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The Finish Rich Workbook: Creating a Personalized Plan for a Richer Futureby David Bach
The Debt-Free Solution
Get Out of Debt...And Stay Out of Debt
A 13-Step Action Plan to Get Out of Credit Card Debt
#1—DETERMINE IF YOU HAVE A CREDIT-CARD PROBLEM.
When it comes to debt, there arent any simple rules or formulas. The guideline you should use is how you feel about your situation. So how do you feel? To begin with, get out all your credit cards and all your credit-card statements and put them on the dining room table. (If you are married or have a partner, try to get them to do the same with their cards and statements.) Now list each credit-card account and its current outstanding balance, starting with largest and working down to the smallest. In this way, you will…Figure out how much you owe.
#2—PAY YOUR DEBT DOWN SYSTEMATICALLY.
If you want to keep a card or two for emergency purposes or to build a credit record, thats fine. But the rest of your plastic is going to be “DOLP”—which stands for Dead On Last Payment. So lets get DOLPING! Take the current outstanding balance on each statement and divide it by the minimum payment that particular card company wants from you. The result is that accounts DOLP number. Once youve figured out the DOLP number for each account, rank them in reverse order. By creating this list, you now know which credit card can be paid off the fastest by making minimum payments. Ideally, your payments should be a lot higher than the minimum. Whatever you can afford to pay above your required minimum payments for the month should be applied to the card with the lowest-ranking DOLP.
#3—GET YOUR CREDIT-CARD COMPANY TO LOWER YOUR INTEREST RATE.
Theres an amazingly simple way to make paying off your credit-card debt easier: Just call your credit-card company and ask for a lower interest rate. First, call the company and ask them to tell you your current effective annual rate. Once you know the real rate, ask to speak with a supervisor. Explain to the supervisor that you just received a new credit-card application from a competing company that is offering a much lower interest rate—and that unless he can match or beat the competitors rate, you intend to transfer your balance today. Another way to get a credit-card company to lower your interest rate is to offer to consolidate all of your credit-card debt with them. If nothing else, it means less paperwork for you, since now you have only one credit-card company to deal with (and write checks to), making it that much easier to focus on getting debt-free.
#4—RUN A CREDIT REPORT ON YOURSELF.
Now that youve taken an overall look at your debt situation, you need to go deeper. The best way to do that is to have a credit report run on yourself. There are three main companies that keep track of consumer debt and assign credit ratings—Equifax, Experian, and Trans-Union. To get a copy of the report, you should contact the companies directly. In addition to providing credit reports, the Web sites of all three companies offer a variety of services for consumers, including glossaries of credit terms, articles about managing credit, tips for protecting your ID, and explanations to help you understand your credit score.
#5—SCRUTINIZE YOUR CREDIT REPORT FOR MISTAKES.
A little known secret about credit reports is that they are often filled with errors. Here are some examples of the kinds of mistakes that show up on credit reports all the time:
1. Your name, address, or phone number is wrong or out of date.
2. Your social security number is wrong
3. Your birth date is wrong.
4. Your marital status is wrong or out of date.
5. Your payment record is wrong.
6. Credit accounts you consider closed are listed as still being open.
7. You are listed as having credit cards that you never applied for.
#6—KNOW YOUR LEGAL RIGHTS.
If you have credit-card debt, you have basic rights that are guaranteed under the law. In particular, there are two laws you should know about: the Federal Fair Credit Reporting Act and the Federal Fair Debt Collection Practice Act.
The Federal Fair Credit Reporting Act
This act requires that the credit agency listed above provide you with a free credit report in the event you are denied credit based on your report. You have 60 days from the time you find out if youve been denied credit to make a written request for a report.
The Federal Fair Debt Collection Practice Act
If you are behind in your payments, this is a law you want to know about. It was enacted specifically to stop the credit-card companies from unfairly harassing you. Among other things, it forbids debt collectors from contacting you directly without your permission. If you dont feel like talking to them, you can require them to speak to your attorney.
#7—IF YOU FIND A MISTAKE, AGGRESSIVELY CHALLENGE IT.
