LIABILITY MANAGEMENT STRATEGY

Why reverse savings? When you pay the same amount of money into a savings account on a regular basis, you end up with a capital sum.

The difference is that you have capital at your disposal, either immediately and you repay it, or over time and you build it up.

However, it’s important to understand that not all credit is created equal. There are generally two main categories: ‘good’ debt and ‘bad’ debt, each with very different financial and personal implications.

Good’ debt: a lever for wealth
Good’ debt is debt that has the potential to generate value or increase your assets over the long term. It is seen as an investment that, if managed intelligently, can help you achieve your financial goals and increase your wealth.

Here are some concrete examples of « good » debt:

Property loan: Buying a property, whether it’s your main residence or a rental investment, can increase in value over time and generate income. Borrowing allows you to build up your assets.

Business loan or investment in a business: Using credit to start up or develop a business, acquire productive equipment or stocks, can generate profits and economic growth.

Bad’ Debt: A Financial Burden
In contrast, ‘bad’ debt is borrowing to finance consumer spending that generates no future value or is rapidly losing value. It represents a financial burden that burdens your budget without any productive counterpart.

Here are some examples of « bad » debt:

Credit card debt for current consumption: Using a credit card to pay for consumer goods (clothes, outings, gadgets) and not repaying the balance in full each month. The high interest rates on credit cards quickly turn these purchases into an exorbitant cost.

High-interest personal loans for non-essential items: Borrowing to finance holidays, electronic equipment that depreciates rapidly, or luxury items without adequate repayment capacity.

Payday loans: These loans are characterised by extremely high interest rates and are often used to fill budget gaps, creating a cycle of debt that is difficult to break.

Buying depreciating consumer goods on credit: For example, a new car whose value decreases significantly as soon as it leaves the dealership, if the purchase is not linked to an essential business need.

Why is this distinction crucial?
Understanding the difference between good and bad debt is the first step towards sound financial management. Good’ debt, used strategically, can become a powerful lever for your wealth. Bad’ debt, on the other hand, can quickly lead to over-indebtedness and undermine your financial stability. The aim is to minimise the latter while making judicious use of the former.

but only if it is used properly.

Here are the main risks associated with the misuse or mismanagement of credit:

1. Over-indebtedness : The difficult spiral
Over-indebtedness is the biggest risk. It occurs when your debts and associated repayments become so high that you can no longer meet your day-to-day expenses (rent, food, transport, etc.). What can this be due to? Job loss, separation or divorce. Don’t overestimate your income.

Practical impact: constant financial stress, sleepless nights, difficulty making ends meet. Over-indebtedness can even lead to the seizure of property (house, car) if debts are not repaid.

2. The bank that loses confidence: the door that closes
Your poor management can cause you to lose the bank’s support. Your reliability as a borrower may be damaged because you lose your job or you have an investment that is too big to pay off (the tenant doesn’t pay the rent, for example). Every late payment, every default, leaves a bad impression of your bank.

3. Accumulating interest: money that burns
Interest is the ‘cost’ of the money you borrow. With a bad debt, especially those with high interest rates (such as credit cards not paid off each month), interest can add up very quickly. What seemed like a small purchase can end up costing double or even triple its original price. Borrow only to invest in assets that make you money!

Concrete impact: You pay much more than the real value of what you have bought. This money burnt up in interest cannot be saved, invested or used for more useful things. Your purchasing power is drastically reduced.

4. Stress and Anxiety: The Psychological Impact
Debt problems are not just financial, they are also emotional. The weight of debt, the fear of not being able to repay, and the feeling of losing control of your finances can generate intense stress, anxiety and depression and affect your mental health and personal relationships.

Concrete impact: Difficulty concentrating, irritability, sleep problems. Financial tensions are a major cause of conflict within couples and families.

5. Debt collection and seizure : Legal consequences
In the event of prolonged non-payment, creditors (those to whom you owe money) may take legal action. This can lead to court orders forcing you to repay, and if you still fail to do so, seizure of your wages, bank account or property.

Concrete impact: loss of income, loss of essential possessions, and a legal file that will follow you for a long time.

In short: Credit is a powerful tool. But like any tool, if misused, it can have a powerful negative impact on your finances. Understanding these risks is not intended to frighten, but to raise awareness of the importance of rigorous, conscious debt management.

Credit isn’t just a source of potential problems; it’s also a powerful financial tool for building wealth, investing and increasing your income. By using it intelligently and strategically, you can turn it into a lever for wealth.

Here are the main tactics for making credit your financial ally:

1. Property investment: the power of leverage
Property is the most common and powerful example of « good » debt. When you buy a property on credit, you are using the bank’s money to acquire an asset that has the potential to increase in value (appreciation) and generate income (rents).

How does it work? You borrow a large sum of money (the mortgage) to buy a house, flat or investment property. The rental income you receive may cover part, or even all, of your monthly mortgage payments, and may even generate additional income. Meanwhile, the value of the property may increase.

