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How to Use Debt to Create Passive Income

Vincent Nyoike
Vincent Nyoike Debt

You might have been told by many people that debt is bad and you should avoid it. Right? Not certainly the case always. You can have good debt or bad debt. In any case, you will realize that many rich people have considerable debts. However, don’t get into debt for the sake of it. Make sure you have a plan and it is necessary for you to borrow. Otherwise, you may fall into a debt trap. Nevertheless, you can use debt to make money. Wondering how? Let’s dive into it right away.

How to Use Debt to Create Passive Income

The following are some of the ways you can use debt to create passive income.

1. Buy Properties Using Mortgage

One of the best ways to use debt to create wealth is through a mortgage. You can borrow a mortgage to buy or build properties. Real estate is one of the best investment ideas and is long-term. However, developing real estate properties is capital intensive. One of the best ways to go about it is to get a mortgage.

Luckily, to get a mortgage, you just need to put down 15% and get the rest of the financing. A mortgage is a powerful wealth-building tool used by rich people and you too can use it. You can then start getting monthly rental income from real estate properties. 

2. Use Debt to Buy Income Generating Assets

Besides rental properties, you can also use debt to buy assets that generate a passive income. For instance, you can use debt to invest in stocks and shares. Shares and stocks will be earning you dividends. You don’t require much time to monitor your stocks and shares’ performance. For instance, you can use robo advisors to invest.

Other income-generating assets you can buy with debt include bonds, certificates of deposits, savings accounts, and private equity investments.

3. Peer-to-Peer Lending

Peer-to-peer lending is the other way to use debt to create passive income. However, you are not the one who is going to enter into debt. You will be lending money to people and they will repay you the principal amount and interest. You will be earning a passive income through the interest they will be paying you. You can use peer-to-peer lending platforms like Zopa and Lending Works.

Read also: Should I invest or pay off debt?

4. Use Debt to Start a Business

A business is a good source of passive income. While it requires large startup capital to start a business, you can leverage debt to get started. You will be earning profits from your business as it grows over time. You can then repay the loan from the business profits.

However, as a rule of thumb, it would be best to use debt to boost your business than to start one. It is because businesses take time to break even or even to start making profits. 

5. Use Cashback Credit Cards

You can use cashback credit cards to create a passive income. Cashback credit cards give you back a percentage of the amount you spend. Most credit cards give a cashback of between 1% and 5% of the amount you spend monthly or annually. Some credit cards use the cashback to reduce your credit card bill, while others deposit the cashback to your bank account.

Read also: How to hedge against inflation.

Summary of How to Use Debt to Create Passive Income

The above are excellent ways you can leverage debt to create passive income. Debts can be good or bad depending on how they are used. You can use debt to venture into income-generating projects. However, you need to be careful while getting into debt. Read the fine print carefully to avoid high-interest rates that can make you fall into a debt trap.

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