How the Wealthy Use Debt to Build Wealth and What You Can Learn from Them
When you think of debt, you probably think of stress, high interest rates, and financial strain. But for the wealthy, debt is often a tool—a powerful lever to unlock opportunities, avoid taxes, and scale wealth. The secret isn’t just having access to money. It’s knowing how to use it strategically. Here’s how debt can either build your financial empire—or destroy it.
How the Wealthy Use Debt to Grow Richer
Take Elon Musk. He doesn’t take a salary. Instead, he negotiated stock options—allowing him to buy Tesla shares at $350 and sell them later at much higher market prices. Rather than selling those shares and triggering a taxable event, Musk uses them as collateral for loans. These loans aren’t taxed, and he only pays interest.
Even better, as the stock value rises, he can refinance the loan, pay off the old one, and access even more capital—without ever touching the underlying asset. It’s a strategy rooted in confidence, appreciation, and liquidity without tax liability.
But this isn’t without risk. If asset values fall, the lender can demand repayment or more collateral. What works for billionaires can crush average investors if misused.
When Debt Becomes Dangerous
Most people use debt not to build assets—but to fund liabilities. That’s where it gets dangerous.
The average American household carries about $8,000 in credit card debt. With an average APR of 25%, that adds up to more than $5,000 in interest—about 66% of the original balance in extra payments. And while 0% APR deals on electronics or cars sound appealing, a single missed payment can flip the script and skyrocket your debt burden.
Using debt to buy luxury items, vacations, or non-income-generating purchases turns you into a servant to your lenders—not a wealth builder.
Three Rules to Use Debt Wisely
Rule #1: Never finance a liability that doesn’t generate income. If it doesn’t pay you back—like a house, business, or investment—it’s not worth financing.
Rule #2: The “Rule of Five.” If you can’t afford to buy five of something, you can’t afford one. This rule keeps spending in check and ensures you’re not stretching your budget.
Rule #3: Use debt only to scale proven ventures. Debt should amplify success, not fund unproven ideas. Don’t borrow to start something—borrow to expand what already works.
Why Financial Illiteracy Is Profitable—for Institutions
Lenders and corporations thrive on consumer ignorance. 0% APR? Great marketing. But most people overspend, miss a payment, and suddenly face 20%+ interest. It’s no accident. Our financial system is built to encourage debt-fueled consumption. The more people owe, the more banks profit.
If you’re not taught to view debt as a tool, you’ll likely use it as a crutch—and pay dearly for it.
Smart Debt and Smarter Businesses
Debt can scale a business—if the business is already working. Starting a venture with debt is risky. You’re betting on an unknown outcome with borrowed money. Instead, build equity, reinvest profits, and once you’ve proven the model, use debt to scale.
That’s how real estate moguls and successful entrepreneurs grow fast—without collapsing under the weight of risky leverage. Bring 25-35% down, shadow experienced investors, and know your numbers before you borrow.
The Dark Side of “No Money Down” Real Estate
No money down deals sound like magic. But for most new investors, they’re a trap. Without skin in the game or proper education, these deals often lead to foreclosure and financial disaster.
Ironically, it’s the seasoned investors who benefit—swooping in to buy those foreclosed properties at a discount. It’s a lesson in preparation: just because you can borrow doesn’t mean you should.
Bottom Line:
Debt is neither good nor bad. It’s a tool. The question is—are you using it to build wealth or buy things you can’t afford? Understand the risks. Learn the strategies. Follow the rules. And one day, you may use debt the same way the wealthy do—to create freedom, not financial chains.
Jaspreet Singh is not a licensed financial advisor. He is a licensed attorney, but he is not providing you with legal advice in this article. This article, the topics discussed, and ideas presented are Jaspreet’s opinions and presented for entertainment purposes only. The information presented should not be construed as financial or legal advice. Always do your own due diligence.
