Debt has a bad reputation. Here’s why Graham Stephan thinks it’s a good thing


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If you’re hesitant to borrow, you might want to read why Graham Stephan is in favor of debt.

Key points

  • Many people are afraid to borrow money because they think debt is bad.
  • However, Graham Stephan thinks debt can be a good thing.
  • The real estate investor has millions in debt and he believes that borrowing can help you increase your wealth.

Being in debt is often seen as a bad thing, especially by some finance experts like Dave Ramsey.

But real estate investor and financial personality Graham Stephan has a decidedly different attitude. In fact, Stephan indicated that although he is often criticized for borrowing a lot, he is happy to have $4 million in debt.

Stephan went so far as to describe his debt as ‘the key to my wealth’ and said: ‘I still wouldn’t prepay any of my loans.’ So why does Stephan think borrowing is a good thing? Here are some key reasons.

Debt can increase wealth

Stephan likes debt because certain types of borrowing can actually make you money rather than cost you money.

He explains that there are two types of debt and that one type, “debt incurred to acquire assets”, is an investment that can make you richer in the end. And he said that as long as you can tell the difference between debt that makes you money and debt that costs you money, there’s nothing wrong with borrowing if it helps you acquire assets that will earn you.

You can take advantage of the margins

Stephan also explains that if you can take advantage of the margins, debt is a good thing. As a simple example, he explains that if you could get a $100,000 loan at 0% interest, you would still want to take it because you could invest in any asset and pay off the loan and still keep the returns for your money.

He explains that although a 0% rate is not available to most people, you can still take advantage of the margins when you get a reasonable loan rate, like being able to borrow at 4% like you can with a mortgage if you buy real estate. “If you have some real estate experience, you could invest in a property that appreciates 7% over time, and the 3% difference is your profit,” he said.

So if you can borrow at a low rate, invest the money, and get enough out of your investment to pay your interest and keep profits, Stephan thinks you should – as long as you’re aware of the potential risks and working to mitigate them.

Inflation is your friend when you have debt

Finally, Stephan loves debt because debt makes inflation work for him. “You can pay off the expensive debt of the past with the cheap money of the present,” he said.

He explained that every million dollars of debt he has incurred is reduced by $75,000 when the inflation rate is 7.5%, because the money he uses to pay off his loans is worth much less in real terms.

“The rates at which I have locked in my debt are much lower than they would be due to inflation, so even though my money has less purchasing power given current prices, my past debt is easier to be repaid,” he notes.

He advises against repaying loans when inflation is high as it is now, and he’s right that it doesn’t make sense to spend extra money on loan repayments when your money is losing value every day.

In the end, Stephan is right on all three points. If you can borrow responsibly to acquire assets that increase your net worth, there’s no reason not to.

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