What is the difference between good debt and bad debt?

Good debt is borrowing that helps you build wealth or increase your earning potential over time, such as a mortgage that builds home equity, student loans that lead to higher income, or a business loan that generates profit. The key is that the asset or opportunity gained is worth more than the cost of borrowing. Bad debt is borrowing to purchase depreciating assets or consumable goods, typically at high interest rates. Credit card debt for everyday purchases or payday loans are classic examples. These cost you money without creating any lasting value or return. The simple rule is: if the debt helps you earn or build more than it costs you in interest, it tends to be good debt; if it doesn't, it's bad debt.