The debt calculators enable advisers to model and explain various ways to improve the client’s cashflow and current debt funding; illustrate how debt can be used to increase wealth creation; and explain the difference between “good” debt and “bad” debt.
The debt analysis calculator provides a simple process to model the possible re-structuring of the client’s existing debt to identify improvements in cash flow which can then be used to either reduce debt more quickly or create wealth.
This tool can also be used to model the impact on cashflow if the debt is changed between “interest only” and “principal & interest” or if interest rates are changed to reflect “fixing” of rates for a period.
Stress testing can also be done to show the effect of an interest rate increase.
The debt recycling calculator shows how a mortgage can be reduced through the application of surplus funds to either reduce the mortgage directly (risk free) or indirectly by implementing a debt recycling strategy (and taking more risk).
Debt recycling can be through lump sum investments, or regular small investments, or a combination of both.
The cost of debt calculator helps advisers explain the difference in cashflow between investment debt which is tax deductible and usually involves an income stream, and personal debt which is not tax deductible and does not involve an income stream.
An understanding of the difference between these types of debt can be the foundation of an explanation into using debt for wealth creation and the risks and rewards of such a strategy.