By: Paul Morrone
The myths and realities of debt: why leverage isn’t a dirty word
There is a certain kind of pride that comes with being debt-free. It’s a milestone many of us were taught to chase from the moment we opened our first credit card or signed our first mortgage. But for high earners with substantial and sometimes illiquid balance sheets, treating debt as something to be eliminated at all costs isn’t just outdated advice – it can be an expensive one. For those who have the means to see beyond the Dave Ramsey planning ethos, managing debt is as much of a strategy as an investment allocation or tax plan. The reality is that not all debt is created equal, and understanding the difference between destructive debt and strategic leverage may be one of the more overlooked opportunities in a comprehensive financial plan.
This isn’t a suggestion to run out and lever up your balance sheet. It’s a reframe. Debt, used with intention, is a tool. Used carelessly, it’s a liability. The goal is to know the difference – and to understand which forms of borrowing actually deserve a seat at the table when you’re managing significant, often concentrated and illiquid, wealth.
Myth: “Pay off the mortgage as fast as possible.”
For decades, the fastest path to a mortgage payoff was treated as an unquestioned financial virtue. But for a high earner sitting on a 3-4% fixed-rate mortgage, that instinct deserves a second look. Every extra dollar directed at accelerating a payoff on cheap, fixed-rate debt is a dollar that isn’t invested, isn’t funding a backdoor Roth conversion, and isn’t available for the capital call that shows up on your private fund’s timeline – not on yours.
The math is simple, even if it feels uncomfortable: if your mortgage rate is below what you can reasonably expect to earn on a diversified portfolio over the same period, and you have the cash flow to service the debt comfortably, paying it off early is often a behavioral decision, not a financial one. There’s nothing wrong with wanting the psychological win of an unencumbered house – just recognize it for what it is, and make sure it isn’t crowding out higher-value uses of your capital.
Myth: “A HELOC is for emergencies or kitchen renovations.”
A home equity line of credit is one of the most underused tools on a high earner’s balance sheet, largely because it’s marketed as a rainy-day fund or a way to pay for a new kitchen. Used strategically, it’s something closer to a standby liquidity facility – a way to access capital quickly, without disrupting an investment portfolio or triggering a taxable event, while you wait for a more efficient source of cash to arrive.
Think about the executive waiting on a deferred comp payout, the physician between practice buy-ins, or the business owner whose income is lumpy and tied to year-end distributions. A HELOC held in reserve – undrawn, but in place – gives you optionality. It can bridge a large tax payment, fund a time-sensitive investment opportunity, or cover a capital call without forcing a sale of appreciated securities at an inopportune moment. The line itself costs you very little to maintain if unused; the value is in having it ready before you need it, not scrambling to underwrite one when you do.
Myth: “Borrowing against my portfolio is reckless.”
Securities-backed lines of credit (SBLOCs) carry a reputation problem, largely because most people only hear about them when a margin call forces a fire sale in a down market. But an SBLOC used conservatively – modest advance rates, diversified collateral, and a clear repayment plan – is fundamentally different from speculative margin borrowing.
The appeal for our clients is almost always the same: liquidity without liquidation. Selling appreciated stock to fund a home purchase, a tax bill or a business investment means realizing capital gains, potentially pushing you into a higher bracket, and permanently reducing your invested exposure. Borrowing against that same portfolio – at a rate that is often lower than what you’d pay on other forms of financing – lets you meet the need while keeping your long-term investment strategy intact. The trade-off is real: your collateral value moves with the market, and a sharp enough decline can trigger a call for additional funds or repayment. That risk is manageable with conservative advance rates and a plan for what happens if markets move against you – but it is not something to back into without a plan.
Myth: “All credit card debt is bad debt.”
This is the one myth that’s mostly true – revolving a balance on a card charging 20%+ interest is rarely, if ever, defensible for someone that has the cash flow and financial resources to negate what is likely an unnecessary interest expense. Save for the promotional 0% rates that people love when buying appliances, furniture or other lawnmowers, credit cards can be a slippery slope if not managed with a watchful eye. But there’s a difference between carrying a balance and using a card as a short-term cash flow and rewards tool. Paid in full each month, credit cards can fund a meaningful rewards strategy – points, travel, cash back – at effectively no cost. The discipline required is simply never letting the convenience become a balance. For those who keep balances large enough in their checking accounts, simply putting things on autopay can help to prevent unintentional interest charges.
The common thread
Every one of these tools shares the same underlying principle: debt is only strategic when it’s intentional, priced fairly, and sized to your capacity to repay it. The question isn’t “should I have debt?” – it’s “what is this specific debt doing for my balance sheet, and what happens if my assumptions are wrong?” A mortgage that’s cheaper than your expected portfolio return, a HELOC held in reserve for liquidity timing, or a modestly drawn SBLOC used to avoid an unnecessary tax event to cover short-term financing needs can each improve the efficiency of a financial plan. The same tools, oversized or mistimed, can just as easily undermine one.
For those managing complex balance sheets – public and private holdings, variable income, concentrated positions, or looming liquidity events – debt deserves the same intentional planning as your investment allocation or your tax strategy. It shouldn’t be avoided reflexively, and it shouldn’t be used carelessly. It should be coordinated, reviewed regularly, and sized to serve the plan – not the other way around.
Ticket Number: T011374
