DEBT FREE FOR LIFE

The Finish Rich Plan

For Financial Freedom
DAVID BACH

DAVID BACH is a prolific financial author, media contributor and motivational and financial speaker. He has
written ten consecutive national bestsellers including Start Late, Finish Rich and The Automatic Millionaire. To
date, Mr. Bach’s FinishRich books have sold more than7 million copies and have been published in more than
15 languages. David Bach is a regular contributor to NBC’s Today and appears on its weekly Money 911
segments. He regularly presents seminars to financial services firms, Fortune 500 companies, universities
and national conferences. Mr. Bach is the founder of FinishRich Media and is a former senior vice president of
Morgan Stanley and a partner of The Bach Group. He serves on the board of Habitat for Humanity New York.
The Web site for this book is at www.finishrich.com.

ISBN 978-1-77544-679-8

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 Debt Free For Life - Page 1

MAIN IDEA
At one time, it used to be possible to have “good” debt – debt
for assets which appreciate in value – and “bad” debt – where
you’ve borrowed money to buy things which go down in The debt free mindset
value. The recession has changed that kind of thinking. The
best investment you can make over the next five years is to
pay off all your debts and stay completely debt free. + Debt free for life
To stay debt free for life, you’ll need to combine having the
right mindset with applying the appropriate strategies. Both The debt free strategies
your mindset and the actions you take will determine whether
or not you become debt free and then stay that way.
“Homes are going down in value and people with college degrees are looking for jobs. Forget about the idea of ‘good’ debt and ‘bad’
debt. The truth is when you’re in debt, it doesn’t matter what you’ve borrowed the money for. The only thing that matters is whether or
not you can afford to pay it back. And if you can’t, all debt is bad debt. The best investment you can make over the next five years is
going to be paying off your debts. My advice is to pay off what you owe as fast as you can. The faster you pay off your debt, the faster
you will achieve financial freedom.”
– David Bach

1. The debt free mindset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pages 2 - 3

The first stage in getting out of debt and staying out of debt is to get your thinking right – to have the right
mindset about debt. Pure and simple, the less debt you have, the more free you will feel and the greater
your peace of mind will be. To get the debt free mindset:

1 Understand why you’re in debt today

The
2 Get compound interest working for you Debt
Free
3 If you’re in a hole, stop digging Mindset

4 Take the debt free pledge

2. The debt free strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pages 4 - 8

It’s all very well to have the mindset to get out of debt and stay out of debt but that plan only has value if you
work it. Getting out of debt isn’t rocket science. Debt is never complicated and reversing the trend won’t
happen overnight but you will feel progressively better the further down the path you go. To get out of debt
and stay out of debt, consistently apply these strategies:

1 Use the DOLP method to pay down debt

2 Set up automatic debt payment systems

3 Negotiate your debt down

The
4 Get and understand your credit report Debt
Free
5 Look at time-barred debt approaches Strategies

6 Use non-profit credit counseling

7 Watch for debt-settlement scams

8 If you must, use bankruptcy early

9 Make moving forward again automatic

10 Look for money to boost debt repayment

 Debt Free For Life - Page 2

1. The Debt Free Mindset 2 Get compound interest working for you Mindset

The great thing about compound interest is it can work with you
The first stage in getting out of debt and staying out of debt is to get
in paying off your debts in just the same way as it works against
your thinking right – to have the right mindset about debt. Pure and
you when you owe money. To illustrate
simple, the less debt you have, the more free you will feel and the
greater your peace of mind will be. To get the debt free mindset: Credit card
n Suppose you borrow $5,000 on a credit card.
1 Understand why you’re in debt today n Your interest rate will probably be 29% or more.
The
n Your minimum monthly payments will be $175. If you
2 Get compound interest working for you Debt
continue to make just the minimum monthly payments, it
Free
will take you 23 years to get out of debt and you’ll pay
3 If you’re in a hole, stop digging Mindset
$10,505 in interest.
4 Take the debt free pledge n If you just add $10 a day to pay down this debt, you’d
have it paid off in 45 months. In that case, you’d have
interest charges of $3,203 – saving you more than
$7,300.
1 Understand why you’re in debt today Mindset

