- By Bridee Parker/Ben Kemp
(Fine Answers podcast Bridee & Ben – Ep #1150)
Have you ever looked at your mortgage and felt like you were just throwing money into a black hole? For most of us, paying off the family home is the ultimate financial goal, but it often feels like it comes at the expense of actually building an investment portfolio.
In a recent episode of The Fine Answers podcast, Ben Kemp sat down with Bridee Parker to demystify a strategy that’s gaining serious traction: Debt Recycling. It sounds technical—and let’s be honest, a bit like something you’d do at a bottle depot—but at its core, it’s a powerful way to make your money work twice as hard.
Here are the key takeaways from our deep dive into transforming “bad” debt into “good” debt.
1. The Tale of Two Debts: Good vs. Bad
The foundation of debt recycling is understanding that not all debt is created equal. In the eyes of the tax office, “bad debt” is money borrowed for things that don’t produce income—like your home loan. You pay the interest with after-tax dollars, and there’s no relief.
“Good debt,” on the other hand, is money borrowed to invest in income-producing assets (like shares or investment property). Because you’re trying to build wealth, the interest on that loan is often tax-deductible. Debt recycling is the deliberate process of “recycling” your non-deductible home loan into a deductible investment loan.
2. How the “Cycle” Actually Works
Imagine you have a surplus of $1,000 a week. Instead of just sending it straight to a brokerage account, you pay it into your home loan first. Then, you immediately redraw that same $1,000 from a separate investment loan facility to buy your shares or ETFS.
By adding these extra steps, you aren’t spending any more money than you planned, but you are systematically shrinking your non-deductible debt and replacing it with debt that provides a tax benefit. Over time, you can even “harvest” the capital growth from your investments to make lump-sum payments back onto your home loan, accelerating the process even further.
3. Cash Flow is Your Safety Net
While the math is compelling, debt recycling isn’t a “set and forget” magic trick. The most critical ingredient is consistent cash flow. Because you are using leverage (borrowing to invest), you need to be certain you can cover interest rates if they rise or if your personal circumstances change.
A successful strategy requires a “growth bias”—investing in assets that increase in value over time rather than just chasing high dividends, which can complicate your tax position. It’s a long-term play that requires patience and a healthy buffer.
4. Why Professional Guidance Matters
As the team discussed, the “order of operations” is everything. If you muddle the sequence of payments or fail to set up the correct loan structures, you could lose the tax benefits that make the strategy work in the first place.
A financial adviser helps ensure the strategy is automated, easy to track at tax time, and—most importantly—appropriate for your specific risk tolerance.
Conclusion
Debt recycling is a sophisticated way to multi-task: you’re paying off your home while simultaneously building an investment nest egg. It isn’t for everyone, and it requires a solid financial foundation, but for those with the right setup, it can significantly shorten the path to financial freedom.
This blog contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. If you decide to purchase or vary a financial product, your financial adviser, AMP and other companies within the AMP Group may receive fees and other benefits. The fees will be a dollar amount and/or a percentage of either the premium you pay or the value of your investment. Please contact us if you want more information.
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