Wealthy families don’t just save differently, they use debt differently. Most people are taught that debt is something to avoid entirely. The more accurate lesson is that debt splits into two categories, and only one of them is worth avoiding.
Good debt versus bad debt
Bad debt buys things that lose value and don’t produce income: a car loan is the textbook example. Good debt buys assets that can appreciate or generate cash flow, think a rental property or, for some investors, capital deployed into a business. The distinction matters because it changes what debt is for. Used carelessly, debt drains your income. Used deliberately, it can let an asset keep working while you access some of its value.
Borrowing against appreciating assets
Here’s a simplified example of how this plays out. Say you hold $100,000 in an appreciating asset, whether stock or crypto. Selling it to raise cash triggers a taxable event, potentially 20% or more depending on your bracket and holding period. An alternative some investors use is borrowing against the asset instead, pledging it as collateral for a loan rather than selling it. The asset stays in place and keeps compounding, while the borrowed funds fund whatever you needed the cash for. This isn’t free money: you pay interest on the loan, and if the collateral’s value drops sharply, you can face a margin call requiring you to add collateral or pay down the loan. It works as a strategy only when the numbers actually pencil out and you can stomach the downside scenario, not as a guaranteed win.
Why this isn’t just for billionaires anymore
Institutional lending against stocks has existed for decades. What’s newer is that borrowing against digital assets like crypto has become available through regulated platforms, not just informal or unregulated ones. That access has lowered the bar for investors who previously had no way to unlock liquidity from appreciated crypto without selling it outright.
The real question to ask
The wealth gap isn’t purely about income. It’s often about how deliberately people structure what they already have: whether their capital sits idle in one place or gets thoughtfully deployed, whether debt is working for them or against them. That said, none of this is a formula that guarantees outsized returns. Leverage amplifies both gains and losses, and any strategy involving borrowed money against volatile assets deserves a serious look with a tax and financial professional before you act on it.
Educational only, not tax, legal, or investment advice. Check primary sources and speak with a qualified professional before making financial decisions.
