The economic function of debt is to allow economic actors to spend more today than their incomes would otherwise allow.

Households and firms borrow in order to finance consumption or investment. This can be a good idea if their income is temporarily restrained and spending more today will increase their welfare.

If the money borrowed is used to expand the future productive capacity of that economic agent – for example by spending it on education or increasing a firm’s capacity – taking on debt can be also be a very wise move.

Some of the world’s major religions revile money lending, but, economically-speaking, debt is not an inherent evil.

The problem comes when the debt taken is excessive and the interest or scheduled repayments potentially cannot be serviced, risking bankruptcy for the borrower and a sudden loss of wealth for the lender.

It’s also a problem when the money raised by debt is unwisely invested.