The Federal Reserve reports as of 2010, Americans owe nearly Mortgage

$12 trillion in mortgage and consumer debt. That works out to an n Let’s say you borrow $200,000 to buy a home.
average of $49,000 of debt per family nationwide. Approximately n You get a 30-year fixed mortgage at 6% annual interest,
54 million American families now owe a total of $866 billion in meaning your monthly payment will be $1,199. Over the
credit card debt alone – which averages out to around $16,000 30-year period, you will repay $431,676 – which equates
each. At the same time, home equity has dropped by trillions of to $231,676 in interest.
dollars over the past few years and nearly seven million
n Now suppose you resolve to add an extra $10 a day to
Americans have fallen behind on their mortgage payments. The
your mortgage payments. If you do that, the loan will be
New York Times recently reported: “An astonishing $1.3 trillion of
paid off in 18 years and you’ll save $101,000 in interest.
consumer debt is deliquent, with $986 billion seriously so – 90
days late and counting.”
How has that astounding level of debt come about? The whole point is for less than what the average family spends
n Every day, consumers are exposed to billions of dollars of at McDonalds for a meal, you can be shaving years off the time
advertising suggesting they should buy stuff they don’t really it will take you to pay off your debt. Just making small extra
need. This is what capitalism does. payments can make a huge difference. Never fall for the
industry standard minimum-payment scam.
n The credit card industry is a multi-billion-dollar market where
companies tell consumers to buy now and pay later.
3 If you’re in a hole, stop digging Mindset
n During the boom days, the banks were all too happy to loan
money to people who couldn’t afford the payments. If you want to have any realistic chance of becoming debt free
n Subprime lenders spent billions convincing consumers to cash for life, you have to realize a big part of getting out of debt is to
out the equity in their homes. accept when you’re in a hole, you need to stop digging. You
can’t become debt free if you’re paying down your debt on one
n The tax system promoted heavy borrowing by offering tax
credit card only to start using another the moment you get a
deductions.
“special offer” in the mail. Nor will refinancing your mortgage for
n The federal government itself has generated trillion dollar lower payments but a longer term help. And buying a new car
deficits year after year without any obvious consequences. with a new lease payment as soon as you’ve paid off your old
The unvarnished truth is millions of people in America and car loan is not going to help you become debt free.
elsewhere are in debt today and they want out. If you can pay The simple truth is you can’t out-earn your debt. It’s not how
down your debt, you will not only improve your financial position much you make that will determine your success in becoming
but you’ll also buy back your freedom. There is no silver bullet debt free – it’s how little you spend. To become debt free, you
solution which will make your debt vanish overnight but there is a must be willing to spend less than you earn month by month and
smart system which will move you forward. The key is to apply the year by year. If you cannot or will not do this, no matter what else
principles and to work the system. Change your mindset, cut your happens you won’t become debt free. You have to stop
expenses and live within your means and you will be able to spending money one way or another.
achieve real financial freedom – guaranteed!
“The truth is we’ve been misled. We’ve been misled by billions
“These days, the American Dream of financial freedom – freedom of dollars’ worth of advertising that gets us to buy things we
from worry, freedom from living paycheck to paycheck – has don’t really need. We were sold a bill of goods – or, more
become a nightmare. The idea that we should all spend less than accurately, a bill of loans (trillions of dollars of them). And now
we make seems to have been forgotten, as the American Dream this bill has come due, and our debt has become our personal
gets stolen, one loan at a time.” financial prison.”
– David Bach – David Bach
 Debt Free For Life - Page 3

