I have recently read the David Bach personal finance book, Debt Free For Life. Rather than focusing on becoming rich, David Bach's focus is clearly on the simple aim of debt freedom. Is it a philosophical shift away from the "latte factor" of his previous books or just a repackaging of the same old ideas for a new economic era? Here is a summary of the first 5 chapters:
1 - Who Put America Into Debt - and How You Can Get Yourself Out The lenders made it easy, but it was still the individuals who put their name on the documents and signed themselves up for a lifetime of debt. However, just as individuals made the choice to get themselves into debt, they can also make the choice to get themselves out of debt. Debt freedom is something pretty much everyone can do for themselves as long as they choose to do it and choose to set aside elements of an overinflated lifestyle to accomplish it. Our grandparents did it, so why can't we?
2 - Debt Math: How Lenders Keep You Broke The biggest trick that lenders use on unsuspecting borrowers is the low low low monthly payment. If a lender has a monthly payment that just barely exceeds the accumulated interest for the month, then you're not really reducing your debt much at all (maybe a dollar or two) by making that minimum payment. Instead, you're going to be making that minimum payment for many, many months, paying interest to the company the whole way. When you're just handing money to a company in the form of interest payments, it's leaving your pocket with nothing in return except your own impatience.
3 - The Debt Free for Life Mindset Why are you in debt? Why do you want to not be in debt? What's the difference between these two answers? To put it simply, you have to fully understand what's different between your life now and a life path that leads you to debt freedom. You need to know what needs to change before you can change it.
4 - If You're in a Hole, Stop Digging The first step in that change is to staunch the outflow of money, and the most effective and immediate way to do that is to cut back on your spending - hard. You can't become debt free if you keep adding more debt. The way to stop adding more debt is to simply stop buying what you don't need, then add things back in at a later time once you've realized that the purchases really do add enormous value to your life.
5 - The DOLP Method: How to Pay Down Your Debt in Record Time Ramsey calls his debt repayment plan DOLP (Done on Last Payment), but it's exactly the same as Dave Ramsey's debt repayment plan. Just list all of your debts in order of their balance size, then focus all of your efforts in paying off the smallest debt first while making miminum payments on the rest. Coupled with some spending changes in your life, this should be doable. If it's not, you may need a coach.
6. Get Out of Debt Automatically with Debt Wise
This chapter really annoyed me. It is essentially an advertisement for a service called Debt Wise which will help you manage such a debt repayment plan - for a monthly fee, of course. This seems highly out of place in a book where a big part of the plan is to cut your spending, not sign up for new services.
7. Negotiate Your Debt Down: How to Lower the Interest Rates on Your Credit Cards Here, Bach offers some advice on negotiating down your debts, particularly your interest rates. Mostly, it boils down to contacting the company, making it clear to them that you’re having difficulty making the payments, and requesting a rate change. Generally, it’s in their interest to cooperate with you, because that type of resolution is far better than having to deal with a defaulting customer.
8. Your Credit Report and Score: What It Is and How to Fix It FastThis is mostly just a summary of what a credit report is (a document detailing your history for paying back loans) and some basic methods for fixing it. The big key is to simply be aware of what’s appearing on your credit report and, if it’s not yours, start contacting people until you can get the problem fixed.
9. Mortgage Debt: How to Protect Your Home and Pay Off Your Mortgage Debt Early Bach’s suggestions mostly boil down to making sure you have a thirty year fixed rate mortgage (if not a shorter term, like a twenty or a fifteen year), getting on a biweekly payment plan (paying half of your monthly balance every two weeks), and doing something about your mortgage if you simply can’t make the bills, such as using the government’s resources for mortgage relief.
10. The Student Loan Diet: Nine Great Ways to Crush Your Student Debt and Sleep Well at Night
Much as with the previous chapter, this is just a collection of strong basic ideas for dealing with student debt: consolidating government-backed loans, focusing on paying off private loans first, looking into loan forgiveness programs that may be available to you, and understanding the specific payment options for each loan you have and choosing the one that works best with your life.
12 – How to Get Non-Profit Credit Counselling – and a Professional to Guide You Out of Debt Here, Bach points people towards credit counselling, which is a good solution mostly if you’ve tried to get your debt repayment under control and you’ve failed miserably at it. I genuinely believe that the best first step people should take before turning to a counsellor is to try managing their debt themselves. This way, if they fail, they can at least have a chance of understanding why they failed, which can give a big clue as to the type of coaching and help that person needs.
13 – Debt Settlement: Solution or Scam? Bach spends most of this chapter making a strong case that you should never try out debt settlement programs, and I think I agree with that assessment, even if Bach does hedge his bets a bit by the end of the chapter.
14 – How Bankruptcy Works, When to Use It, How Long It Will Take You to Recover Mostly, this chapter offers general advice on bankruptcy . One very big key that Bach mentions here is that you should never raid retirement accounts to pay off debt. If you’re in a situation where it seems that doing so is your only hope, contact a lawyer first. Often, bankruptcy proceedings will allow you to protect your retirement savings.
15 – Make It Automatic! The Automatic Millionaire 2.0 Bach begins winding down the book here, making a case for automating as much of your personal finances as you can, particularly in terms of saving for the future and investing. Direct deposit your pay check, then have automated savings plans move some of that money out of your checking and into your savings or into your investment plan of choice.
Is Debt Free for Life Worth Reading? If you’ve never read a book by David Bach, this is the one to read and I’d recommend that you do. He offers a very solid perspective on personal finance, particularly from an angle of extracting yourself from debt and getting yourself on a good path towards retirement and the future stages of your life. Debt Free for Life is perhaps the best all-around packaging of his ideas, aside from the annoying sixth chapter.
The biggest difference between Debt Free for Life and Bach’s other books is in the specifics. The core idea is the same, and if you’ve already grasped that concept thoroughly, there’s nothing drastically new here other than some good specific ideas.
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