Is it a good time to be highly geared?

ANSWER

Highly geared tends to be used in the UK when someone wants to talk about using a high level of debt or leverage.

It is never a good time to be highly geared if you lack the means to service the debt. If you have a lot of income, more than would be needed to cover the debt service even if there are some speed bumps in the future means that you are much less likely to have issues.

Another time when it becomes a problem is when someone is using debt to buy an asset that is not likely to hold its value. If you could predict that the asset would rise in value and the cash flow is not an issue (income needed to service the debt) then using gearing can be rather profitable.

So, the real answer to when to use gearing is strongly related to why someone is using gearing. Debt on its own is not good or bad. It is a tool to be used correctly. There is a time and place for high gearing. There are other times when lower levels of gearing is the right solution.

First answer by JohnCorey. Last edit by JohnCorey. Contributor trust: 44 [recommend contributor]. Question popularity: 1 [recommend question]