7. When will you start?

4 Take the debt free pledge Mindset A very good question. If you tell yourself you’ll get around to
this sometime when it’s more convenient, your journey is
To prepare to take the debt free pledge, there are seven
over even before it began. Promise yourself you’ll get going
questions you and your spouse or significant other need to
today on becoming debt free.
answer together. The questions are:
Once you’ve thought through these questions and how they
1. Why do you want to get out of debt – and then stay debt free
apply to your specific circumstances, it’s time to take the pledge
for the rest of your life?
and start working towards your Debt Freedom Day when you will
Write down your answer to this question: “I want to be debt
be completely out of debt. Make up a card like this, sign it and put
free for life because ...” Look at your answer and inject some
it somewhere you’ll see it every day:
vivid and heartfelt imagery. “I want to be debt free because it
will provide my children with a home which can never be
taken away from us. It will give me great peace of mind and The Debt-Free-For-Life Pledge
the joy which will come from being in a position to help my
I, __________________ [insert your name]
children start their journey towards buying their own homes
as well.” Discuss this with your spouse or partner because
hereby commit to be out of debt by:
they will be an integral part of becoming debt free.
2. Why are you in debt today? ________________________ [insert date]
The purpose here is not to beat yourself up but to face the
facts. Did something tragic happen? Did you live beyond your
means? Did an income source dry up? What really I believe that paying down my debt and
happened. Answer this question honestly and candidly so becoming DEBT FREE FOR LIFE is
you can start working on a solution going forward. critically important, and I am ready to
work to make it happen.
3. Honestly how much debt do you have?
At this point, you’re making an educated guess about where
you’re at financially. You’ll get into more detail on this when I will start my journey to being out of debt on
you start developing your DOLP program but for now, get a
grip on what your true level of debt is. ________________________ [insert date]
4. What percentage of your income currently goes on paying
just the interest charges on your existing debt?
Take out your mortgage statement, your car loan statement, Signed: ______________________________
your student loan statement and your credit card statements
and figure out how much of your monthly payments go to
interest charges. It’s guaranteed the answer will shock you. “Are you tired of being in debt? Are you tired of waking up each
When you add everything up, you’ll probably find more than morning to face an ever larger pile of bills? Do you find yourself
half of your take-home pay at present is going into your working harder than ever to pay for things you no longer care
lender’s pockets rather than helping you pay off debt. The about – or even want to own? If so, you are not alone. Millions of
only time you’re getting ahead with debt is when you pay people feel the same way – and like you, they are ready for a life
down your principal and you’ll find this is happening much free from debt. A life where you own your life – rather than lease
less than you assumed. it. The good news is there is a way out of this nightmare. There is
5. Who would you need to get help from in order to become a better way to live – starting today – a way that will allow you to
100% debt free? be debt free for life!”
Firstly, you would expect to help yourself get out of debt but – David Bach
there may also be some other people you can call on for help.
Your spouse or partner would be an obvious choice. You may “In our new economy, getting out of debt fast is the most
have family members who could provide some good input or important financial move you and your family can make.”
help as well. You may have got to know someone who uses a – David Bach
non-profit credit counselor and they may be a resource you
“Debt creates fear. Not having it creates peace of mind. This may
can access as well. For now, make a list of the people who
sound like a cliche, but it’s true. When you have less debt, you
could make up a support network for your efforts to become
will feel more FREE. You will have fewer worries, less stress,
debt free.
less tension, fewer fights at home. In short, your life will have less
6. What’s the worst thing that could happen if you don’t get out fear and more serenity. Not only that, but you will also be able to
of debt? build wealth faster.”
Left unchecked, debt can generate all kinds of irrational – David Bach
fears. It’s important that you face facts. Write down what your
worst-case scenario would be. The very act of writing this “It’s time for us to rethink entirely the way we manage our money
down will usually make you feel better because you’ll realize and our debt. If the great recession has taught us anything, it is
for that to happen, a whole series of things have got to go that the less debt we have, the better off we are. With this in mind,
wrong. Detailing this will more than likely motivate you to deal I am now on a mission to inspire America to shed its debt. I
with your debt quickly and decisively rather than leaving it believe it is time for us to buy back our freedom, and I know that
bubbling away in the background while you hope it will go together we can do it.”
away. – David Bach
 Debt Free For Life - Page 4

2. The debt free strategies Now once you’ve got all your debt listed and itemized, you can
now fill out the DOLP worksheet below according to these rules:
1. Fill in the DOLP worksheet – following the headings for each
It’s all very well to have the mindset to get out of debt and stay out column.
of debt but that plan only has value if you work it. Getting out of
debt isn’t rocket science. Debt is never complicated and
reversing the trend won’t happen overnight but you will feel DOLP Worksheet
progressively better the further down the path you go. To get out
of debt and stay out of debt, consistently apply these strategies: Monthly
Balance Due DOLP DOLP
Account Minimum
Outstand Date No. Rank
1 Use the DOLP method to pay down debt Payment

