What Rich People Know About Debt That Most Don’t - Why wealthy people love ‘good’ debt.

If you’ve ever wondered why some high-income and wealthly investors seem surprisingly comfortable with debt, you’re not alone.

One thing I’ve noticed across my wealthiest clients is this: they don’t rush to pay down every loan. In fact, many of them actively choose to keep investment debt on the books—because they understand how to use it wisely.

I learned this from my Dad too—an avid investor and farmer—who’s used good debt over many years to grow both his wealth and his farms.

Let me break it down.

The 4 Types of Debt

At Thomson Wealth, we talk about four categories of debt:

1. Good Debt​
   This is debt that helps grow your wealth or income. It includes borrowing to invest in shares, managed portfolios, investment property—or even business debt used to grow your business.

2. OK Debt​
   Things like a home loan. You’re building equity, but it’s not generating any income. It’s not working against you, but it’s not doing much for you either.

3. Bad Debt​
   Credit cards, car loans—anything with high interest and no real return.

4. F-off Debt (haha)​
   Think of high-interest consumer loans like Wallet Wizard or pre-payday loans. This is the stuff you want to be rid of yesterday. There’s no strategic upside—just stress and unnecessary cost!

Here’s the key difference in how wealthy people think: they know that paying off an investment loan early can actually slow them down.

Why?

Because if the investment is growing faster than the interest on the loan, they’re better off keeping the debt.

For example:
If you’ve borrowed at 4% (net of tax deduction), and your portfolio is delivering 8%+ over time, that 'good debt' is working in your favour.

But it’s not about being reckless.

The people who use debt well also have smart strategies in place:

• They invest in diversified portfolios, not just one asset or property.

• They use income protection insurance so they’re covered if something happens to their earning ability.

• They don’t panic when the share market or their property has a bad year—they’ve planned for that.

• And they use home equity, not margin loans—because home loan rates are lower, and there are no margin calls.

• Have a high marginal tax rate to reduce the cost of the debt (tax deductible debt).

This are the things I do personally and for our clients using good debt to build wealth.

Gearing strategies with debt can multiply your returns—but it can also magnify losses if the investment doesn’t perform long term. That’s why it’s so important to have a plan in place, not just a hunch.

In Part 2 of this series, I’ll show you exactly how my husband and I used this strategy ourselves—pulling equity from our home and building an investment portfolio that’s now on track to fund our retirement by 55. Take a sneak peak at our latest YouTube video that shows how Greg and I did it.

For now, if you’ve significantly paid down your home loan, you're a high income earner and you're keen to unlock your equity to make it work harder for you, let's chat.