $2,000 a month into the market until all of that $50,000 is invested because we don't want to dump $50,000 into the market on day one. Okay. But you would have access to those funds. Can we guarantee that you're not going to go and dip into those funds and be like, well, what's two grand? It doesn't matter to fund your lifestyle spending. Because I don't want you seeing it and being like, oh, actually, if we pulled that out, great. I know it's for investment, but we could take five grand to go to Thailand for two weeks. It's not for you, baby. No. It's not for you. That's okay. That's okay. Not everything is for us. That's true. But educationally, we need to know about it. And then it's your job to work out if that works or not. Yes. And that's

why I have to be like, would you go and dip into that? Because if you would, you're eating away at your returns and it actually just negates the whole purpose of this entire exercise. Got you. I need to make sure that you've got enough willpower to reinvest the dividends and tax savings into your home loan instead of spending them. Because what will happen is your investment portfolio is going to generate returns and it's going to be dumped into a bank account somewhere. I need to make sure that that money that's been dropped into that bank account does go to your loan. Not you go, Oh, did you see babe that we got like $500 in dividends? Maybe we just don't put it on the loan this month. Maybe we like go and have a fancy dinner or do a staycation.

No, they're not for you to touch. This needs to be a well-oiled machine where everything that goes into their non-touchable, everything that comes out of there goes back into the system. Otherwise, the system doesn't work. Otherwise, you are not debt recycling. So if you can't be trusted, that's okay. But this strategy just won't work for you. And ideally, you're somebody who does value structure. So as I said before, it needs to be a well-oiled machine. You can stick to a plan. You're not going to self-sabotage. You're not going to put yourself under stress. And this literally only works if you're no touchy. No touchy. No touchy. We're not taking the money out. That's a long-term investment. We're not taking out, we're not taking the cream off the

top. Oh no, no. That's to pay off your mortgage. The entire purpose of debt recycling is to get that 50 grand. Yes. Example would be a hundred, could be $4. Yes. Get that 50 grand into the share market, build a share portfolio and pay off your mortgage quicker. Yes. The other stuff, that's not your business. You go do that with your cashflow. What about if you are someone who was listening to those two lists thinking it kind of sounds like them, what do they do? Like, how do they set them up? Well, you were shaking your head. So I'm assuming this isn't a question where you're like, yeah, like that's so for me. Yeah. I cannot relate. But that's okay. Yes. First, not a surprise. If that's for you, we're going to get advice. Yeah. I'm so sorry to be that guy.

This is not something that you just do on your own. It is a complex system that needs support. And I would very highly recommend speaking to a financial advisor who fully understands debt recycling? Ask them before you talk to them because some financial advisors are against debt recycling. Some financial advisors do not believe in it as a valid strategy because it incurs a lot more risk and they go, not on my books. Like I'm not having you take that risk as a client of mine. Absolutely not. I would make sure that they do that. If you don't have a good financial advisor, go to my website, she's on the money.com and I will match you with one at no cost to you. Literally, I will match you like, and I'm not just saying, oh, I'll give you a reco.

Like you submit a full form of what you want to do. You tell me you want to do debt recycling and you tell me your income and you tell me like your savings and stuff. And my team and I will look at that and match you with the financial advisor that fits because it's really hard to find a financial advisor these days. And I've just got my little trusted panel of people that I haven't added to in probably like four years. Maybe there's one coming, but I'm making them work for that. Oh, absolutely. You could even talk like preliminarily to a tax accountant to confirm that the interest will actually be deductible in your situation. Cause there are some situations where it's not. And if you've already got an accountant, you can pick up the

phone and be like, Hey Beck, I was just wondering, thinking about debt recycling and they'll have all of that information from your tax return and like what properties you own, et cetera, to be able to give you a pretty good idea of whether it's even worth talking to a financial advisor. Next, let's be conservative. It's cool to be conservative. Always use really realistic conservative return estimates, not the like best case assumptions, because it's so exciting to be like, oh my God, like over the last, you know, 30 years, the Australian share markets returned 11%. Let's base it on that. We under promise and we over deliver even for ourselves. So we know what the average rate of return of the share market is. But in my calculations, I would always use a

minimum of 6%. I wouldn't really try to go above that if it doesn't work at 6%. I just don't think you should be doing it. But again, what's my opinion worth? Who knows? And stress test your numbers. So what I mean by that is, can you still make your repayments if interest rates rose by 2% or 3%? Can you still deal with this situation if your investment overnight dropped by 20%? What would that look like? Stress test is so important. And then we're starting small and scaling up. So you might have $50,000 worth of equity that you can access. You might apply for a loan. And by the way, mortgage brokers can do this. So my team at Zella Money can actually help you access the funds. So beyond getting the advice, you actually need someone to help you

pull the money out of your loan and good mortgage brokers don't charge you for that privilege. They'll like restructure your stuff. Won't cost you anything. The financial advice will though, just to be very clear, start small and scale up. So we might work with you to go, okay, Beck, we've had a look, you can access $50,000 worth of equity. Let's request 50,000, but we're not going to use it all at once. We just don't want to have to reapply and reapply every time we want to step up. So the bank says, yep, no worries, Bec, we'll release $50,000 of equity. We'll put it in your offset tomorrow. So it's sitting there in your offset. We might just leave it there for a long time and we might just do five grand, see how we go for a few months and then have a little

conversation. This is with not your broker, this is with your financial advisor about stepping it up. And maybe over the next 12 months, we get that $50,000 into the market, but it might not happen immediately. And if they're a good financial advisor, they'd never dump 50 grand into the market for you on day one, any. So don't go all in from day one. You might want access to the funds and access to the equity from day one, but begin with a very small investment loan, begin with small amounts into the share market and see how it impacts your cashflow, see how it impacts your mindset. And then you can build over time, your comfort and your confidence levels before like dialing up your strategy. Sure. Okay. Okay. Got you. And then obviously talk to a good mortgage