2 Set up automatic debt payment systems

3 Negotiate your debt down

The
4 Get and understand your credit report Debt
Free
5 Look at time-barred debt approaches Strategies
2. Calculate the DOLP number for each account – which is
found by dividing the balance outstanding by the minimum
6 Use non-profit credit counseling
monthly payment. If you owe $500 and your minimum
monthly payment is $50, then the DOLP number is 10.
7 Watch for debt-settlement scams
3. Assign each account a DOLP ranking – the account with the
8 If you must, use bankruptcy early lowest DOLP number is ranked #1, the second lowest DOLP
number is ranked #2 and so on.
9 Make moving forward again automatic
DOLP Worksheet
10 Look for money to boost debt repayment
Monthly
Balance Due DOLP DOLP
Account Minimum
Outstand Date No. Rank
Payment
1 Use the DOLP method to pay down debt Strategies
Visa $500 $50 10th 10 1
DOLP stands for “Done on Last Payment.” This is a simple way
to prioritize the payment of your debts. You should be able to get MC $775 $65 15th 12 2
this system set up and working its magic in your finances in less
than an hour. DOLP is a foolproof system for paying off Discov $1,150 $35 1st 39 3
everything you owe once and for all.
To get DOLP set up, take out all your monthly statements for 4. Calendar your due dates – and add these to whatever
everything you owe (credit cards, store accounts, mortgages, calendaring system you use. The aim here is to prevent
home equity loans, student loans, car loans, boat loans, making late payments which makes your situation even
installment debts, the whole lot) and set up a table like this: worse because of the costly late fees.
5. Fast-pay your debt using DOLP – every month, you make
Debt Reality Worksheet the minimum payment on each account except the one that
has the #1 DOLP ranking. For that account, you make as big
Monthly a payment as you can manage that month. Ideally, you want
Account Outstanding Interest
Creditor Minimum to pay at least double the minimum amount so you can pay off
Number Balance Rate
Payment that account quickly. You then put that card away in a drawer
or cut it up and start attacking the next account with the next
lowest DOLP ranking.
The DOLP system works because you identify which of your
accounts can and should be paid off first and you make that a
priority. Once that account is paid off, you can then put more
towards paying off the next lowest-ranking account. By
prioritizing this way, your debt repayment scheme gains
Adding up all your debt this way won’t be fun but it will be helpful momentum. Every time you retire an account, celebrate
in coming up with workable strategies for moving forward in the (inexpensively) and get to work on the next one. DOLP will take
future. It’s not unusual for people to go into shock at first when time, effort and commitment so be realistic. It took you years to
they sit down and figure out how much they really owe so don’t get into debt so don’t expect to DOLP your way out of debt in a
sugarcoat it for yourself. You can’t cure what you don’t face. few months. Several years will be a more likely and realistic time
frame, but stick with it. Don’t get discouraged. Stay with the
DOLP program.
 Debt Free For Life - Page 5

