You'll hear "good debt" and "bad debt" thrown around a lot, usually as shorthand rather than a precise rule. It's worth understanding what the distinction is actually pointing at, because the label alone doesn't tell you much on its own.

The rough distinction

Debt commonly described as "good" tends to share a few traits: relatively low interest rates, and tied to something that holds or builds value over time or increases earning potential — a mortgage or a student loan, for example. Debt commonly described as "bad" tends to carry high interest rates and go toward things that lose value immediately or don't build toward anything — high-interest credit card balances on discretionary spending being the usual example.

Where the label breaks down

The distinction isn't as clean as it sounds. A "good" debt at a high enough rate, or one that's grown beyond what it can realistically support, can behave exactly like "bad" debt in practice. And the categories say nothing about whether a specific debt is a good idea for a specific person right now — that depends on the rate, the amount, and what else is going on financially.

The more useful habit than sorting debts into good and bad is just knowing the actual rate and balance of each one you're carrying — that's the information that actually determines how much it's costing you, regardless of which category it falls into.