Is all debt blameworthy in Islam, and is it correct to distinguish between good debt and bad debt?

Summary

Islam generally discourages taking on debt but does not prohibit it, and a debt contract is permissible if carried out according to the guidelines of the Sharia. The ruling on borrowing falls under the five taklifi rulings depending on the situation, from obligatory to forbidden. Debt is not blameworthy as long as the borrower has an honest intention, borrows within his means and keeps debt under control to avoid bankruptcy. It becomes blameworthy when taken without a valid purpose, beyond one's ability, or with the deliberate intention of not repaying it.

Written in our own words from the original fatwa — check the source before acting on it.