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Do Millionaires Have Debts?

While debt is stereotyped as a bad thing, it can be used to build wealth. Many rich people use debt to create wealth. The difference between the rich and low-income earners in relation to debt is how each sees debt. Wealthy people see debt as a tool to build wealth. As such, they borrow to build wealth by buying assets that appreciate in value like real estate. On the contrary, low-income earners borrow money to buy assets that depreciate in value like cars.

Here, we are going to answer the question, do millionaires have debts, and how many debts do they have?

Do Millionaires Have Debts?

Certainly, yes. Statistics from Federal Reserve show that millionaires borrow more than the average person. Wealthy people represent 1% of the population and they hold 4.6% of all debt. On the other hand, the bottom 50% of the population holds 36% of the outstanding debt. It is an indication that wealthy people borrow a lot more than low-income earners.

Many rich people use debt to build wealth. They know how to balance investments and debt. Wealthy people have mastered financial literacy art and borrow money and buy assets that appreciate in value.

In contrast, low-income earners and the average person borrow to buy assets that depreciate in value. In the end, they end up paying high interest rates and yet lose due to the cost of depreciation.

Also read: Where to deposit millions of dollars?

Why Do Billionaires Borrow Money?

There are reasons why millionaires have debts. Among the reasons why millionaires have debts include:

    • Wealthy people can easily qualify for loans. To get a loan, you need to demonstrate to the lender that you are in a position to repay. Wealthy people have multiple streams of income and hence, they easily qualify. 
    • Wealthy people can afford security. You need to provide security to get a loan. Wealthy people have assets they can attach as collateral to have their loan requests approved.
    • Wealthy people have higher mortgage debt. Wealthy people tend to have higher mortgage debt than low-income earners. As such, they are more likely to borrow than the average person.
    • Multiply their wealth. The other reason why wealthy people borrow money is so that they can multiply their wealth. They borrow loans with low-interest rates and invest in ventures that earn higher interest rates.

    How Do the Rich Borrow Money?

    Wealthy people borrow money to build wealth. While borrowing money, wealthy people are very careful to avoid paying taxes. One of the ways they manage to borrow and avoid paying taxes is by taking loans against their stock portfolio.

    How is this possible? Tax doctrines require one to pay tax when assets generate an income. Since the rich borrow against their stock portfolio, they are only liable to pay tax if and only if they sell their stock at a profit. In this case, they will be liable for capital gains tax. It is for this reason wealthy people use stocks as collateral to get cheap loans.

    Summary: Do Billionaires Have Debts?

    Wealthy people tend to borrow more than low-income earners. However, they borrow against their stock portfolio to avoid getting slapped with high taxes. Wealthy people borrow to multiply their wealth by investing in assets that appreciate. They target loans with low-interest rates and then invest in portfolios with high returns. This way, they are able to leverage debt to build wealth

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