How to Go Into Debt to Get Out of Debt

get out of debt

This really sounds like the ultimate oxymoron, but one of the best ways to get out of debt is to go a little bit further in. What’s that? First, to help this make more sense, let’s clarify – if you need to get out of bad debt, going into good debt will help you pay off those credit cards and make more money. It’s important to understand that there is a huge difference between good debt and bad debt. Going into good debt has some risks, but when managed correctly, you can end up making enough money to quit your job, pay off your bills and save for retirement.

 

Let’s take a look at one example of how going into good debt can get you out of bad debt. For this example, let’s say that we have a person who has $10,000 in credit card debt. They’re overextended with too many cards and paying way too much interest. It’s getting harder and harder to make those monthly minimum payments and it seems as though it will take decades to get out of this mess.

Instead of declaring bankruptcy and just giving up, let’s say that this person goes and gets a cash loan for $2000. Since their credit is still pretty much intact, this isn’t an issue. They take than $2000 and invest it into ten shares of a stock that sold for $200 apiece. Within the first month, the price of that stock triples. They now have $6000 and it’s only been one month. They take $2000 out of that amount to pay off the cash loan and are left with $4000.

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Over the next month, the stock once again goes up. That $4000 is now $8000. The person cashes out the stock, pays down their credit cards and is left with a manageable $2000 in debt. Why not pay it all off? The secret to great credit is leaving some debt that you continue to make payments on – this builds up your credit score. In two months, the person was able to go from $10000 in debt to pay off all but a small portion of it.

Compare that to getting a consolidation loan. In two months, the person would not have made a dent in what they owed. If the stock market isn’t your thing however, there are many other ways that you can use good debt as leverage to create multiple streams of income. Whether you deposit it in a high-interest bank, buy a CD or purchase a rental property, a leveraged loan can help you get out of debt much faster than a consolidation loan.

The key is picking the right opportunities and managing your money. Once you’ve paid down your bad debt, keep using good debt to create more income streams. This is the secret that thousands of millionaires use every year to keep bringing in tons of cash and it will work the same for you.

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