The information in your credit report is not set in stone—especially if its wrong. Not only are the credit-reporting agencies usually willing to correct mistakes, they are legally obligated to do so when you point them out. Heres what to do to get a credit report fixed if you find a mistake:
1. Credit reports come with whats called a “request of investigation” form. If you believe there are inaccuracies in your report, fill out this form and send it to the address indicated on it.
2. At the same time, you should write a letter to the company whose charge you are disputing, and send a copy to the credit agency.
3. Watch the calendar. By law, the credit bureau must complete its investigation within 30 days of receiving your written request. Have a follow-up letter ready to go out on Day 31 if the problem has not been solved.
#8—FIND OUT YOUR FICO SCORE.
Fair, Isaac & Co. is a little-known firm based in San Rafael, California, that has developed the most influential credit-rating system around. What they do is take your credit reports and, based on such factors as your payment history, how much you owe, and how long youve been borrowing, assign you a number. This number—known as your FICO score—can be used by anyone who is trying to decide whether they should loan you money. So I would spend the time to check yours out and make sure its as high as you can make it. If you go to www.myfico.com, you can purchase 30-day access to your FICO report.
#9—IF YOU ARE DROWNING IN DEBT, GET HELP.
Debt problems are the worst. They can cripple your spirit, break your courage, threaten your marriage, and even ruin your health. Fortunately, for those of you who feel overwhelmed, there are places you can turn to for help. Two highly recommended debt counseling agencies are Consumer Credit Counseling Services and Myvesta.org. When you contact one of these agencies, your first goal should be to find out as much as you can about what they can and cant do to help you. And before you sign on the dotted line with anyone, check with the local chapter of the Better Business Bureau to see if they have any complaints logged against them.
#10—IF YOU ARE IN A CREDIT-CARD HOLE, STOP DIGGING!
If you have problems with credit-card debt, you need to stop carrying your credit cards. Why? So you cant use them! When I was a “black belt” shopper, I tried every trick in the book to stop spending money. Once I had to pay for everything with cash, my spending went way down. Try leaving your cards at home for two weeks and see how your spending changes. I think you will be pleasantly surprised.
#11—STOP ALL THOSE CREDIT-CARD APPLICATIONS FROM FILLING UP YOUR MAILBOX.
Chances are that hardly a week goes by without some new offer for a credit card arriving in the mail. Its mind-boggling how relentless these credit-card companies are. Unfortunately, its not enough simply to throw these applications into the trash. Youve go to shred them first. Otherwise, a thief might get a hold of one, apply for the card in your name but with his address, and be off and running with your credit. The best course is to stop the credit-card companies from mailing applications in the first place. You can do this by visiting www.stopjunk.com, a Web site devoted to helping consumers get their names removed from mailing lists. You should also call the National Opt-Out Center toll-free at 888-567-8688 and tell them you want to be taken off all of their credit-card mailing lists.
#12—IF YOU ARE MARRIED OR HAVE A PARTNER, WORK ON YOUR DEBT PROBLEMS TOGETHER.
Nothing will ruin a relationship or end a marriage faster than a debt problem that wont go away and keeps getting worse. To the many people who insist that its their partners problem, not theirs, I say youre fooling yourself. From my experience as a financial advisor and coach to couples, I can tell you this without fear of contradiction: You are in this together. Dont put off dealing with this issue. Run a credit report on both of you today! Then set a time to get together and discuss how you are doing on this issue. As the saying goes, couples that plan together, stay together.
#13—PROTECT YOURSELF FROM FRAUD.
Identity theft and other credit-card scams are becoming increasingly common. Dont think it cant happen to you. To make sure it doesnt, take the following actions the moment the situation warrants.
1. If your credit cards are lost or stolen, contact the credit-card company immediately to cancel the cards. This may seem obvious, but many people put it off for days, hoping the missing cards will show up.
2. If you suspect you are the victim of identity theft, call the federal hot line. The U.S. Department of Justice now has a toll-free hot line to help people whose identities have been stolen. Call 877-IDTHEFT and let them know what has happened.
3. If you think someone has found out your Social Security number and is using it fraudulently, call the SSA hot line. The toll-free number for the Social Security Fraud Hotline is 800-269-0271.
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