Corporate Finance Tools

Is Debt Always Bad? Using Debt to Make Profit

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The American corporate debt is a staggering figure of $9 trillion. US companies borrow money on a regular basis and there’s a negative connotation attached to the word ‘debt’.

But there’s another side of the picture. If the companies don’t borrow money, nor take on a private equity investment, then they won’t be able to continue their operations and sustain the business for long and as a result, the national economy will collapse. So it’s basically debt that’s keeping the corporate world and the national economy going.

Now that we’ve established that debt doesn’t have to be necessarily bad, let’s dig deeper and take a look at good debt:

Understanding Good Debt

Taking debt is usually a burden for people because they’re worried about repaying it. But when you take debt to invest in assets that can yield profitability, your debt becomes good debt. You can earn from trading assets and make it a means of additional income. For example, if you buy stocks from the amount borrowed, you can earn dividends as well as profit when you sell them.

Here are some top ways you can convert debt into profit:

Invest in Leveraged ETFs

Leveraged Exchange Traded Funds (ETFs) are marketable securities that use debt to enable traders and investors to multiply the returns on a particular index fund. They’re traded on the stock exchange and amplify the returns by 200% to 300%. You can use these funds to invest in commodities, indexes, and bonds across different sectors.

However, ETFs can also work in the opposite direction and result in huge losses. But if you use a good strategy and knowledge about the financial markets, you can convert them into extraordinary profits.

Currency Trading

Currency trading—also known as Forex or foreign-exchange—is known as the buying and selling of currencies in foreign exchange markets for a profit. Two of the biggest benefits of currency trading are that you can convert a very small amount of money into significant profits in a relatively short period of time and the liquidity of Forex market, which means you can withdraw your investment any time.

Forex market is the largest capital market in the world with a daily turnover of $3 trillion and a number of people take debts for currency trading.

Real Estate

Real estate is an appreciating asset, which means its value always tends to increase over time. Many people borrow money to buy real estate, sell it at a profit, repay the debt and use the return on their investment to buy another property. They keep on repeating this cycle and earning increases profits.

You can buy a property that has a high return potential at a low price and sell them at higher prices. Real estate auctions organized by local or state governments are a great place to buy undervalued properties.

Visit our website, Money Cash and Value to explore about leveraged finance and value creation. Our educational resources will help you understand the concepts in detail so you can use debt as an investment to yield profitability.

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