Financial Literacy: Banking, Credit, and Budgeting Practice Test

Debt used to buy things that lose value quickly and carry high interest is described as bad debt. Since luxuries like vacations or designer items don’t generate lasting value or income, this borrowing tends to hurt your finances rather than help them grow. Bad debt contrasts with good debt, which is for things that can increase your future wealth or earnings, like education or a home. The other terms describe how the debt is repaid (revolving: ongoing balances like a credit card; installment: fixed payments over time) rather than the type of purchase or its value impact, so they don’t fit the scenario as well.