broker as well, because a mortgage broker is going to set up the right loan structure for you. So maybe you will talk to your mortgage broker and use a split loan or even a separate investment loan to keep like personal debts and loans separate for your investments to keep track of usage and have really clear tax deductibility, like records and a good mortgage broker will be like, Oh Beck, I do this all the time. No worries. And it's so funny because like, we talk about this all the time in our office. Like we'll have clients who want to do debt recycling. We'll be like, so have you got advice? Who's your financial advisor? Just checking before we do this, that you're in a good financial position. Cause like, I just don't want you in the worst possible

position. But if you're like ticking all the boxes, we've got the right loan structure and the right strategy to make sure it's clean and efficient and it does the right thing. And then obviously you have to pick investments. It's not as easy as like being like, oh, we got the equity. Wham, bam. Thank you, ma'am. Stick to, and this is not advice, but hypothetically, if I was going to implement this strategy, I would be sticking to income producing investments like shares or ETFs, because the entire purpose is to use the income produced from those assets to generate accessible income that is then tax deductible. So like, you know how we've done podcasts before and you guys can go look them up. We will even link them in the show notes,

but we've talked about like the difference between an income producing ETF and a growth focused ETF. If you are investing in a more growth focused ETF and like over time it increases in value, that's great. But where's the income to pay off the home loan that we were implementing this entire strategy for. Sure. I want to get paid so I can pay off my mortgage. Otherwise the strategy doesn't make sense. And that's where you might really want to have a good chat with a financial advisor to pick the right investments to compliment your strategy. Yeah. Because if I went all in on growth investments, so cool. I'm looking at my investment portfolio. It's worth more. Haven't been able to pay off any of my mortgage though. And was that not the entire

purpose. Yeah, got you. I would then be forced to sell down some of those assets to take some of that income and put it over there. I don't want to sell my assets. No. So make sure that you're doing the right thing for your strategy. And then I just have to say it, please just don't pick speculative stocks. Now's not the time to focus on satellite. It's not the time to focus on crypto or vacant land or non-income producing assets. It's not because I don't recommend them. It's because that's not aligned to a debt recycling strategy. The entire purpose of a debt recycling strategy would be to invest in assets that pay you so you can take that money and pay your mortgage. Money win for everybody. Absolutely. I said before, be organized, be disciplined. This isn't

for people who are real lax with doing their tax. That rhymed. Maybe I should. Oh my God. I'm going into children's books next. Do keep really detailed records. Every single drawdown on the loan must be clearly linked to an investment. I don't care if it's in a spreadsheet. I don't care if it's written down on a big piece of paper. You are making sure that you are tracking it for your accountant because if it's not tracked, it's not claimed. If it's not claimed, why did we bother with the strategy? And then I would say making sure that we are also reinvesting all dividends and tax refunds. Okay. That's not for you. That's not a new handbag. That is not a holiday into your home loan or back into investments. Do not use any of the income that

is generated from these investments for your lifestyle spending. It's not for you. Remember the number one rule? No touchy. No touchy. And then last but not least, because I feel like I've been a little bit ranty at you for this second half, because I'm like, the people just want the information. Review and adjust regularly. So you can't just not set and forget. I'm so sorry. This is not a set and forget strategy. And that's why I'm like, you need to be consistently keeping records. You need to be on top of this. This is not for people who are not proactive with their investment plans. Check in on your progress minimum every year, at least every six months or reassess sooner. If interest rates are changing, you're seeing that on the news,

make sure that you're still good. Make sure that you're always checking what your bank is doing in terms of interest rate increases or decreases. I want you to be looking at your investment performance or even if you're just like lifestyle situation changes what does that look like like should we pull back on this strategy you know maybe you get a salary increase and we actually want to put more in yeah just making sure it's still working for us and then if you need to adjust your strategy that's okay but like let's be aware that that's going to happen at some point yeah if you think that this is set and forget forever you are deluded and that's why it is so popular for people to use debt recycling in like cycles or in bursts. So we might do this

$50,000 and yes, your equity might increase over time, but like, let's not add to it for a while. Let's wait until we're a little bit more cashflow positive. Let's, you know, not go all in on day one. It gives you the ability to adjust your strategy and keep things going over time. So people who debt recycle, maybe they were debt recycling in 2018 and they haven't done it since then. And they're like, yeah, we debt recycled. We've got this share portfolio. It's plodding along. Like the plan was to keep going, but the interest rates changed. But now they might be like, oh, the interest rates are going down. And they might be creating a strategy to like now in 2026, debt recycle again. It doesn't mean that you're consistently pulling from your

mortgage. You just make strategic decisions in the right direction. So it sounds like it's a pretty good maybe idea for some people and maybe not so much for others, but I think just, yeah, just work out what's right for you, right? Like some people are like, share market's not for me. And I'm like, okay, babe, probably the wrong place to have that conversation. But if it's not for you, that's okay. That's okay. But I want to give you all the information to make an educated decision that is in your best interest. Totally. Well, I think it's a great place to leave it. So I agree because I'm getting a sore throat and to be honest, I could keep going on and on about it. But I really, really think that this strategy

can work for some people, but it's probably not the magic solution that is currently being made out on TikTok. Sure. And it's not some genius solution that's only just come up. It's been a very tried, true, tested solution over time. Talk to a financial advisor, please. Honestly, the most wise words come out of your mouth all the time. I don't know. I'm just so full of it. anyway let's leave it there before it all comes crashing down guys also on that note if there is a topic that you want beck and i to tackle please leave it in the comments below and we will see you on friday have a good week bye guys the advice shared on she's on the money is general in nature and does not consider your

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