THE BOOK
The 10 Commandments of Money: Survive and Thrive in the New Economy
By Liz Weston
Hudson Street Press, $32.50
THE DISCOVERY
No debt is good debt if you can't afford it.
THE QUESTIONS
How can you distill the world of personal finance into the 10 most important things people should know when everybody's situation is different?
That's one of the things that absolutely drives me crazy about some of the gurus out there. They make it sound like this is true for everybody in all situations. The 10 Commandments of Money is a book - I'm not Moses. I can't lay down the law. Everything that's in the book is given with the idea, take what you need and leave the rest, because people's financial situations are individual. I tried to come up with commandments that will work for most people in most situations. But there are certain people, and I think they're a small minority, who simply cannot handle a credit card. You can't give them a card without them running out and maxing it out. My advice about lines of credit does not apply to those people. But [for]note>// the vast majority of people, having a line of credit is a good thing in the long run.
You talk about good versus bad debt. For instance, you don't believe it's a good idea to borrow for home renovations.
Even at the peak of the real estate boom, very few projects returned 100 cents on the dollar. In most cases, even then, you were taking a loss when you put money into your house. Now it's clear, most renovation project won't return more than 70 cents on the dollar even if you sell right away. I was trying to bring home the point that this is not an investment - you're locking in a loss.
You're the first personal finance expert I've spoken with in a long time that doesn't believe borrowing to build equity in your home is good debt.
In general, a moderate amount of mortgage debt is good debt, because your house will grow in value over time. But we can't go [in]note>// with this idea that anything we do with home equity debt is good debt. You can overdose, you can overspend. If you want to do this project that will add some value to your home or make your life better, fine, but don't borrow more than half. It's also important to keep some of your home equity there for the real emergencies, where you simply have nowhere to turn in case your life completely falls apart.
You also have a contrarian view of education debt. You write that students should only get the education they can afford. Isn't an education worth the money?
I think we haven't done a very good job by our college students. We have communicated that message that the more you spend, the better it will be. But there are a lot of private institutions that charge way too much for what they're offering. What I've seen is the fallout of that belief. I talked with one young woman in her 20s who had $200,000 of student debt for a bachelor degree. I still believe in college education. If you don't have one, you are increasing the odds that you will end up in the economic underclass. It's becoming a basic job requirement. The problem is that it's not something you can spend unlimited amounts on. You have to make it proportional to what you are going to earn. When you have to borrow money you have to think about what you can actually afford.
WHY WE SHOULD TRUST HER
Liz Weston is ranked the most-read personal finance columnist on the Internet, with millions reading her twice-weekly column for MSN Money and her columns in the Los Angeles Times and Cleveland's The Plain Dealer. Ms. Weston promised her daughter a dog as soon as she finished writing The 10 Commandments of Money. Their dog's name is Trevor.
This interview has been condensed and edited.