6 Ways Rich People Make Money With Debt
There is one number that separates the people
who drown in debt from the people who get rich off it.
Two people can take out the exact same loan
at the exact same rate on the exact same day,
and one ends up buried while the other ends up richer.
At its core, a loan is nothing more complicated than renting money.
You borrow a sum, pay a fee (the interest rate) for the time you hold it,
and give it back.
The only question that actually matters is
whether the rental money earns more than the rent costs.
If the money you borrowed earns 7% and the rent on it is 4%,
you keep the 3% difference on money that was never yours.
That gap is called the “spread.”
Your return on your own money equals the spread multiplied
by your leverage—how many borrowed dollars
you stack on top of your own.
A rich person sees a loan and asks what the spread is
and how many dollars they can control with it.
1. Trade Credit
Almost every product business on earth runs on trade credit.
Instead of paying for inventory up front with your own cash,
manufacturers hand you the product on terms,
such as net 30, 60, or 90.
They lend you the product, serving as your bank.
You sell the product before the bill is due,
take the money from your customers, pay the factory,
and keep the difference.
Because you controlled an entire inventory with
none of your own money, your leverage is infinite,
making the return on your cash enormous.
This applies to anyone who sells something
before paying for it, whether through a supplier giving 30 days
or a customer deposit funding a job before you spend a dime.
2. Real Estate Refinancing
You find a cheap property that needs work, put down 20%,
take a mortgage for the rest, and spend money fixing it up.
Once renovated, the market value rises.
You then go back to the bank and refinance,
pulling out a new loan at 80% of the new, higher value.
You use that new loan to pay off your original mortgage
and walk away with the difference in cash.
In many cases, you pull out every dollar of your own money
that you originally put in, plus a little extra,
and you still own a cash-flowing asset.
Because none of your own cash is left in the deal at the end,
your return is infinite.
The trick is ensuring the rental income covers
the larger monthly payment of the new loan.
3. The “Buy, Borrow, Die” Strategy
This strategy is how billionaires legally
avoid paying massive income taxes.
It consists of three rules stacked on top of each other:
- Buy: You own assets that go up in value, like stocks or real estate. Paper gains are not taxed; you only owe tax when you sell. The first rule is simply not to sell.
- Borrow: Instead of selling stock to fund your lifestyle, you borrow against it using a securities-backed line of credit. The interest rate on this loan is much lower than the capital gains tax you would have paid if you sold the assets. You rent money to avoid a massive tax bill.
- Die: Under current law, when you pass away, your heirs inherit your assets at a “stepped-up basis.” The gains you spent a lifetime never paying tax on are erased. The kids inherit the stock at market value, the loan gets paid off from the estate, and the lifetime of growth is never taxed.
4. The Dangers of Margin Calls and Short Selling
When you borrow against your investments,
lenders give you a percentage of your portfolio’s value.
If the market drops and your collateral loses value,
the lender can demand more cash
or sell your assets out from under you.
This is a margin call, turning leverage from a tool into a trap.
Similarly, short selling—borrowing a share of stock to sell it immediately,
hoping the price falls to buy it back cheaper—carries massive risk.
Unlike buying a stock, where the worst case is that it goes to zero,
a shorted stock has no ceiling.
If the price keeps climbing, your losses keep climbing with no limit,
making the spread infinitely negative.
5. Zero Percent Arbitrage
This is the accessible, small-scale mirror of trade credit.
Credit card companies often offer 0% interest on balance transfers
for 18 to 24 months for an upfront fee of 3% to 5%.
You are essentially renting money for around 3% total for two years.
If you move high-interest debt off a card charging you 24%
and onto one charging you zero, the spread is enormous.
You are not necessarily earning a high yield;
you are erasing a 24% interest rate and paying a tiny fee to do it.
6. Lowering Your Interest Rate
The spread is what the money earns minus what the money costs.
While most people obsess over the earning side,
the wealthy obsess over the cost side
because every point knocked off the cost goes
straight into the spread.
Your credit score is the single biggest lever on what your money costs.
The difference between a fair score
and an excellent one can be several percentage points
on every loan you take.
Those points compound into tens or hundreds of thousands of dollars
over a lifetime. The rich have access to cheaper money simply
because they make themselves cheap to lend to.
Ultimately, debt is just rented money.
