Oprah’s “Debt Diet” - Four Steps To Get Out of Debt - How to Pay-Off Your Debt and Save Money - Dieting for Lower Payments and Frugality

March 23rd 2006

Ways to Save Money

Oprah Winfrey is running a very informative series of shows with practical methods for dealing with debt. I am talking about the Debt Diet programs. She broke the strategy into 4 steps, the first being determining how much you really owe.

Many people do not even know what they owe. Jean Chatzky said that even if they do know, their spouse doesn’t. It is important to pull out your bills and total your expenses and debt. The experts agreed that it is important to know what you owe before you make a plan for repaying it.

The second step is to keep track of your spending. Look for areas where you can cut spending. Use this saving to pay down your debt. One of Oprah’s guests, David Bach, mentioned the “Latte Factor”. We need to review our luxury expenses like fancy cups of coffee, cigarettes, bottled water or fast food. Not spending just $10 per day can put $3600 in your pocket after one year (or to pay your debt).

Let’s say you owe $8,000. If you pay only $160 per month, it will take you 30 years to pay off that debt at a 16% interest rate. This works out to just $5 per day. But if you are able to double that payment, just $10 per day you could pay the debt off in 3 years.

The third step is work with the interest rates. You can always ask for a lower rate. Keep track of the transfer balance offers you receive in the mail. The Oprah Winfrey show suggests telling your credit card company that you have been getting card offers from other companies at a lower rate. You could lower your minimum payments, interest rate and amount you owe by selecting lower interest rates.

The experts say tell the credit card company that you will be transferring your money to a competitor if they don’t lower their rate. If this fails, ask for a supervisor and tell them the same thing. They have the authority to lower your rates right over the phone. You might be able to cut your interest rate in half. You may mention that if you do take your money elsewhere, their bank will be sending you promotional offers the next week.

Right now, credit card interest rates range from 0% up to 40% with an average of 13%. Read your statements and see what you are being charged. There are websites you can help you compare credit card interest rates. Before you apply for new card, ask for a lower rate from your current bank.

It has been reported that nearly a third of all credit card revenue comes from late fees. If you are late, many credit card companies will waive the first late fee, but you will need to call and ask them to. This is important because the interest rate may go up as well. If the late payment is reported to the credit bureaus, interest rates on your other cards may go up even though you were not late on their cards.

Always take notes of the date and time you called, who you talked to, their badge number, and the substance of the call. You may want to write the information right on the bill so you don’t lose the notes. If there is any problem in the future, at least you have some documentation.

If you are a customer in good standing you should always ask for a waiver of your credit card fees. Some card companies charge nothing while others charge up to $2500 per year. Most charge between $30 and $100 per year. Take that money you save and pay down the card with the highest rate.

The forth step is to stop spending. Of course it sounds easier than it is, but frugality is an important step for getting out of debt.