Because the goal isn’t to avoid debt completely—it’s to master it.

A young entrepreneur once said to me, “I’ve always been told debt is bad. But every successful person I look up to… used debt to build something.”

He wasn’t wrong.

Debt can either trap you—or propel you. It depends entirely on how you use it, why you take it, and whether you control it—or it controls you.

The problem isn’t debt.

The problem is when debt becomes lifestyle, not leverage.

Here’s how to manage debt in a way that supports—not sabotages—your wealth-building journey.

Step 1: Understand the Two Types of Debt

1. Good Debt

• Used to acquire appreciating assets or grow future income

• Examples: Home loan, education loan, business loan, strategic investment loan

• Comes with a clear repayment plan and purpose

2. Bad Debt

• Fuels consumption, not creation

• Examples: Credit card bills, personal loans for holidays, gadgets on EMI

• Often impulse-driven, poorly planned, and high-interest

Rule of thumb:

If the debt helps you grow your net worth or income—it’s manageable.

If it only upgrades your lifestyle—it’s dragging you down.

Step 2: Keep Debt Within Wealth-Building Boundaries

The most effective wealth creators follow this basic debt hygiene:

Debt isn’t evil—but excess debt is expensive, both financially and emotionally.

Step 3: Use Debt Only With a Repayment Plan

Before you borrow:

• What’s the total cost, not just EMI?

• Can your future self comfortably repay it, even during bad months?

• Is there a clear exit plan—early closure, prepayment, refinancing?

The wealth-building mindset doesn’t ask, “Can I afford the EMI?”

It asks, “Is this debt moving me forward—or pulling me into a loop?”

Step 4: Use Debt Strategically (Like a Business Would)

Smart individuals use debt the way smart businesses do:

• To acquire assets (e.g., property, tools, education)

• To expand capacity (e.g., machinery, certifications)

• To bridge short-term liquidity for long-term gain (e.g., invoice financing)

But never:

• To fund lifestyle upgrades that depreciate

• To plug emotional holes with retail therapy

• To show off

Use debt as leverage, not a lifestyle.

Step 5: Refinance and Consolidate Wisely

If you're carrying multiple debts:

• Consolidate high-interest ones into a lower-rate personal loan or top-up on a home loan

• Balance transfer cards (but with discipline, not repeat cycles)

• Refinance business loans if newer terms are better

The goal: reduce interest burden and simplify repayment.

Step 6: Automate Your Debt Elimination Plan

Wealth builders:

• Prioritize clearing high-interest loans first (credit cards, personal loans)

• Maintain good credit to access lower-interest leverage

• Keep a buffer fund to avoid slipping into debt during emergencies

Once your high-cost debt is gone, the same EMI amount can be redirected into:

• SIPs

• Retirement funds

• Passive income assets

Every debt paid off is a cash flow freed for compounding.

Step 7: Don’t Use Debt as a Shortcut to Status

This is where most people slip:

• Car loans for a badge, not a need

• Credit-fuelled holidays posted online

• EMIs stacked just to “match” a peer

Wealth isn’t loud. It’s measured.

If you want to build real financial independence, say no to impressing others with borrowed money.

TL;DR — Too Long; Didn’t Read

• Debt isn’t always bad—it can be a tool when used to create, not consume

• Keep EMI-to-income below 40%, avoid high-interest loans, and plan repayment in advance

• Use debt for assets or income generation—not for instant gratification

• Pay off expensive debt fast, then redirect freed-up cash into wealth-building

• Don’t use debt to look rich. Use it to buy time, scale ideas, or invest in yourself

Master debt—and it becomes leverage. Misuse it—and it becomes a lifetime liability.