2 Set up automatic debt payment systems Strategies 4 Get and understand your credit report Strategies

Using the DOLP methodology is simple and effective but if you’d By law, you’re entitled to get a free copy of your credit report
rather not do everything by hand, there is an automated option every year. It’s vital that you get to know what your credit score is
available over the Internet. This is at: today and then get to work on improving it and protecting it in the
www.DebtWise.Com future. Studies have shown around 79% of credit reports contain
errors and incorrect information so it’s vital that you check your
DebtWise allows you to set up a prioritized fast pay plan which
credit report for accuracy as soon as possible.
follows the DOLP principles, tracks your progress and sends you
automated reminders of what needs to happen when. DebtWise To get a copy of your credit report today, you have two options:
offers a free one month trial of the service after which there are 1. Go to www.annualcreditreport.com and apply for one or call
monthly charges incurred. them at (877)322-8228.
DebtWise was developed and is operated by Equifax, a public 2. Go to www.FinishRich.com and get a free copy of your credit
company which is a leading U.S. credit bureau. That also means score in association with Equifax’s DebtWise.
your own credit report can be integrated into your debt If your credit score is above 720, that’s considered good. If it’s
repayment plan. DebtWise gives immediate feedback on how above 740 you’ll get offered the best terms. A score below 600
your debt repayment program is enhancing your credit rating. means you’ll have trouble getting a loan.
Debt Wise is a tool which automates using the DOLP system and
How is a credit score calculated?
makes it easier to apply.
• 35% – payment history – whether you pay bills on time
3 Strategies • 30% – amount owed – what proportion of your credit you use
Negotiate your debt down
• 15% – length of credit history – the longer the better obviously
The major credit card companies don’t want you to know this but • 10% – new credit – how many accounts you opened recently
they are willing to negotiate the interest rate they charge. To get • 10% – types of credit used – a good mix is a plus
your credit card company to give you a better rate: Raising your credit score can save you thousands in future
1. Read the fine print on your card statement and find out interest payments so an action plan for improving your score is:
exactly how much you’re paying at present – which is likely to 1. Get your free credit report at least yearly – and check it for
be something you’ve just glossed over in the past. Your errors. Bring mistakes to the attention of the credit agency.
Annualized Percentage Rate or APR will be there 2. Automate your bill paying – so you never miss a due date.
somewhere. Find out what it is at present. Just one missed payment really hurts credit scores.
2. Shop around for a lower rate – using Google or another 3. If you have missed payments in the past, get on it and get
search engine. Find out what your credit card company is current again – and your score will start to improve.
currently offering to new customers. This won’t take you long
4. Always keep your balance well below your credit limit –
to look up on the Internet.
ideally below 33% of available credit.
3. Compare your credit card rate to national averages – using
5. Be wary about the credit transfer game – where you transfer
something like www.bankrate.com or www.creditcard.com.
high-interest credit card balances to low-interest cards. This
Most credit card companies offer five kinds of interest rates –
can set off all kinds of alarm bells.
superprime, prime, subprime, punitive and promotional. Get
to know each rate for your card issuer. 6. If you do have high card balances, make payments early – as
this will reduce the balance being reported to the credit
4. Get your Equifax credit score and compare your rate to your
bureaus.
credit score – see first whether you’re now being charged the
right rate for your credit ranking. 7. Keep your old accounts even if you don’t use them much – as
this lengthens your credit history which subsequently bumps
5. Now get on the phone to your credit card company – and start
up your credit score.
playing the negotiation game. Around 25% of the time, you’ll
be successful in getting a rate reduction on your first call. If 8. Similarly keep and use old credit cards – at least one
the customer-service rep says “Sorry, I can’t help you,” which purchase a month to keep your credit history expanding and
is what they’re trained to say, ask to speak to their supervisor. improving.
Again, they’re trained to say at that stage “Sorry, no one is 9. Demonstrate that you can handle credit responsibly – by not
available right now.” Ask for their name and ID number so you borrowing more than you can pay back on time.
have a record of who you spoke to and then insist politely
10. When shopping for a loan, do it quickly – within 30 days. That
they connect you with a supervisor. Once you get on the line
way all your credit score inquiries get batched together and it
with that person, go over your rate, give them your current
doesn’t appear like you’re trying to borrow money from many
credit score and ask why your rate is higher than it should be.
different sources.
Bring out your comparative data and ask if they are willing to
work with you to give you a better deal. 11. Check your credit score every three months or so – that is
classified as a “soft inquiry” and won’t impact on your score
Hopefully, at some stage you’ll be able to speak with someone
whereas a “hard inquiry” from a potential lender can.
who will be willing to lower your interest rate and cut you a better
deal. The reality is the credit card companies are in a competitive 12. Consider buying a 3-and-1 Report and a credit monitoring
industry and there is almost always something they can do in and identity-theft package – because it will be worth the
order to keep your business. Card companies lower their rates all monthly investment of $20 or less to stay on top of emerging
the time. You may have to make multiple calls but it can be done. problems with your credit score. (A 3-and-1 Report provides
you with your credit scores from the three big bureaus.)
 Debt Free For Life - Page 6

