The concept of "good" and "bad" debt is a commonly used framework in personal finance education. It refers to a broad distinction between borrowing that may improve someone's financial position over time, and borrowing that tends to cost more than it delivers. These are generalisations rather than rules — whether any borrowing is appropriate depends entirely on individual circumstances.

This article is for general information only and does not constitute financial advice. Always make sure you can afford repayments before taking on any borrowing. ClearScore is a credit broker, not a lender.

What is sometimes described as "good" debt?

Some forms of borrowing are commonly associated with long-term financial benefit, because they may be linked to assets that hold or grow in value, or to increased earning potential over time. Examples often cited in this context include:

Mortgages — a mortgage is a loan secured against a property. Because property is often considered a long-term asset, mortgages can be described as "good debt." However, property values can fall as well as rise, and the suitability of a mortgage depends heavily on individual financial circumstances, including income, existing commitments and long-term plans. Your home may be repossessed if you do not keep up repayments on your mortgage.

Student loans — government student loans in England are sometimes characterised as an investment in future earning potential. According to the Department for Education's Graduate labour market statistics for 2024, the median salary for working-age graduates in England (aged 16 to 64) was £42,000, compared with £30,500 for non-graduates, a difference of £11,500. (The DfE notes that these figures don't account for other factors, such as prior qualifications or experience.) That said, whether a student loan represents good value depends on the course, career path and individual repayment circumstances.

Business borrowing — borrowing to fund a business venture is sometimes cited as potentially productive debt, as it may generate income. Whether this is the case depends on the viability of the business and the terms of the borrowing.

These examples share some common characteristics: they tend to involve lower interest rates than consumer credit, a structured repayment plan, and a connection to something that may retain or generate value. None of this means they are automatically suitable for any individual.

What is sometimes described as "bad" debt?

Other forms of borrowing are commonly associated with high costs and no lasting financial benefit. Examples often cited include:

High-interest credit cards — carrying a balance on a standard credit card is expensive. According to Bank of England data, the average quoted interest rate on credit cards was 24.71% in August 2026. When we checked in October 2026, rates in this series (IUMCCTL) were at their highest since it began in 1995. Balances left unpaid can grow quickly at these rates.

Payday loans — short-term, high-cost credit products can carry APRs running into the hundreds or thousands of percent. Since January 2015, the FCA has capped interest and fees at 0.8% a day of the amount borrowed, with default fees capped at £15 and total charges capped at 100% of the amount borrowed. Even within these limits, the cost of borrowing is high, and these loans are often associated with repeat borrowing and rising costs. The chart below illustrates how the cost of payday loans compares to other forms of bad credit lending.

Credit used for depreciating purchases — using credit to fund items that lose value quickly, such as holidays, electronics or clothing, means paying interest on something that generates no financial return. If the balance isn't cleared quickly, the total cost of the item can end up well above its price.

These forms of borrowing share characteristics including high interest rates, no connection to an asset or income source, and the potential for repayment difficulties if income changes.

How much debt do UK households owe?

According to ClearScore analysis of Bank of England and ONS data, average UK household debt excluding mortgages was around £18,392 in 2025. Student loans made up more than half of this figure, with personal loans and credit cards making up most of the rest. Among households with a mortgage, the average amount owed on the mortgage was around £197,811 in 2025.

Factors people often consider when thinking about borrowing

Rather than setting out rules for when to borrow, it may be useful to note the factors people commonly weigh when assessing whether borrowing makes sense in their situation:

On the side of borrowing: whether the purpose is linked to something that may grow in value or generate income; whether the interest rate is affordable and fixed; whether there is a clear, realistic plan for repayment; and whether the terms are flexible enough to accommodate changes in circumstances.

On the side of paying down existing debt: whether the interest rate on existing borrowing is high; whether repayments are limiting the ability to build an emergency fund or save; and whether the debt is tied to anything of lasting value.

These are considerations, not recommendations. What is appropriate depends entirely on individual financial circumstances.

Where to get help

If you are struggling with debt or repayments, free, impartial support is available from StepChange, National Debtline and Citizens Advice.

The concepts discussed in this article reflect general financial education and do not constitute advice for any individual. Every situation is different. Always make sure you can afford repayments before taking on any borrowing.

Read more:

• Average household debt UK

• Balance transfer cards explained

• How to compare credit card providers in the UK