I swear, if you only look at my balance sheet (especially the liabilities side), you will think that I am a credit addict. My credit cards are always showing a high balance, my line of credit is maxed out, my home equity line of credit is maxed out as well and I just contracted a personal loan. “He is going down the hill” you might be thinking. “What kind of financial advice can you give me Mr. Debt?”. Well actually, you would be surprise that all my debts are (almost) good debts.
I actually pay my credit cards on a monthly basis. They are always showing high balances (about $1,000 for me and another $1,500 for my wife). However, we are paying everything on a monthly basis. I basically pay with my credit cards any expenses exceeding $10. This allows us to make a lot of reward points (which I exchange for coffee and drug store coupons). In addition to that, we receive a complete statement at the end of the year showing our spending habits in each category of our budget. So it becomes harder to ignore that you are spending $3,500 in restaurants every year 😉
Lines of Credit
I used my personal line of credit and my home equity line of credit to buy my property. I am paying interest only on everything in order to liberate cash flow for my Smith Manoeuvre. One day, my whole mortgage will become tax deductible!
I recently contracted a new debt. It is a loan of 8K in order to buy shares in a company. I was actually buying websites that are already making steady income. While this was another addition to my liabilities, this investment should give me between $350 and $400 a month right away while my loan will request a monthly payment of only $135. So even though the loan is on five years, I should be able to pay it off within 2 to 3 years. In any case, the interest is tax deductible as well 🙂
While I still fully believe in my strategy (after all, I bought my first house by leveraging stocks on the market), banks don’t look at it that way. Even though I work for one of them, trying to get credit when you are young and you already have your bag is getting harder. I would say that banks have now a tendency of letting good deals go since they have to control their risk tightly. This resulted in having a personal loan instead of a line of credit for my latest investment. Not a big deal but still, this is the sign I better start making some serious money before calling my banker again 😉
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