Not all debt is inherently bad. When used responsibly, debt can be a tool for wealth creation. Good debt is generally associated with investments in assets that can grow in value or generate income. For instance, taking a bond to purchase property can be considered good debt, as you acquire an asset that can appreciate in value over time. Student loans and business loans are also seen as good debt, as they can lead to wealth generation over the longer term.
Bad debt refers to borrowing money for expenses or items that do not contribute to your financial wellbeing. Credit that funds entertainment, food, clothing, travel, furniture and appliances is considered bad debt. When you incur debt to cover lifestyle expenses, you are essentially borrowing from your future income.