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Crush Your Debt

Lesson 11 from: Start Late, Finish Rich

David Bach

Crush Your Debt

Lesson 11 from: Start Late, Finish Rich

David Bach

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Lesson Info

11. Crush Your Debt

Lesson Info

Crush Your Debt

We are now gonna tackle debt, which I'm gonna do my best to make tackling debt actually sexy. It's tough to talk about debt, 'cause debt is totally negative, depressing, not fun to deal with. But we're gonna talk about how do you crush your debt. And I've been there. I was one of those kids that wasn't too smart in college. Freshman year I went to USC. And in the dorms freshman year those credit card companies were lined up in font of my dorm. And there were three of them. One was giving away a clock radio, one was giving away a bike lock, and the other one was giving away a dictionary. That tells you how times have changed. And all I had to do was show them my student ID, and then sign the form, and then I got three credit cards. Just like that, boom, boom, boom. So I thought I was smart. I told myself I was doing it for the bike lock and the clock radio, and what was the other thing I told you they had, a dictionary. And I'm like, "I'll just use these "credit cards in cases of emerge...

ncy purposes." So two weeks go by, credit cards show up. Now it turned out pretty much everybody in the dorms did the exact same thing. So we're all getting credit cards, now we're going out. And the first time we go out, I'll never forget, we played this thing called credit card roulette, which was like you go out and you drink beers, and then you put the credit cards in a pile, and the person whose card gets pulled pays for them. That was my first experiment with credit cards. And I learned the hard way that first year. I thought I wouldn't use those cards. Instead I did use them, I maxed them out. The credit card companies gave me more credit card opportunity. And by sophomore year I was $5000 in credit card debt. So I came home and said to my father, "Dad, I don't know how to tell you this. "We need to sit down and have a talk, we have a problem." So my dad had an office, that's where we'd always have those talks. I showed him the credit card statements, which I could no longer make minimum payments on. And he looked at the credit card statements. He shook his head, he said, "Son, we don't have a problem. "You have a problem," and he literally handed me back those credit card statements. I was speechless, I was like, "But Dad!" He was like, "No, 'But Dad.' "You got yourself into this mess, "now you'll have to get yourself out. "All I can tell you, son, is if you don't "make minimum payments on your credit cards, "you will ruin your credit score. "If you ruin your credit score, "you'll just ruin the rest of your financial life. "Good luck with that." And he kind of walked out of the room. And that was my first financial grownup moment, which was like, "Whoa, what am I gonna go do?" So I remember going back to school and having to work, start a business, be an entrepreneur. 'Cause I figured I couldn't make enough money, having a part-time job at school, making minimum wage, to get myself out of credit card debt. So I tell that story because one, I got out of credit card debt. Two, I was dumb enough then to go get back into credit card debt a second time. By the time I was a senior I was $12,000 in credit card debt. So if you've been out of debt and you've gotten back into debt, which many of you know what I'm talking about, 'cause it's like going on a diet. If you go on a diet, you lose weight, you put it back on. It took me two times to get smart. The second time around, within 18 months of being out of college, I got out of credit card debt. I've never carried credit card debt since. So I know though, I tell that story 'cause I know it feels like to have the overwhelming sense of the weight of the world on you. And I remember opening up those credit card statements and the room spinning on me, physically. And so you're nodding, and it's just like, I remember thinking to myself, "How did I do this?" So what I'm gonna go through with you is really what I used, but then also what I started teaching, on how to deal with this debt. So how do you deal with credit card debt? First step you do, you have to actually know what you owe. So credit card debt typically is a form of denial. I mean it really is, right? Because you're running up these cards. You have two or three cards, you maxed that card out, you put that card away, you get another card. You got different statements coming in. You don't usually know what you owe. I find every time I do these Money Makeovers and I'm brought in to do a Money Makeover TV show, the people who filled out the application to be on the show and told the producers how much debt they have, it's always wrong. I've actually gone in one of the shows I did with Oprah, they were supposed to have $50,000 in credit card debt. And when I went through it all there was $80,000. So it's know what you owe. So how do you know what you owe ? You have to actually add it all up, which is not complicated. It's called take out a yellow pad of paper, write it all down, or use, but see it every day, what it is you owe. And I'm gonna show you a little system called DOLP, where I actually have had people put this stuff on the refrigerator or on the wall in their kitchen, so they come in and it's right there and they see what they owe. There is a myth out there that there is good debt and there is bad debt. How many of you have heard that? "There's good debt and there's bad debt." I used to believe that too. I believed it until the recession hit. And then when the recession hit, I was like, "You know what, if you can't pay your debt, it's all bad debt." There's different forms of debt. There's high-interest rate debt that's really toxic debt, like credit card debt. There is all the way down to student loan debt. Debt that's 2% or 3% or 4%, that's pretty cheap borrowed money. So that's not as bad as the debt that's 29%. There are these things called payday loans. I never even knew about a payday loan until I started doing some of these TV shows. And then those payday loans can be as high as 500% annually. The biggest single financial ripoff in America are those poor places that people go to get checks cashed. They should not exist, my own opinion, but they do. And there's more of them than McDonald's. They're so dangerous to people's financial health that the military now has in many cases, you can't put them within a certain range of major military organizations. Because they can't afford to have people in the military getting sucked into these payday loans. So you've gotta be very careful about loans that have a high interest rate, 'cause