Debt is an important tool used by big and small businesses alike, to augment their business and contribute to their net worth. However, in order to achieve this, debt has to be used for right purposes and in the right manner.

There is a difference between “good assets” and “bad assets or false wealth”. Borrowing money to purchase growth assets – or those which will continue to produce an income – can be considered "good debt" because it has the ability to increase your net wealth over time and help you towards a financially secure future. An example of this would be a home loan, college loan / education loan or a personal loan taken for business purposes.

"False wealth" consists of depreciating lifestyle assets such as cars, boats, clothes and consumer items. Borrowing money to buy such assets can be considered a "bad debt" because these types of purchases will not produce an income, they will only depreciate in value and actually generate extra expenses. A credit card debt would invariably fall under this category.

One of the secrets to become wealthy is to invest as much money as possible in real wealth assets that work for you, and limit your spending on things that wont. By investing your money in assets that produce an income, you'll eventually have an income stream that would allow enjoyable purchases over your lifetime.

Problem arises when debt start exceeding the limit and start eating into your net worth. If there is no real source of income and the debt burden keeps mounting due to accruing interest, debt management is called for. Large businesses stay focused on debt management all the time and even sell their assets to reduce debts in recessionary periods when there is no business in sight. The same logic applies to individuals. They need to resort to what is called debt management, debt consolidation or debt restructuring.

Wealth Building and Preservation through Debt Management

Wealth may be preserved and / or accumulated by augmenting good debts and getting rid of bad debts. A failing or slowing economy may however convert a good debt into a bad debt. For example, people who had taken college loans or home loans may lose their jobs during recessionary cycle and may find it difficult to repay the loans. Such situations will demand an extra effort on part of individuals to keep themselves going by looking for odd jobs, working at lower wages and doing extra hours etc. And the next logical step would be debt consolidation or debt management.

Next step would be to start consolidating and reducing your debt burden. Concept of Debt Consolidation or Loan Consolidation has been around in advanced economies like USA and Europe to help out debt ridden individuals. Different businesses specialize in different types of loan consolidation. Thus there are businesses specializing in College Loans Consolidation, Mortgage Refinance, Foreclosures and Credit Card Loan Settlement.