I recently saw the comic book movie, “Avengers: Age of Ultron.” The plot to this movie involves t
he main character Tony Stark (aka “Iron Man”) who is played by Robert Downey Jr., creating a robot named “Ultron,” which Tony envisions to be a protector of the world. Despite these good intentions, Ultron ultimately turns on its creator and attempts to destroy the world. (Spoiler Alert) As Tony Stark is unable to defeat Ultron on his own, Tony creates a new “robot” that is similar to Ultron in strength and abilities (but much friendlier) named “Vision,” that ultimately destroys Ultron.
Now, before you go and close your browser because you think that I have lost my mind talking about comic books rather than investing, give me a minute to explain. I believe that American households are creating their own “Ultrons” as we speak. Rather than creating evil monsters, these households are creating “evil” debt that was originally meant for a good purpose (e.g., student loans, business debt, car loans, etc.). With many of these, there typically comes a point when this debt brings more pain than benefit to the household, but by that point it is too late as the debt has become too strong for the household to pay off.
How can one pay off this debt? These households receive a lot of advice on television and in books that the only way that one can pay off this debt is by “buckling down” and “pinching pennies.” Although a disciplined financial lifestyle is absolutely essential to financial freedom, if someone has $150,000 in debt that is charging 7% interest, and this person is earning $45,000 a year at their job, it does not matter how disciplined that person is, THE DEBT WILL WIN. To overcome this problem, I personally believe that more is needed than financial discipline alone….
This is where “Iron Man” comes into play. Iron Man could not defeat Ultron on his own, rather he needed to create the powerful “good monster,” to defeat the powerful “bad monster.” Similarly, I believe that an essential element to paying off massive debt is….more debt!!! To clarify, when I say that someone needs more debt, I am not talking about any type of debt, I am talking about “good” debt (aka “leverage”) that is used to purchase positively cash flowing assets. This type of “good” debt allows someone with little cash or income from a job, to purchase these powerful assets that ultimately are essential to paying off “bad” debt and creating wealth. (Disclaimer: Not all debt/leverage is created equal and some is very dangerous. Before taking on more debt you need to study debt extensively and consult with your legal, financial & tax professionals to not take on bad debt and inadvertently create a bigger problem for yourself.)
In order to pay off a debt the size of $150,000, one’s salary often will not suffice. However, with the educated and strategic use of healthy debt, one can purchase assets much greater than $150,000, (even on a $45,000/year salary) that can produce more than enough cash flow to pay off the debt that at one time seemed insurmountable. I believe that in order to get rid of bad debt, create passive cash flow, build your net worth, and get high rates of return on your money, it is absolutely essential to understand good debt/leverage and how to use it in a safe and effective manner to purchase positively cash flowing assets.
Ultimately, what is true in the comic books is true in finance, it often takes a monster to defeat a monster.