they will ruin you. So what is the fact? The fact is, debt is debt. It's just the interest rate that can crush you. You gotta figure out what you owe. So I call it the debt reality worksheet, otherwise known in The Automatic Millionaire as the section we call DOLP. So if you've been following me for awhile you know I had this thing I teach called DOLP. DOLP stands for Dead On Last Payment, which I now changed to Done On Last Payment because in this day and age a lot of people don't like the word "dead," so it's done. So Done On Last Payment. There's a form in this book that walks you through the entire process of DOLP. We also gave it to you on your PDF handout. Here's all you do. You take your credit cards, you line them up, you put the name of the credit card, you put the account number, you put the outstanding balance, you put the monthly minimum payment, and you put the interest rate. Now the DOLP system helps you calculate which credit card should I pay off first. For this class, without you having to read the whole chapter, I'm gonna keep it a little bit simpler and just tell you this. If you have five credit cards, how many of you know somebody who has five credit cards? I'm not asking if it's you personally. How many of you know people who have more than five credit cards? Here's what you do, you line all the credit cards up, you make minimum payments on every card, except you take the smallest credit card you have. So let's say you have five credit cards, and this one's 500 and this one's 1000, this one's 1500, this one's 3000, this one's 5000. You take your smallest credit card and you make all the extra payments on the smallest card. Some people call this the snowball approach. By paying off the smallest card first, I gave you a mathematical formula on how to do this. You're basically dividing the minimum payments by the card to come up with the amount of payments that are left. But usually it's the smallest card. So if you take the smallest card and you get it paid off, now you've gone from five cards to four cards. Then you go to the next card. You go from four cards to three cards, three cards to two cards. There's three reasons why you do it this way. One, by reducing credit cards you reduce the possibility of having late fees. So even though I taught you in an earlier lesson to automate your minimum payments, I'm a realist and I know not everyone's gonna do it. So the sooner you reduce the amount of cards you have, the less likelihood you will have of a late fee. So number one, it's a huge thing. Number two, it's psychological. Because credit card debt is incredibly negative and it is depressing and it is overwhelming. And if you have five or six or seven or eight credit cards and you start to see yourself reduce the credit cards you have, it's like a giant check-off box. It feels good and you start to feel yourself go, "Oh okay, I can do this." I've seen people who we've worked with who had 16, 17, 18, 19 cards. Now it might have taken them five years, but they'll send pictures in like, "Okay, here's my 17 cards, "here's my 15 cards, here's my 11 cards." One woman took all of her credit cards when they were done, they were all cut up, she put them in a frame and she sent me them, framed. I thought that was kinda cool. So here's how you get out of debt fast. We take a typical credit card, well, typical credit card family. Average family at roughly $16,000 in credit card debt. 22% is about the average rate right now for credit cards. Some are as high as 29%, some are lower. But 22% is sort of average. So I went to, remember those calculators I gave you before? I went to Bankrate, just plugged the number in., tell me how long will it take to pay this card off. The minimum payment is $453. If I make minimum payments, let me make sure I understand this right, are you really telling me that if I make minimum payments it's gonna take how long? What's it say up there? 33 years. 33 years. I'm going to spend $28,000 in interest payments for $16,000 in purchases. That's 16 plus 28, you guys follow that? That's just interest. What if I found my latte factor that David Bach hammered me on in an earlier lesson, and I took $10 a day and I took that $ and I added it on top of my minimum payments. So again, real simple, I went to Bankrate calculator, ran the numbers. $10 a day for payments of $753, I add 300 bucks to this. That credit card is now paid off in two years. It's incredible, right? It's crazy, yeah. $10 a day takes a credit card that was gonna take 33 years, and that gets paid off in two years. And I saved $24,000 in interest payments. Now why don't the credit card companies tell you this? (audience murmuring) Yeah, that's how they make their money. The reason people in America are living paycheck-to-paycheck, the reason if you're at home and living paycheck-to-paycheck and you are struggling, it is because the financial service companies are taking a huge part of your paycheck. They're taking it in interest payments, they're taking it in late fees, and so are all of the other financial service companies. I told you guys in a previous lesson, it's really simple. Either you have a plan for your money, or they have a plan for your money. Yeah? Would it be better if you have the capability to just pay them off? Yeah, totally, if you can pay them off, pay them off. But here's the thing, don't pay them off in lieu of, don't take your emergency money and pay them off. Don't take your retirement money and pay them off. In fact, the question I often get, I think I'm covering this in a second here, is don't put off saving to pay off your debt. You need to do both, so if you have $1000 a month, you're gonna put $500 towards debt, $500 towards savings. You have $100 a month, 50 towards debt, 50 towards savings. There are other people who tell you to pay all your debt off first, then save, I disagree. My experience, real-world, is that many people, when they go that approach, after a year or two they get depressed because they don't see any progress. And they eventually don't get out of debt and then they have no savings. And so by saving and seeing your net worth go up and your debt go down, the psychological impact of that keeps people going forward. That was the worksheet that I talked about but didn't run through. So the DOLP worksheet, again, outstanding balance, minimum payments, when's it due, the DOLP number is 10. It's basically taking your monthly payment, dividing it by 500, I get 10. Now I know that this is the first card to pay off. What I said to you though, is in almost every case it's just the smallest account. So if this gets confusing, just take your smallest account. Alright, the next thing you want to do, step three, is you gotta get your rates lower. Good news is, rates are low right now, unless your user rate's up. So a