Google
 

Monday, December 10, 2007

"The Automatic Millionaire" (Chapter Seven)

In this, the shortest "action" chapter of David Bach's book, the author simply gives some tips on how to use your new automatic system to get out of debt and then stay that way. Getting and/or staying out of debt is a major step in becoming a millionaire. As you know, if you don't have to pay Mastercard, Visa, and other cards, you have freed up money each month, and you are not paying interest.

How do I get out of debt? Bach offers five steps, but, before doing that, he reminds us all of how bad credit card debt really is. If you are like the typical American family, you have $8,400 in credit card debt (and only credit card debt!). If you pay just the minimum and never charge another thing, you will pay over $20,000, and you will be paying it off for over 30 years! (pages 195-196)

With those things, in mind, how do I pay off those cards quickly? Here are Bach's five steps:

1. Stop Digging. It's pretty simple when you think about it. If you don't have credit cards, you won't build up debt on them! Dave Ramsey recommends cutting up your cards (which I did a long time ago). Bach never makes a statement quite that bold, but he does recommend that you never go shopping with a credit card in your pocket.

2. Renegotiate the Interest on Your Debt. A lot of people don't even realize you can do this. Check the fine print to find out how much interest you are really paying, then simply call the company and ask for a lower rate. If they act like they won't do it, tell them you will be closing the account and moving (transferring) the money elsewhere. If they won't go lower, ask to speak to a supervisor. If that person won't go lower, transfer the money. Another way to accomplish this, is to move all your debt to one card (or account, since, hopefully you'll get rid of the actual card). Many companies will take a higher amount and give you a lower rate.

3. Pay for the Past; Pay for the Future. Here is where I disagree with Bach. He says that you should continue to put money into retirement and pay off the debt. He says that you will see progress in both areas and that will be a great motivating factor. I disagree. I would rather get rid of the debt as quickly as I possibly can. Either way works, as long as you stay focused.

4. DOLP Your Debt Our of Existence. "DOLP" stands for "Dead on Last Payment." This is basically the same idea as Ramsey's Debt Snowball, but is a much more math-intensive way of doing it. Here are the steps (quoted from page 206):

  • Make a list of the current outstanding balances on each of your credit card accounts.

  • Divide each balance by the minimum payments that particular card company wants from you. The result is that account's DOLP number. For example, say your outstanding Visa balance is $500 and the minimum payment is $50. Dividing the total debt ($500) by the minimum payment ($50) gives you a DOLP number of 10.

  • Once you've figured out the DOLP number for each account, rank them in reverse order, putting the account with the lowest DOLP number first, the one with the second lowest number second, and so on. [Page 206 has a table that shows you small example; using three credit/charge cards.]

5. Now Make It Automatic! You knew this was coming, didn't you? Automatically pay your debts from your paycheck (or checking account) until the debt is gone. When it is gone, call that company and close the account completely, then automatically pay off the next debt, paying all you can each month to get it gone (including the money you were sending into the first debt).


Now, you are debt free, your house is being paid off quickly and you have money going into retirement. There is still one more step, though.

17 comments:

we buy any car said...

thanks for sharing, nice post.

Anonymous said...

I could not resist commenting. Perfectly written!


my site vergleich private krankenversicherung

Anonymous said...

Hello! I could have sworn I've visited this website before but after going through a few of the posts I realized it's new to
me. Anyways, I'm definitely happy I discovered it and I'll be bookmarking it and checking back regularly!


my page ... girokonto ohne schufa auskunft

Anonymous said...

Hi! I could have sworn I've visited this web site before but after going through some of the articles I realized it's new to me.
Nonetheless, I'm definitely happy I discovered it and I'll be
bookmarking it and checking back often!

my weblog :: outlet online shop deutschland

Anonymous said...

Howdy just wanted to give you a quick heads up.
The text in your article seem to be running off the screen in
Firefox. I'm not sure if this is a format issue or something to do with internet browser compatibility but I thought I'd post to let you know.

The style and design look great though! Hope you get the
problem solved soon. Kudos

Also visit my web blog :: clickbank marketplace scam

Anonymous said...

An impressive share! I've just forwarded this onto a friend who was conducting a little homework on this. And he actually ordered me breakfast because I discovered it for him... lol. So let me reword this.... Thank YOU for the meal!! But yeah, thanx for spending some time to discuss this topic here on your web site.

Feel free to visit my web page startup business idea

Anonymous said...

Excellent web site you have here.. It's difficult to find excellent writing like yours nowadays. I honestly appreciate people like you! Take care!!

My blog virgin island vacation packages all inclusive

Anonymous said...

Hi it's me, I am also visiting this website regularly, this web site is actually pleasant and the viewers are really sharing pleasant thoughts.

Visit my weblog marken outlet online shop

Anonymous said...

Do you mind if I quote a few of your posts as long as I provide credit and sources back to your website?

My blog site is in the very same niche as yours and my
visitors would truly benefit from some of the information you present here.
Please let me know if this alright with you.

Regards!

Stop by my site ... meridianamagazine.org

Anonymous said...

If you are going for most excellent contents like I do,
simply visit this website daily for the reason that it presents feature contents,
thanks

Have a look at my blog; Report Abuse

Anonymous said...

Very soon this web page will be famous among all blogging
people, due to it's pleasant articles

Also visit my site Women entrepreneurs ideas

Anonymous said...

These are actually fantastic ideas in about blogging.
You have touched some nice points here. Any way
keep up wrinting.

Feel free to visit my web site; Suggested Website

Anonymous said...

Hey there! I know this is somewhat off topic but
I was wondering which blog platform are you using for this website?

I'm getting tired of Wordpress because I've had problems with
hackers and I'm looking at options for another platform. I would be awesome if you could point me in the direction of a good platform.

Feel free to surf to my web page ... rioradar.com/groups/most-effective-tips-for-all-those-on-the-lookout-for-health-insurance/

Anonymous said...

I just could not depart your website before suggesting that I actually enjoyed the standard info a person provide in your visitors?
Is gonna be again often in order to check out new posts

my web-site :: bad credit refinance auto loan

Anonymous said...

I like it when individuals come together and share views.

Great website, continue the good work!

Also visit my web-site: studenten private Krankenversicherung

Anonymous said...

For the reason that the admin of this site is working, no question very soon it will be famous, due to its feature contents.


Here is my site ... click the up coming web page

Anonymous said...

Fine to view you posting on this topic, I necessitate to bookmark this internet site.

Continue up the prestigious workout.

Feel free to surf to my webpage ... urlaub machen in deutschland