Why is this a weapon? You control a high-value asset with a relatively small personal contribution. The loan gives you leverage: even a small increase in the value of the property can represent a significant gain over your initial outlay. Once the loan has been repaid, you own the property outright and it continues to generate income or increase in value.
Key point: Choose a well-located, profitable property and manage its rental and maintenance correctly.

2. Financing a business: turning an idea into profit
For entrepreneurs, a business loan or credit to launch or develop a business is an essential lever. It enables an idea to be turned into a source of income and growth.

How does it work? You use credit to buy equipment, hire staff, launch a marketing campaign or manage stocks – all the things you need to run and grow your business.
Why is it a weapon? If the business is well managed and the business model is sound, the profits generated by the activity can not only repay the loan, but also create a sustainable source of income for you and develop a business portfolio.
Key point: have a solid business plan, good cost management and a clear vision of the market.

3. Debt Consolidation (Used Well): Reducing the Cost of Debt
Debt consolidation consists of combining several small loans (often « bad » high-interest debts such as credit cards) into a single loan, usually with a lower interest rate.

How does it work? Instead of paying several monthly instalments at high rates, you have just one, often lower, instalment and a lower overall interest rate.

Why is this a weapon? By reducing the cost of your interest, you free up money in your budget. This money can then be used to repay the new loan more quickly (and thus reduce the interest even further), or put aside for an investment objective (for example, a deposit for a property). This is not direct enrichment, but it allows you to stop being a burden and redeploy your resources towards productive assets.

Key point: use the savings you make to pay off your debt faster or invest, and above all, don’t create new bad debts once you’ve consolidated.

The Golden Rule: Knowledge and Discipline

All these tactics rest on the same pillars: knowledge (knowing how to distinguish between good and bad debt) and financial discipline (repaying on time, managing budgets, avoiding over-consumption). Credit is a powerful tool if you know how to handle it intelligently and prudently.

1. Leveraging Illiquid Assets to Generate Liquidity and Income
This is an extension of Cash-Out Refinance, but applied to a wider range of assets and with more precise objectives.

Principle: Rather than selling an asset that has appreciated significantly in value (property, shares in unlisted companies, works of art, forests, etc.) and reselling it (see: taxation of your asset), you use this asset as collateral for a new loan.

Strategic objective :
Generate liquidity without tax friction: Borrowed money is not a sale, so there is no immediate taxable capital gain. This liquidity can then be invested in more dynamic, more liquid projects, or projects that generate additional, diversifying income.
Financing personal or professional projects: Use the dormant value of your assets to finance a new business project, a significant expense (preparing for your inheritance), or an opportunistic investment without selling a strategic asset.
Interest rate arbitrage: If the cost of credit on the illiquid asset is significantly lower than the potential return on a new, more liquid investment.

Pragmatic example:
You own a rental property acquired 20 years ago, with a current value of €2,000,000. No more credit on it. If you sell it, you trigger a taxable capital gain.
You need €500,000 to finance a business project or acquire shares.

Strategy: Take out a €500,000 mortgage on the building, at 3% over 15 years.
Annual cost of the loan (approx.): €40,000.
The €500,000 capital is invested in the start-up or fund, with a target annual return of 8%.
Return on investment: €40,000 per annum.

Net profit: €0 on the investment (return covering the cost of the loan), but your capital of €500,000 is potentially growing significantly, and you have avoided the immediate tax consequences of a sale.

The cost of the interest is potentially deductible depending on the use of the funds and the structure (e.g. if the property is in a non-trading property company (SCI) subject to corporation tax and the loan is used for the non-trading property company’s business).
Risk: The property is mortgaged again. If the investment fails, you have to repay the loan from other sources. You need to be « sure » of your next investment.

2. Credit as an Asset Protection and Structuring Tool
This is where credit takes on a shielding dimension.

Strategic debt on private assets :
Principle: Voluntarily take on debt for part of your private assets (excluding your principal residence) to generate cash that can be invested in your professional or investment assets.

Objective:
Protection in the event of professional bankruptcy: In the event of a professional or business setback, heavily indebted personal assets may be less attractive to creditors. It is a form of « shield » where the creditors are first and foremost the bank.

Optimising the IFI (Impôt sur la Fortune Immobilière): Debts linked to property assets are deductible from the IFI base.

A loan (even one backed by an investment) can be used to maintain significant property assets in the estate while reducing the IFI tax base.

Example: You have a €1,000,000 principal residence with no debt. You are heavily taxed under the IFI. You take out a €500,000 loan against this residence to invest in shares (not subject to the IFI) or professional assets.
The IFI base for your principal residence is reduced by €500,000. You pay less IFI.
The €500,000 is invested and generates a return that, ideally, covers the cost of the loan and generates a surplus.

Important points to bear in mind: Leverage amplifies both gains and losses. The more sophisticated the strategy, the higher the risk. Diversification and good cash management are imperative.
Time horizon: These strategies are often designed for the very long term, incorporating the life cycles of assets and families. You need to be sure that you can maintain these strategies over time.