Good debt vs bad debt

Debt has a bad reputation, and often deservedly — but not all debt is equal. Used carelessly, borrowing traps people for years. Used deliberately, some borrowing can genuinely help build a life. Learning to tell the two apart is the foundation of handling credit well.

"Good debt" generally means borrowing that helps you build something of lasting value, usually at a reasonable interest rate. A mortgage lets you own a home instead of renting forever. A student loan can raise your lifetime earnings. A sensible business loan can create income. These aren't automatically good — a mortgage you can't afford is still a problem — but the borrowing is tied to something that grows your wealth or earning power over time.

"Bad debt" generally means borrowing to buy things that lose value or get consumed, especially at high interest. Putting a holiday, clothes or everyday spending on a credit card you can't clear, or taking a payday loan at an eye-watering rate, means paying extra — sometimes a lot extra — for something that's gone or worth less almost immediately. The debt outlives the benefit.

Why this matters for you. The label matters less than the question behind it: is this borrowing moving me forward or holding me back? A low-rate loan for something that builds value can be sensible; high-rate borrowing for things you consume is where people get stuck. Knowing the difference lets you borrow when it genuinely helps and avoid it when it quietly hurts.