5 Look at time-barred debt approaches Strategies 6 Use non-profit credit counseling Strategies

A “time-barred debt” is one which has been past due for longer Most of the time, you should be able to use basic knowledge and
than the applicable statute of limitations. Under state and federal methods like DOLP to sort out getting yourself out of debt. If you
law, creditors have only a fixed amount of time – usually between don’t feel like you can manage this on your own and you decide
three and ten years depending on where you live and what kind you need outside help, consider working with a non-profit
of debt is involved – in which they can sue you to collect. If for any credit-counseling agency. If you can find a good one you like
reason your debt ages past the deadline, it then becomes working with, the benefits can be enormous.
effectively uncollectible and you can legally decline to make Around 8 million Americans went to agencies for help in 2009
repayment. alone so if you go down this route, you’ve got plenty of company.
The rules about this varies widely from state to state and A non-profit counseling agency will be better to work with than
according to the type of loan involved. Different statutes of for-profit corporations which promise to do the same thing. Most
limitations apply to loans based on oral contracts, written non-profit credit-counseling agencies receive funding from
contracts, promissory notes and open-ended loans like credit federal, state and local government agencies or from private
card accounts. You need to check with your state’s Attorney foundations. In 2009, agencies affiliated to the National
General’s office to find out what statute of limitation will apply to Foundation for Credit Counseling helped pay down $2 billion in
your specific loans. You can also use the information at consumer debt alone. It’s a good deal all around – consumers
Bankrate.com or CreditInfoCenter.com or speak with a lawyer. get out of debt, creditors get paid back and the agencies
If your loans do become time-barred in this way, you have the contribute to the community well being.
legal right to decline to pay. Exercising that right doesn’t mean How do you find the right non-profit credit counseling agency to
the debt collectors won’t keep trying. Be careful you don’t agree go with? Look for eight signals:
to make any part payments on a time-barred debt in the name of 1. They will offer you a free counseling session right at the
showing good faith or for any other reason because that outset – where they will review your financial situation and
effectively starts the clock running again and moves the loans make suggestions for free before they suggest anything or
from time-barred status to active status again. ask you to sign anything.
Federal law protects you from being harassed by debt collectors. 2. They will help you look at the realities of your financial
They have regulations which prohibit them from engaging in position – and whether you can move forward by changing
unfair, deceptive or abusive practices. (More detailed guidelines your financial habits or whether you need to enroll in a formal
are at www.ftc.gov.) To stop them bugging you, all you have to do Debt Management Plan (DMP) they will negotiate with your
is send them a letter telling them to stop contacting you. Once creditors.
you’ve done that, by law the only contact they are then allowed to
3. They will create a spending plan or budget for you – which will
have is to confirm they will leave you alone or to formally advise
allow you to live within your means from this point forwards.
they will take some specific action against you. Keep a copy of
the letter you send to any credit agency for yourself and send 4. They will work on both your secured and your credit card debt
them the original via certified mail with return receipt requested. – to stabilize your home finances first and then look at
That way you can prove the letter was sent and received in case payment plans for credit card and other unsecured
they ignore your instructions. obligations.
Don’t ever fall into the trap of assuming a debt collector is your 5. They will be prepared to set up a DMP for you – but only if it
friend and is acting in your best interests. It’s not so. In many actually makes sense for your overall financial position. A
cases, they’ve purchased your debt for pennies on the dollar DMP won’t help if your debt is so large and your income is so
from the lender and they’re just trying to see what they can turn low there is no realistic way you can afford to make the
that information into. If you ask for documented proof of your ongoing payments which will be required.
debt, the collection agency likely won’t be able to produce it. 6. They will level with you if they consider bankruptcy would be
Don’t let them harass you into paying not only what you originally a better option – and give you unbiased facts about this
borrowed but also exorbitant interest and draconian fees. option.
“Let me say that I believe in living a life of integrity. When you 7. They will be able to provide references and testimonials –
borrow money, you should pay it back. You made a promise to do they will take great pride in the success stories of their current
just that, and you should always keep your promises. That said, and former clients.
I’m also your advocate. If you owe a debt that your state’s statute 8. They will openly itemize and detail their fees up front – and
of limitations defines as ‘time-barred,’ you deserve to know what put everything in writing. As a rule-of-thumb, they generally
your rights are. What’s more you are entitled to use those rights won’t charge more than a $100 startup fee and then $50
to get out of debt and get back on your feet financially. I’m also monthly for what they do.
enough of a realist to know much of the money that debt 9. They will be licensed, IRS accredited and affiliated to the
collectors try to collect these days isn’t what was originally major trade associations – which are the National
borrowed. It’s the result of outrageous interest and nonsense Foundation for Credit Counseling (www.debtadvice.org) or
fees that were tacked on later. I worked with one couple who had the Association of Independent Consumer Credit
borrowed about $10,000 on their credit card – and had made Counseling Agencies (www.aiccca.org). You should also be
$14,000 in payments. Nonetheless, what with interest and able to check them out with the Better Business Bureau
penalties, they still owed more than $25,000. Now that’s just (www.bbb.org).
wrong. So I say – use your rights!”
– David Bach
 Debt Free For Life - Page 7

