Book Review: Good Debt, Bad Debt

As I sat down to read and review this book titled Good Debt, Bad Debt by Jon Hanson, one thought was nagging at me. I am a loyal Dave Ramsey fan, who says that there is no such thing as "good debt." Still though, I have heard Dave say that if you do get a mortgage it is to be for 15-years or less. So with that in my mind I wanted to find out what Mr. Hanson called "good debt." As he sees it, "good debt" is debt that eventually increases your net worth.
In this book, he even lists what he calls good debt as:

• Earns its keep
• Increases your net worth or cash flow
• Secures a discount that can be converted to cash or net worth
• Creates leveraged position ($300 out, $400 in monthly)
• Examples: debt for real estate at a safely leveraged level, debt for education that can be applied for a return of capital, and debt for a business you are competent to operate.

The list then continues and list what he calls bad debt:

• Is typically for consumption
• Decreases your net worth or cash flow
• Examples: Car loans that rob your retirement fund, continuing credit card debt, living on student loans, furniture loans, loans for rapidly depreciating items, and loans for parties, weddings or vacations.

Like John Cummuta he compares credit cards to cocaine.

Credit card companies, perhaps taking their cue from drug dealers, send college students sample cards with credit lines of $500-$2,000 to hook new users.... They come to you without prompting-in fact, often with a premium just for signing up. T-shirts and cookies are common premiums on a college campus. Credit cards are the crack cocaine of the credit industry.

He even has what he calls "para-debt," or "almost debt." According to Hanson, this is the commutative effect of all the nonessential monthly spending. Even though these bills are not actually debt, it has a similar effect. Unlike normal utilities, these unneeded bills, like cable TV do not involve long-term contracts. In addition they are voluntary monthly obligations they can be cancelled at any time.

A bad debt is money owed on high-interest credit cards for trinkets and non-essential items. Bad debt gives temporary pleasure, such as driving a shiny new Jaguar off the dealer lot. "Dump the pride issues," he writes.

One thing was clear in reading "Good Debt, Bad Debt, Hanson despises Cars. He calls borrowing to buy a new car akin to driving your retirement into the ground. A car loan is a loan on something that decreases in value.

The average new car loses value at a rate of $250 per month or more in the first few years of service, he writes. "Cars are the easiest area to save money in," he says. Like Ramsey he strongly suggests buying less and driving it longer (IE: buy a beater). Save the difference, buy your next car with cash that you saved, preferably in a good mutual fund.

Hanson wants you to think before you spend and to deal with your financial problems head-on as they arise. "It is about gaining perspective and right-sized spending and saving," he writes.

He encourages readers to "avoid the consumer entitlement mentality that can only lead to debt, regret and broken dreams — not to mention a garage and basement full of junk." The goal: Get control of emotional spending.

Like Cummuta, he says that, "No matter the amount of your income, wealth can be obtained, or maintained, only through the amount you don't spend." The caveat is that it won't happen over-night like so many get rich quick schemers would like you to believe. It will take a number of years of spending less then you make. This is the key issue that Ramsey, Cummuta and Hanson all agree on. Yes, I believe, since debt is based on income, you can be debt-free with-in 7 years, if you start living with the just mentioned philosophy and focus on getting your debt paid off as Ramsey would say with gazelle intensity.

Today's actions will affect what you can do in the future. "Your spending will determine your ending," Hanson philosophizes.

Hanson wraps up this personal finance book with a chapter entitled. "You Married Who? The Ultimate Good Debt, Maybe." Unbridled emotions in any financial dealings can be dangerous, he preaches. Marriage, the ultimate financial partnership, must be entered with clarity.

To help, Hanson offers his checklist to help you and your fiance align your money and life philosophies before you say, "I do." But you will have to get the book to see the list.

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I will be giving away three copies of this book. The first contest will begin on Monday March 19. Entries will be submitted to that post on Monday. With the winner announced the following Monday. Anonymous posts will be disqualified. If you do not subscribe to the blogger service, you can choose "other," and type in a name that will identify you. Check back Monday, for the contest.


links to the giveaeays and winners:

Book Giveaway # 1 - Lauri
Book Giveaway # 2 -
Book Giveaway # 3 -