How To Make Money With Debt: A Guide to Leveraging Smart Borrowing

Debt is often seen as something negative—a burden that can hold you back from financial freedom. However, when used wisely, debt can become a powerful tool for building wealth. In this article, we’ll explore how the ultra-wealthy, like Mark Zuckerberg, Elon Musk, and even Jay-Z, use debt to their advantage and how you can implement similar strategies.
Let’s dive into how you can make money by leveraging debt and why it’s not just about borrowing—it’s about borrowing smartly.

Why Do Billionaires Use Debt?

In 2012, Mark Zuckerberg, then worth $15.6 billion, took out a mortgage for $5.95 million to finance his Palo Alto home. On the surface, this might seem odd. Why would someone with billions of dollars choose to borrow money? The answer is simple: *free money*.
Thanks to the low-interest rates, Zuckerberg’s mortgage was below the inflation rate, meaning he essentially borrowed money for free. With an adjustable mortgage rate of 1.05%, and inflation hovering around 2.5% to 3%, Zuckerberg was taking advantage of an opportunity that anyone would envy: the chance to borrow money for less than its actual value.

How Low Interest Rates Create Free Money

Here’s how it works. If you borrow $1 million at 1% interest and deposit that money in a savings account that earns 2.4% annually, you’ll make $24,000 while paying only $10,500 in interest. The difference—$13,500—ends up as profit in your pocket. Multiply that by larger sums, and it’s easy to see why billionaires like Zuckerberg take out mortgages even though they don’t need to.
The opportunity cost here is what drives this decision. Rather than tie up millions of dollars in a house, billionaires can use debt to free up capital and invest it in higher-return ventures, making their money work harder for them.

Why Borrowing Can Be Smarter Than Paying in Cash

Debt isn’t just for billionaires; it’s a tool that anyone can use. For example, imagine you’re a business owner with $1 million to buy a house. Instead of paying cash, you could finance the purchase at a low-interest rate and invest that million in your business. If your business earns a 10-30% return, you’ve effectively made much more than the interest you’ll pay on the mortgage.
Even if you don’t own a business, you could invest that money in an index fund, which historically provides around 8% returns annually. Over 20 or 30 years, the difference between your mortgage interest rate and the return on your investments can add up to significant wealth.

Opportunity Cost: The Key to Wealth

Opportunity cost is the cornerstone of smart borrowing. By taking out a loan with a low-interest rate, you’re keeping your capital available for more lucrative investments. In Zuckerberg’s case, why pay cash for a house when he can borrow at 1% and potentially invest his billions elsewhere at much higher returns?
Elon Musk followed a similar strategy. Despite being one of the wealthiest people in the world, he took out a $61 million mortgage to finance five homes in California. His monthly payment was $180,000—a manageable amount for someone with his wealth, and more importantly, this allowed him to keep his assets invested in Tesla and SpaceX, where they could grow.

Why Do the Wealthy Get Better Interest Rates?

You might be wondering why people like Zuckerberg, Musk, and Beyoncé get such low mortgage rates. The answer is twofold. First, they’re incredibly low-risk borrowers. Banks know that billionaires are unlikely to default on their loans, and in the worst-case scenario, they can sell off part of their assets to cover the mortgage.
Secondly, banks are eager to establish relationships with the wealthy. Offering low rates helps build long-term connections, ensuring that when these billionaires need large loans for their businesses, they’ll return to the same bank.

Debt and Credit: Building a Strong Financial Foundation

Taking on debt responsibly helps you build and maintain a healthy credit score. This is critical because a strong credit score makes it easier to borrow money in the future, especially when you need it most. On-time mortgage payments, for example, help establish trust with financial institutions, making it easier to negotiate better terms on future loans.
However, there’s another side to debt—the potential risk.

Good Debt vs. Bad Debt

Not all debt is created equal. Bad debt is when you borrow for things that don’t generate income or appreciate in value. For instance, taking out high-interest loans for luxury items like cars or vacations can drain your finances over time.
On the other hand, good debt is borrowing to invest in assets that will grow in value or generate income. Mortgages, business loans, and student loans (if they lead to higher-paying jobs) can all be examples of good debt. The key is using leverage—borrowing to maximize your returns.

How Leverage Makes You Wealthy

Leverage allows you to use borrowed money to increase your potential returns. For example, if you buy a phone for $10,000 and sell it for $11,000, you make $1,000 in profit. But if you borrow $990,000 from the bank, add your own $10,000, and buy 100 phones for $1 million, you could sell them for $1.1 million. After paying back the bank $990,000 plus $10,000 in interest, you’re left with $90,000 in profit—nine times more than if you hadn’t used leverage.
This strategy is common in real estate, where investors use debt to purchase properties, generate rental income, and sell the properties later for a profit.

Conclusion: Using Debt to Build Wealth

Debt can be a powerful tool when used wisely. It’s not about borrowing recklessly; it’s about leveraging low-interest loans to free up capital for investments that generate higher returns. Whether you’re investing in your business, the stock market, or real estate, using debt strategically can help you grow your wealth.
If you’re interested in learning more about how to use debt to your advantage, check out this video on [How To Make Money With Debt](https://www.youtube.com/watch?v=pXZQBKZCWfc). By understanding the difference between good debt and bad debt, and how to leverage opportunities, you can turn debt into a tool for financial success.