When people ask me what I wish I’d known earlier about money, this is high on the list.

As I have explained in earlier articles, in my 30s, like many, I was focused on renovating the house, living life, and steadily paying down the mortgage. I wasn’t being reckless – I was doing what most people see as the right thing: putting every spare dollar into the home loan and enjoying life along the way.

But looking back now, there’s a strategy I wish I’d been aware of at the time. It’s called debt recycling, and had I understood it earlier, it might have changed the way I approached my mortgage – and my overall wealth strategy.

What Is Debt Recycling?

Debt recycling is a long-term strategy some people use to convert non-deductible home loan debt into investment debt, which may be tax-deductible if used to produce income. It allows you to reduce your mortgage over time while also building an investment portfolio outside of super.

Here’s how it works in general terms:

1. You make additional repayments on your home loan or build up funds in an offset account.
2. Over time, you reborrow that amount in a separate investment loan split.
3. The borrowed funds are invested in income-producing assets.
4. You repeat this process periodically, “recycling” more of your mortgage into investment debt.

Importantly, the total amount of debt remains the same or gradually reduces – you’re not taking on extra borrowing, but rather redirecting existing debt into assets that have the potential to grow and generate income.

The Power of Timing

In hindsight, when I had fewer financial commitments – no school fees, lower household expenses, and fewer competing financial priorities – this strategy could have made a meaningful difference.

Those early years, when income is rising but expenses haven’t yet ballooned, can offer a real opportunity. You’ve got time on your side, and often, the capacity to take on calculated, long-term strategies that may set you up well for the future.

Why the Psychology Matters

Here’s something most people don’t talk about: the psychological aspect of carrying debt.

One of the biggest mental hurdles in financial planning is getting comfortable with debt – especially investment debt. But with a home loan, that barrier is already crossed. If you’ve been comfortably managing a mortgage for years, then in many cases, you’re already mentally and financially accustomed to carrying that debt.

That’s where debt recycling comes into play. It’s not about taking on more debt. It’s about using the debt you already have – and are already used to – in a smarter, more strategic way. That shift in thinking can be powerful.

Important Considerations

Like any financial strategy, debt recycling is not one-size-fits-all. It involves:

• Investment risk – markets can go up and down

• Interest rate risk – repayments may increase

• Discipline and time – it’s a long-term play, not a quick fix

• Loan structuring complexity – requires clear separation of personal and investment debt

It also assumes strong, consistent cashflow, and ideally suits people who are comfortable with a bit of risk and have a long investment horizon.

Who Might This Appeal To?

While everyone’s situation is different, this type of strategy is generally worth exploring for people who:

• Are in their 30s or 40s

• Have stable income and strong cashflow

• Are already managing a home loan comfortably

• Are comfortable with long-term investing and some market risk

• Are executives or professionals participating in employee share plans who may wish to diversify their wealth away from reliance on their employer’s share price or performance

It can also appeal to those who want to diversify their wealth beyond just property and super, and who understand the power of compound growth when given enough time.

Final Thoughts

Debt recycling isn’t for everyone – and that’s okay.

But had I known about it earlier, I might’ve made different decisions. At the very least, I would’ve had more options on the table.

The takeaway? It’s not just about paying down debt – sometimes it’s about how you manage the debt you already have.

If that can be done in a way that builds wealth and potentially improves tax efficiency, it’s a conversation worth having.

This is general information only. It doesn’t consider your specific goals or financial situation. Before making any changes to your loan structure or investment strategy, you should speak to a licensed financial adviser and a registered tax agent.