new card, your rate could be zero, it could be two, three, four, 5%. After a year or two years, now it's 19%. I just got all my new little things, because I got all those new Frequent Flier cards two years ago when they were giving 50,000 points. I was like, "You know what, take one, two, three, yep." And they were all zero, now they're all 18.97%. I always find that amazing, "Just wanted to update you." "Thanks for the update." So call your company today. How do you get your rates lowered? You can call the company, you can ask for a lower rate. This used to be easier than it is today, I'm not gonna kid you. Partially because I've done so many TV shows talking about this, I think they've trained. But you still can sometimes get your rate lowered. The key word is sometimes. If you're a good credit card customer, and you are not using, you haven't had late fees, you haven't been late on your bills, you should be able to get your rates lowered. If you can't get your rates lowered, then you can go out and look for a better card. So in a way, I hate giving out these websites 'cause I don't want you going shopping for more credit. But if you have a credit card where the rate is high, I'd rather have you get a new card, provided you can transfer it without fees and penalties. So,, Three great websites with lots of options. The credit card business is super competitive right now. You can also take the ones that come in the mail. How many of you are getting credit card offers in the mail? Still getting them, isn't it amazing? People still have direct mail. There's some good offers though, in that direct mail. So if you've got a credit card at 20% and a new offer comes in at zero, you call your card company up and you're like, "Here's the offer I have. "I'm seriously gonna transfer unless you can do "something better for me," and sometimes they will. Believe it or not, sometimes these credit card companies that are offering 50,000 points for new card customers, believe it or not, if you call them and you're like, "You guys are offering 50,000 points for a new customer. "I've been a customer for 10 years, what will you do for me? "I would like some points, please." Now this is gonna sound far-fetched. I've pulled off 75,000 Frequent Flier points doing this. You don't ask, you don't know. You're gonna hate me for telling that story. There's one of the websites for But I'm not affiliated with these websites. I'm just giving them for resources. But that tends to be a very good website to look at for credit card offerings. Okay, so what if you need real credit card help and you can't do this yourself? I recommend people go to the NFCC, this is the National Foundation for Credit Card Counseling. Go to their website, which is They will connect you with a nonprofit consumer credit card counselor in your area. And I've seen these organizations help a lot of people. The key to a nonprofit credit card consumer counseling group is finding a legitimate one. A legitimate one is not asking you for $5000 or $500 or setup fees. They're literally sitting down with you and going through your personal finances, looking at your debt, and coming up with a payment plan. They're compensated by the credit card companies. So they're kind of in business together in a way, but the credit card companies, quite frankly, don't want to deal with you and your credit card problems. So they're happy to have a nonprofit credit card counselor work with you, and they work with them to make this possible. There's two programs here. There's what's called a forbearance plan, and there's what's called a DMP plan. So I want to go through the two programs that can help you lower your interest rates, because that's really the key. If the rate's low, getting out of debt is much easier and much faster. So program number one, forbearance plans. Sounds so forbearance. Forbearance plans are offered directly from the credit card company. They will often lower your rate to below 5%, some cases zero. They will create an automatic payment plan. So they will want to pull money from your checking account. See, isn't that interesting? How do they want to get paid, automatically. So they will automatically require that you move money from your checking to them. They will eliminate late fees and annual fees. And you must qualify. So everybody's got different rules on this. They constantly change, but it is worth it, if you are in real trouble. Instead of waiting for the credit card company to ding your credit score and sell your debt to somebody else who then will spend the rest of their life harassing you, you are better off to go to the credit card company. Tell them your situation, ask if they have a forbearance plan, and can they discuss it with you and see if you qualify. That's option one, option two is a DMP plan. A DMP plan is a Debt Management Plan. They are offered, again, through nonprofit consumer credit counseling agencies. Go to this website, They connect you to a nonprofit consumer counseling group. The typical DMP plan is a three to five year payment plan. A lot of what I just showed you to do by yourself is what they're gonna do. They're gonna look at your payments, they're gonna see if they can get the rates lowered, and they're gonna do everything they can to get you to accelerate the payments. And then usually they're gonna get you to stop using your cards. Because one of the big keys with debt is when you're in a hole, what do you think you need to do? Stop digging. Stop digging. So that's the one thing that people are like, "Oh my God, I went to a nonprofit credit card counselor and then they told me I shouldn't use my cards anymore." Yeah, that's usually how it works. Again, they can lower your rates, sometimes to 0%. They can eliminate late fees and annual fees. They require debt counseling. So that's part of the deal, by the way. You gotta go through the debt counseling program. It's not like therapy, it's just like coaching. This stuff works. I have friends, first of all, I've been involved with some of these groups. Not only have I learned a lot from these nonprofit credit card counseling groups, but when I wrote Debt-Free for Life I really dug into the legitimacy of nonprofit credit card counseling. 'Cause I wanted to make sure that if I recommend things, that I'm recommending things that are really safe. You still always have to do your own due diligence. 'Cause when you reach out to them, they're a referral source. They're referring you to somebody in your neighborhood. You still should go to two or three. You need to still look them up on BBB and make sure that there's no complaints and do your own research. But I've seen firsthand people pay off six figures in credit card debt, using these groups. It's really remarkable, and I've seen people do it in less than three years.

