Good Debt vs Bad Debt

In Australian lending, debt is not classified by intent or emotion.

It is classified by tax treatment, cash-flow impact, and risk exposure.

The terms “good debt” and “bad debt” are shorthand used to describe how debt behaves within the lending system.

What Is “Good Debt”?

“Good debt” generally refers to debt that:

is income-producing
may be tax-deductible
is assessed with more flexibility by lenders

Common examples include:

investment property loans
business lending
some commercial or income-backed facilities

This classification affects serviceability treatment, not approval certainty.

What Is “Bad Debt”?

“Bad debt” refers to debt that:

does not produce income
is not tax-deductible
relies entirely on personal cash flow

Examples include:

owner-occupied home loans
personal loans
consumer credit facilities

These debts are assessed conservatively because they offer no offsetting income.

Why Lenders Make This Distinction

From a lender’s perspective:

income-producing assets can help service their own debt
non-deductible debt relies solely on borrower income
risk is higher when debt cannot self-support

This distinction affects:

borrowing capacity
acceptable loan structures
long-term risk weighting

Interaction With Structuring

Debt classification influences:

use of offset accounts
interest-only vs principal & interest terms
sequencing decisions across portfolios

These are structural outcomes, not strategies.

Where This Concept Appears Elsewhere

This concept interacts with:

What This Page Is — and Is Not

This page explains how debt types are treated by the system.

It does not recommend borrowing behaviour or tax strategies.