Personal Finance

Be debt free for life, urges author David Bach

David Bach attended his first financial seminar when he was only 7 years old. Since then, he has become a regular on the "Today Show," crafted Oprah's debt diet and written 12 personal finance books, 11 of which have become bestsellers -- in a row.

His latest book, "Debt Free for Life," comes with a challenge to get 1 million people to pay down $1 billion worth of debt. When he offered "Debt Free for Life" as a free download on AOL in January, 78,000 people took him up on that offer.

He talked to recently about debt and how to nix it from your life. Debt seems to be so much part of our lives. Can we really be debt free for life?

David Bach: We absolutely can. There is a movement across America right now where millions desire to get out of debt like they never have before. The last time we saw this movement was after Great Depression. My grandmother came from the Great Depression. She grew up with values that were if you didn't have the cash, you can't afford to buy it. If you borrow money, you need to pay it back. The sooner you're debt free, the better

We've really gotten away from that. With the recession and people losing their jobs, people are having record amounts of debt, whether its mortgage debt, credit card debt, student loan debt.

The past three years, with this recession, has created a movement in this country with two key things: Americans are saving more than ever before. People are paying down their debt. Almost $200 billion of credit card debt was paid off last year. I think this is going to be a long-term shift in our country. We're living through a debt reduction economy. That is a very healthy thing for Americans. How do credit card and mortgage debt tie into each other?

Bach: A big part of what led me to write this book: I do this segment called "Money 911" on "The Today Show." In the beginning, a lot of our questions were about investing. In the last few years, I've gone from answering questions about investing to 75 percent of questions I get are related to debt -- if not more.

There used to be this belief in this country -- and I too bought into, but I've changed my mind -- that there's good debt and bad debt. We're trained that good debt was mortgage debt and borrowing for a college education. Bad debt was credit card debt.

All debt is just debt. All debt can be bad if you can't afford to pay it back.

What I teach in "Debt Free for Life": If you're going to borrow money, get the best possible deal on where you go to borrow money.

People need to shop for a better credit card and find a better rate. And the good news is that rates are coming down and there are phenomenal credit cards out there and opportunities for people to switch from a bad credit card to a helpful credit card. Explain the DOLP System.

Bach: DOLP is Dead On Last Payment.

DOLP is a method of paying down debt that I've been teaching for well over a decade. It was highlighted on Oprah's "Debt Diet" that we did a few years back. We've had millions of people exposed to this system. It's incredibly simple. It helps people to see in black and white, in less than 10 minutes, how much debt they really have.

You start it by becoming honest.

The DOLP method is a debt scale. If you want to lose weight, you go in your bathroom and step on a scale. DOLP is your debt scale.

It's a mathematical formula to quickly, in a matter of minutes, determine what debt should be your first debt to pay off. I teach people to pay minimum payments on all of your debt and focus extra money on priority target debt. That usually ends up being your smallest debt and typically smallest credit card.

What we've now created is an online program that does all this for you it's called The program is powered by Equifax.

What Debt Wise does is takes my DOLP system and it does all the work for you because it pulls all your debt off of your credit file that Equifax has. It does the math for you and shows you this is your priority debt, this is the debt you have, this is when you'll be debt free -- your Debt Freedom Day -- based on your debt payments. If you want to pay off your debt faster, it runs those calculations.

We believe with Debt Wise that the average consumer can get out of debt 15 years sooner and save over $30,000 in interest payments.

What's exciting about Debt Wise it that it automatically updates, too. Every time you make a payment and a payment is recorded with credit bureau, which they are every month, it's automatically updated. Can we use credit cards responsibly?

Bach: I think we can use credit cards responsibly. I also believe we live in a world where you need to have credit cards. You need a credit card to rent cars, check into hotels. You can use debit cards and pre-paid cards, but most people need a credit card.

I got myself into credit card debt in college, and it took me almost three years to get out of that debt after college.

The way I've done it is I use an American Express charge card for business. I use a debit card for personal, and I have one personal credit card. I've run my entire financial life with essentially one debit card and one credit card.

I teach not only how to get out of debt, but making sure when you have a credit card that you do all the right things to use them responsibly, that you pay them automatically, that you always pay at least the minimum payment but ideally you pay twice the minimum payment.

The problem is not using the credit card. The problem is borrowing the money that you can't afford to pay off every month. How did you get started in this field?

Bach: I grew up in this field, for better or for worse. I started going to investment seminars at the age of seven because my father was a financial adviser who taught financial classes. By the time I was 12 years old, I was teaching my parents' friends how to invest. After I got out of college, I went into business with [my father] and started teaching investment seminars for women.

I was one of the youngest senior vice presidents at Morgan Stanley. I was there for nearly a decade and managed hundreds of millions of dollars for average Americans who make $50,000, $60,000, $70,000 a year.

First I wrote "Smart Women Finish Rich." Then I wrote "Smart Couples Finish Rich." In that time, I created seminars and had other people teach them across the country. From there, I made decision to retire from Morgan Stanley in 2001. Now I just completed my 12th book. I have 7 million books out now. "Debt Free for Life" is our 11th consecutive bestselling book. What surprises you most about people and money?

Bach: My core single biggest message that I have shared since day one is that the secret to building wealth is to pay yourself first, and the only way to build your wealth is to pay yourself first automatically.

What surprises me to this day is that people who understand what pay yourself means don't do it. I would like to think the people who follow me are doing it, because we hear all their success stories. The message hasn't changed for 20 years. I'm just surprised when I meet people and they're in their 40s and 50s and 60s, and they haven't started saving yet.

It surprises me that when I'm teaching things, it's brand new information. I think what's unfortunate is that we still don't have a natural curriculum in the school system on basic financial learning. To me, basic financial planning should taught in school. Just like science and math, we should be teaching kids in schools basic financial planning principles.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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