The 6 Levels of Wisdom About Debt
To some, debt is a scary concept, and many people try their best to avoid it at all costs, even at the cost of a good lifestyle or a great retirement. With time and experience, you begin to understand debt on different levels before eventually realising it’s not so scary if you know what you’re doing. Here’s the whole progression, so you can skip ahead to the level that actually builds wealth.
Level Zero: All Debt Solves All Problems
This is where everyone starts: zero wisdom, usually as a young adult with no money. You get your first job, need a car, and the bank lends you the money. Suddenly it feels like debt is amazing: you can have anything you want, and you’ll just pay it off later.
You find out the hard way over the next several years, slugging away at the car loan while the car itself is worth a fraction of what you paid for it.
Level One: All Debt Is Bad
After feeling the pain of that first loan, you swing the other way entirely. You notice the “no debt” people around you who save up and pay cash for everything, and you start to admire them. You tell yourself you should have gone without or bought something cheaper and saved instead. This is where the aversion to all debt takes hold.
Level Two: Some Debt Is Bad, Some Debt Is Good
Eventually, the pressure to buy your own home catches up with you. You do the maths: saving $20,000 to $40,000 a year against a $500,000 house means 12 to 13 years of saving, while prices keep climbing the whole time. So you go back into debt for a mortgage.
A few years later, the house had gone up in value, maybe by $200,000. You realise you never would have made that gain without going back into debt. This is where you land on “some debt is bad, some debt is good”—it”‘s fine to be in debt for something that makes you money, but not for things that lose value, like cars, holidays, and jet skis.
Level Three: Good Debt Is My Best Friend
Once you understand that debt can generate capital growth, you take the next step: buying investment properties using debt and actually making money from them. This is where the excitement kicks in. You start pursuing as much good debt as you can to grow your portfolio, while still avoiding bad debt entirely.
Level Four: Debt Is Debt
At this level, you realise something most people never do: debt is debt. Instead of taking out a $50,000 car loan secured against the car, you take an equity loan against one of your investment properties instead and let the rental income pay it off for you.
It stops mattering whether the loan is technically for a depreciating asset like a car: what matters is that it’s borrowed against real estate at a lower interest rate than a standard car loan would ever offer. At this stage, you still hold onto the idea that you need to pay off all your debt eventually and you’re just being smarter about how you carry it.
Level Five: I Don’t Need to Ever Pay Off All My Debt
The final level arrives once your properties start generating genuine passive income, when the rent coming in is greater than the repayments going out. At that point, you realise you never actually need to pay off all your debt.
Your property portfolio doesn’t retire the way you do. Every property keeps earning rent, and as the market rises, that rent keeps increasing too. All that matters is that the income from your portfolio stays greater than the cost of servicing the debt. As long as that holds, the debt itself becomes irrelevant and is a tool, not a burden.
Remember the line: “No one ever got rich without getting into good debt.” Debt will make you rich once you understand it well enough to stop fearing it.
Why Most People Never Get Past Level One or Two
Most people spend their entire lives somewhere between Level One and Level Two, either avoiding debt altogether or only tolerating it because a mortgage was unavoidable. Very few ever consciously work through to Level Four or Five, because nobody frames it as a progression you can move through deliberately. Recognising which level you’re currently operating at is often the first step towards moving past it.
Frequently Asked Questions
Is it really true that I never need to pay off my investment debt? Once your rental income consistently exceeds your loan repayments, the debt itself stops being a financial risk — what matters is that the income keeps covering the cost of servicing it. Many experienced investors choose to carry debt indefinitely rather than pay it off because the alternative means giving up leverage that continues generating income.
What’s the difference between good debt and bad debt? Good debt is used to acquire assets that go up in value and can generate income, like investment properties. Bad debt is used for things that lose value over time and generate no income, like cars, holidays, and other lifestyle purchases.
Which level of debt wisdom should I be aiming for? Level Four or Five, where debt becomes a tool rather than something to fear or rush to eliminate. Most people never move past Level One or Two, which limits how much they can build through leverage.
Does this mean I should go into debt for everything? No. The framework is specifically about debt used to acquire appreciating, income-producing assets and not an argument for borrowing for lifestyle purchases. The distinction between good and bad debt, established at Level Two, still applies at every level above it.
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📗 Wealth Through Property — the full debt-wisdom framework this article is drawn from 👉 www.integritypropertyinvestment.com.au/wealth-through-property/
📘 The Unofficial ADF Property Guide — how good debt fits into your broader property strategy 👉 www.integritypropertyinvestment.com.au/the-unofficial-adf-property-guide/
📞 Want to work out which level you’re at and what’s next? Book your free chat: www.integritypropertyinvestment.com.au/free-discovery-call/
🎯 Want to learn how to use debt as a wealth-building tool? Join our free ADF & Veterans Property Masterclass: www.integritypropertyinvestment.com.au/property-investing-for-adf/
-The Integrity Team