The Automatic Millionaire by David Bach - Chapter 7 - Automatic Debt-Free Lifestyle

In this next-to-the-last chapter of The Automatic Millionaire, the author, David Bach, deals with what most personal finance writers place higher on the list, paying off your credit card debt. Bach states that Automatic Millionaires do not do debt, they only borrow to pay for things that appreciate in value, like a home.

After going through some pretty sad statistics on credit cards, Bach sets up a couple of steps for getting rid of your credit card debt:

Stop Carrying Credit Cards
You cannot get out of a hole if you keep digging. Recovering alcoholics do not carry a flask with them, just in case, neither should you. I don’t know that you need to destroy all your credit cards, but I do agree with the author that there is no need to carry them around with you.

Renegotiate Your Interest Rates
Here the author gives some advice on how to negotiate with your credit card company to get a lower interest rate. I have done this, and don’t call without ammunition — know what good deals you can get, because the first thing they offer you will not be their best offer.

Consolidate Your Credit Cards to the Lowest Rate Cards
Actually part of the above step, as you are talking to your credit card company, ask them if they also have a ‘deal’ for transferring balances, and let them know you are asking all your credit card companies for their best deal. Be careful of any fees for balance transfers, although if it reduces the interest rate a $50 one time fee may not be a bad deal but $0 is better.

Devote Half of Your “Pay Yourself First” Money to Paying off Credit Card Debt
Here again Bach deviates from the standard personal finance advice. Most writers have you pay off all your credit card debt before starting your retirement fund. Bach’s proposes using half of the 10% you are setting aside for your “Pay Yourself First” money to pay off your past. He contends that people need the emotional satisfaction of building for the future while paying down their debt.

Use the DOLP Method to Pay all Remaining Credit Cards.
This is Bach’s cute acronym for “Dead on Last Payment” since he is going to have you cancel each card after it is paid off. No matter this may hurt your credit. The actual ‘method’ of this system is to divide each card’s balance by the minimum payment for that card and pay the card with the least number of remaining payments off first with your extra cash. He does not mention snowballing the minimums together as you pay them off like most other writers.

Automate Your Credit Card Payments.
His final step is, of course, to make this all automatic by having your credit card companies auto-deduct the payments from your checking account each month or using bill payer option with your checking account. I don’t think I would want to give my credit card company access to my checking account but would have no problem setting up automatic payments from my checking account to the credit card companies using the bill payer option. It especially makes sense to set it up so that the minimums come out each month, then you can send in any extra to pay them off early.