7 Watch for debt-settlement scams Strategies 8 If you must, use bankruptcy early Strategies

“Get out of debt with one monthly payment! Reduce your debt by More than 1.6 million people will file for personal bankruptcy in
up to 50%! We can cut your debt in half in under five minutes!” 2010 – twice as many as five years ago. Before making a
You’ve probably seen the ads and wondered how can they do decision whether or not bankruptcy will help your personal
that? As the old adage warns, if something sounds too good to be situation, you should get professional financial and legal advice
true, it probably is too good to be true. The fact is for-profit as soon as possible.
debt-settlement companies can’t achieve anything you can’t do Personal bankruptcy comes in two basic flavors:
for yourself. They’re trying to charge you a fee just for making a
n Chapter 7 – which is the most severe form. It means anything
few calls to your creditors on your behalf.
of value you own except for some personal items and
Actually, in reality you can do more acting for yourself than these sometimes some real estate can be sold of by a
companies can. American Express, Chase and Discover Card court-appointed trustee with the proceeds being paid to your
have a policy of refusing to deal with or work with for-profit creditors.
debt-settlement companies. Furthermore, the first thing these
n Chapter 13 – which allows a debtor to establish a
companies want you to do is stop sending payments to credit
court-supervised repayment plan. Generally this is only
card issuers and instead send money to them to add to your debt
available if you have a steady income and your debts can be
settlement fund. This is not a good idea as refusing to make
fully paid within three to five years.
ongoing payments will open up another set of problems not to
mention the fact it will seriously lower your credit score overnight. Bankruptcy laws are complex but generally speaking bankruptcy
It will also result in your debts being turned over to collection allows unsecured debt to be wiped out and secured debt to be
agencies or attorneys. made more manageable. Bankruptcy cannot wipe out personal
debt which arises from:
The Association of Settlement Companies, the industry’s
• Child support or alimony you may owe
leading trade organization, estimates that in most cases working
• Student loans
with a for-profit debt-settlement company will cause your debt to
• Tax obligations which are less than three years old
increase by an average of 20% over the two or three years the
• Legal judgments against you
settlement process generally takes. Your credit score will suffer
• Debt which is acquired within 90 days of your filing
and the amount you don’t have to pay on your debt will be
• Any debts you neglect to list in your bankruptcy filing
considered to be taxable income by the IRS. You might end up
owing the government some money by using a for-profit Obviously filing for bankruptcy will hurt your credit rating but once
debt-consolidator. you’ve completed the process, you may find further down the
track you actually become more attractive to lenders because
As a general rule, you’ll be charged a fee of 15% - 18% of your
you’re no longer burdened by debt. As a rule-of-thumb, it will be
debt over three years to use one of these debt consolidators.
at least two years after you complete your bankruptcy before
There will also be a service fee of $25 or $50 a month to pay first –
anyone will extend you credit and your bankruptcy will stay on
and it’s not at all unusual for these fees to need to be paid in
your credit record for either seven years (Chapter 13) or ten
advance before the debt-settlement company will get to work.
years (Chapter 7) from the date of completion. Bankruptcy will
Pure and simple debt-settlement doesn’t work as advertised.
not erase a track record of late payments from your credit report
About the only time using a for-profit debt-settlement company either.
makes sense is if your debt problems mainly involve credit card
Again, bankruptcy law is complex. Navigating it and making the
and other unsecured debt which has been sold to a third party or
most of this will be a matter of getting professional advice. To find
is nearing its statute of limitations. In those circumstances, the
an attorney who is experienced in this area, talk with people who
company which purchased your debt may be motivated to settle
have been through the process already or look to non-profit
for less than face value.
credit counseling agencies in your locale who may be able to
If ever you do decide to use a debt-settlement firm, bear in mind recommend someone. You can also contact Bar Associations,
your chances of running into scam artists are very high. Check legal aid organizations or advocacy groups for suggestions on
out thoroughly any company you are considering using. Do a who to consider.
search at the Better Business Bureau Web site (www.bbb.org)
and look at whether they belong to the big trade associations “Filing for bankruptcy is perfectly okay. It doesn’t mean that
TASC (www.tacsite.org) or USOBA (www.usoba.org.) Dig up you’re a failure or a terrible person. What I find really
any complaints which have been filed for the company you are heart-wrenching is that there are people who have committed
considering using. suicide rather than go bankrupt. NEVER, EVER let your financial
situation convince you that life is not worth living. Bankruptcy is a
“All things being equal (which at this point they are, if you haven’t TEMPORARY solution to a TEMPORARY problem. The feeling
yet started this process), I suggest that before you consider debt of drowning in debt and not seeing any other way out but
settlement, you first try my DOLP method or the DebtWise.com bankruptcy can drive a lot of people to the edge. Just remember
tools to get out of debt. If these approaches don’t work for you, or that as bad as things may seem, the fact remains that you can
you feel you need someone to help you with them, look for a change your life. If you are feeling overwhelmed by your debts,
non-profit credit-counseling organization. Only after you’ve please find a good credit-counseling agency and sign up today.
exhausted all these alternatives should you approach a And don’t stop there. If you ever find yourself, even for a moment,
debt-settlement company. And then make sure you do with your considering hurting yourself, STOP and call someone you love.
eyes wide open and your questions ready.” Remember these words: ‘This too shall pass.’ Believe me, it
– David Bach always does.”
– David Bach
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9 Make moving forward again automatic Strategies 10 Look for money to boost debt repayment Strategies

