America’s obsession with debt plans and strategies took off in 2006 when Oprah Winfrey, along with financial experts David Bach, Jean Chatzky, and Glinda Blidgforth, launched an action plan for people overwhelmed with debt. Since then, countless books, dvds, and websites have been promoted as the official “debt free diets” for Americans. According to Oprah, the step by step plan to finding financial freedom goes as following:
Step 1: Determining How Much Debt You Actually Owe
This may be the most difficult step for some people, but actually figuring out what you owe is an important step to handling your financial situation.
Step 2: Tracking Your Spending and Budgeting To Find Extra Money To Use To Pay Down Your Debt
By identifying any superfluous expenses, you will be able to dedicate a larger portion of your income to paying down your debt.
Step 3: Learn To Play The Credit Card Game
According to Oprah, the “playing the credit card game” means paying more than the minimum payment, and it does not refer to consistently transferring balances each month. PayingPaul.Com stands opposed to the “credit card game” and other tactics involving “Robbing Peter To Pay Paul” for several reasons elucidated throughout the website. Mainly, relying on credit to try to get out of debt is a contradiction and playing the balance transfer game leaves far too many consumers burned, owing more than they did previously.
Step 4: Stop Spending
This is easier said than done, but any debt diet requires an immense amount of self-discipline in order to be successful.
Phase 2
In Phase 2, the steps are focused more on long-term goals like raising your credit score and increasing your income.
Step 5: Create A Monthly Spending Plan
This step falls in line with Step 2 above---tracking your spending and budgeting.
Step 6: Increasing Your Cash Flow
Taking on a second job, selling an asset or doing anything else that can potentially help you increase the cash available for paying off your debt.
Step 7: Determine Which Debts To Pay First
In this step Oprah urges consumers to pay secured debts and then unsecured debts. Her logic is reasonable: the debt with collateral is automatically more important since non-payment can result in repossession of that property.
Step 8: Determine What Lies At The Root Of Your Spending Problem
In order to stay debt free, one must always identify what the cause of their problems with money is. That way they can work to avoid repeated tendencies.
Problems With The Debt Diet
The main issue with Oprah’s Debt Diet and other debt plans is they assume that people can pay back their debt without an adjustment of terms or payments. Unfortunately, not everyone has the assets or income to stay current on their payments. What are these consumers to do for debt help then? Generally, there are two options for consumers with more serious debt problems.
The first is debt settlement, also known as debt reduction. These companies can actually work with creditors to reduce the amount that is owed on a client’s credit card balances, sometimes by as much as 40 to 60% of what is owed. It is generally the fastest way to get out of debt without filing personal bankruptcy. For consumers who are having trouble paying their credit card minimums due to a financial hardship like divorce, medical problems, or unemployment, this may be the most appropriate debt solution.
The second is debt counseling. Credit counseling agencies are generally non-profit, and they work with creditors to lower the interest rate and finance charges owed to credit card companies. These programs typically last 4 to 6 years and most clients see a reduction in their monthly payment, although not nearly as dramatic as one offered in a settlement program.
Let PayingPaul.Com match you directly with a pre-qualified and inexpensive provider of debt management diets. Simply fill out a form and receive a free, no obligation consultation from an expert in debt resolution.
Other Methods For Debt Relief
Another popular approach that more consumers are turning to is Dave Ramsey’s “Debt Snowball” scheme. Dave Ramsey is a popular radio syndicate who preaches against bankruptcy and debt consolidation solutions, and instead advocates a self-help style and methodology to getting out of debt. The basic premise behind his program is that debt problems are as much of an emotional issue as a financial one. This being the case, you cannot attack the problem with a financial attitude, and instead one must account for the emotional factors that are more important to the debtor’s psyche. When it comes to getting out of debt, what is important to the debtor’s psyche is momentum.
So while other consumer debt advocates urge Americans to attack the debt with the highest interest rate first, Ramsey argues that the first debt to tackle is the one with the smallest balance. With that debt paid off, you should take on the next smallest debt and continue this procedure until debt free. The whole idea is that once you see your debts being eliminated, you will gain momentum much like a snowball rolling down a mountain, hence the name.
The main issue with this approach is that it is completely illogical. After all, you can potentially waste a lot of money by going after the debt with the smallest balance instead of the one with the highest interest rate. If you can manage to be self-disciplined in your quest for financial independence, this is an irrational method for debt reduction.
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