Do You Own Good Debt or Bad Debt?

Colleague Jon Hanson asked this very question in a book he wrote several years ago entitled (what else) "Good Debt, Bad Debt."

It was a play on titles from the popular investing book "Rich Dad, Poor Dad," penned by entrepreneur Robert Kiyosaki. But it looked at the differences between good debt and bad debt, gave examples of each. Jon wrote a very readable, informative book that taught the concept of how debt can work for you -- and against you.

Blogger The Blonde Trader has created a wonderful visual that demonstrates many of the same ideas. The blog post is titled "Do You Own Good Debt or Bad Debt?" Missing are the anecdotes that give real-life examples to each principal taught, but the concept is the same and well presented.

What is the difference? Good debt is any debt that creates value and/or cash flow. Specifically, the debt that often paid back by others (and not you). An example? An income property. Bad debt? Well that's anything charged on credit that YOU have to pay back. Credit card debt, debts that provide no return, or debts for items that will decrease in value.

I have written on this in the past but I share Kiyosaki's philosophy that your home is not your largest "investment," for if you children are not paying rent for their rooms then it is not an investment. But your home should not a bad debt either. Someone's home is their shelter, their repite from the workaday world.

This graphic representation also spells out just how much debt Americans have under a section titled "Americans Love Their Debt."

Anyway, enjoy and learn. Then pass it on .....