To get out of debt and stay out of debt permanently is hard work. There are seven simple things you can do in an hour or less
It requires discipline and commitment. There are no shortcuts which may help you find hundreds or even thousands of dollars
but there is one thing you can do to help. If you genuinely want to you can add to your debt payments. As at the end of 2010, there
succeed, make your plan automatic or set-and-forget. This was $32 billion in unclaimed state assets belonging to some 55
doesn’t have to be complicated. You should be able to get million people. If any of that belongs to you and you don’t even
everything set up in an hour. realize it, you’re missing out on the chance to pay down some of
The steps to making your debt reduction plan run on autopilot: your debt immediately.
Here’s where to look for money owing to you:
Automatic 1 Pay yourself first automatically 1. Start by checking the federal government’s savings bond
debt database – at www.savingsbonds.gov. Navigate to the page
reduction 2 Have your paycheck direct deposited called TREASURY HUNT and search on your social security
plan number.
3 Fund your emergency account auto.
2. Check the banks – and see whether they’re holding money
4 Pay credit card bills automatically f or you. Go to www. unc laim ed. or g and
www.missingmoney.com and do searches. The searches
5 Fund “extra payments” automatically are free.
6 Pay monthly bills automatically 3. Check with the Federal Deposit Insurance Corporation – at
www.fdic.org. See if there are any unclaimed assets which
belong to you there.
1. Pay yourself automatically – have a minimum of 5% and 4. Check with the Pension Benefit Guaranty Corporation – by
preferably 12.5% of your income deposited directly into your doing a search at www.pbgc.gov. See if you have any
401(k), IRA or other similar retirement account. Pay yourself unclaimed pension benefits you’re entitled to receive.
first even when you’re in debt otherwise you will never get 5. Check with the IRS – for whether you’re eligible for refunds
started. that have not been collected or tax credits you didn’t know
2. Have your paycheck direct deposited – so you don’t have to you were eligible for. The IRS estimates there are 1.4 million
wait in line each week at the bank. people who were owed more than $1.3 billion in the 2006 tax
3. Fund your emergency account automatically – put aside 5% year which was not rightfully claimed within the three year
of your income until you have an emergency cash cushion period allowed. They’ve missed out but you don’t have to.
which could meet your living expenses for three months. Check whether you’re owed a refund you haven’t collected
for whatever reason came up.
4. Pay credit card bills automatically – get them all to come due
on the same day each month and then make your payments 6. Check with social security – double-check your Social
five days before the bills are due using your bank’s online Security benefit statement to make sure the earnings listed
bill-paying facility. That way you won’t miss any payments or on the statement match what you actually earned. Also
get hit with any late fees or penalties. search for whether you’re missing any social security
benefits you’re entitled to. Their web site is at www.ssa.gov.
5. Fund your “extra payments” automatically – arrange to have
$10 a day which you’re paying towards your #1 priority under 7. Check for unused gift cards and gift certificates – which some
your DOLP plan transferred automatically from your states have legislated must be turned over as unclaimed
checking account to the loan account until it is completely property. $6.8 billion was added to this pool last year alone.
paid off. Make this automatic so it’s painless. Do the same Look at your state government Web site for instructions on
with the extra mortgage payments you want to make. how to go about filing to reclaim these assets.
6. Pay all your monthly bills automatically as well – either by The whole point is all of this money belongs to someone. If you
having the regular ones paid each month using your bank’s have legitimate claim, the money would be far better used
online bill-paying service or by arranging to have variable helping pay your debts than it is sitting in some state or federal
bills charged to your credit card. In this way, your entire government account somewhere. At the very least, have a look
financial life can be automated and you never get hit by late in case you’re owed anything.
fees or penalties. “The way to get started is to quit talking and begin doing.”
“Bet on yourself to win.” – Walt Disney
– Tom Hanks “Why not start today? You could change your destiny today. I
“Just knowing that you have a plan in place to pay down your truly believe you will be happier with less debt – and I know that in
debt in the right order, the right way – a plan you can carry out just three to five years, if you follow my systems, your entire
yourself that will save you thousands of dollars in interest fees financial life will be better. You’ll have less stress – and you’ll
and cut years off your indebtedness – will truly lighten your probably be healthier too. Make this life of yours special –
burden, however light or heavy it may be.” because it is.”
– David Bach – David Bach

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