For the longest time, being in debt has long been stereotyped as a negative thing. It has also been assumed that people borrow money if they live beyond their means or they don’t have a lot of cash available. But did you know that not only low-income people borrow money and that the act of borrowing itself isn’t always a bad thing? Let’s discus more about Do Most Millionaires Get Wealth by Borrowing Money.
Believe it or not but data shows that millionaires borrow more money than the lowest earners. It is also this top 1% of the population that holds almost all debt while the bottom only makes up a small amount of outstanding debt.
Do most millionaires get wealth by borrowing money, then? Well, it may be safe to say that yes, that’s what happens, and here’s how it is possible.
There are several main reasons why millionaires borrow more money compared to lower earners. One of these is because their mortgage debt is generally higher than people with lower incomes.
Since they are also in a better position for mortgage loan approval, it increases their chances of home ownership. Lower-income earners who can’t get approved for a mortgage or can’t afford to buy a house won’t have any mortgage debt in the first place.
Millionaires also take out bigger mortgages and buy larger houses. This is because they can make the most out of the mortgage interest deduction that subsidizes the home purchase. After all, the government covers a portion of the cost of interest through tax savings.
Although this deduction is also available to lower earners, you need to itemize to get it. A big standard deduction usually means that it would be futile to itemize unless you are a millionaire who can claim a lot of individual deductions.
Mortgage applications also benefit millionaires since homeownership helps them establish their net worth. They also acquire equity in their properties while paying down their mortgage, with their wealth growing when the value of the property also goes up.
The top 1% of the population also holds a certain part of consumer credit, including credit card debt. But although millionaires usually charge a lot on their credit cards to earn rewards, they are also more likely to make full payments to their balance before they even owe any interest. While they pay off these balances, they still appear in the total outstanding credit of millionaires because card compares sometimes report a balance before its full payment.
The data also reveals that while millionaires borrow a lot of money, they do so in strategic ways and use debt as a form of tool. Their borrowing helps them to earn tax deductions, as is the case with mortgages, as well as credit card rewards. They also don’t pay a lot of interest since their card balances are paid in full, and since mortgages often have low rates. As for mortgages, they also take out loans to buy assets that usually grow their wealth and net worth further.
You see, borrowing money is not always a bad thing. As long as you follow the footsteps of these millionaires and use your credit strategically, you can also become one of them soon!