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Ratings and Reviews


Wow! I wish they taught this in school and I would be in a better financial position in my life than I am today. However, I feel hopeful and empowered after watching David Bach speak and I am taking the first step by upping my 401k. I appreciate the realistic approach to wealth and not a get rich fast scheme we all too often hear and the esoteric approach to wealth/happiness that was discussed at the end. Wealth is truly freedom, not just being "rich". Thank you again David and Creative Live!


As a self employed musician and artist, I have been a long time follower of David Bach! Every penny made as an artist counts, and David will help you make the most of it. This class and his books are life changing! I started following him 15 years ago. Financially I have had amazing years, and very rough years, which I know is very typical for artists and musicians. With David in my corner, I've always had peace of mind. From the beginning, when I was in deeply debt and couldn't even afford health insurance David gave me hope. Because of David's teachings, I now own my home free and clear, and have a nice retirement account building, as well as savings, and accounts growing for my children. While both my children are under the age of ten, I take every opportunity to teach my children how understanding money can free you to follow your dreams! A huge YES for this class! Thank you David!

Muniesh Khandelwal

S.M.A.R.T class. Action items well discussed. This is a must have class for those who want to move from a fixed mindset to growth mindset, literally through their own wealth portfolio. This class will show one the balanced pie approach towards wealth, it will challenge you to take action, and it will show you if one follows the strategies and takes actions, they will have a wealthy and a wise life. So glad at myself, that I invested my time to take this class

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