Author David Bach talks plastic strategies

David Bach is bullish on the New Year.

The Oprah-approved financial guru and author of such wealth-building best sellers as  "The Automatic Millionaire" and "Fight for Your Money" rings in 2010 with "Start Over, Finish Rich," a cheery handbook that offers 10 steps to get you back on track in the coming year.

Sure, 2009 was a rough ride. But with the stock market regaining momentum, unemployment numbers dropping and stimulus money finally flowing onto Main Street, Bachs says it's time to ditch despair, end the pity party and start to prepare yourself to reap the rewards of the recovery. The title of your new book, "Start Over, Finish Rich," seems to acknowledge the shell-shocked state in which many investors still find themselves today.

David Bach: Yes, it really does. I was at a party last night, talking with a friend of mine who had lost a lot of money in the stock market, and I asked her, "Are you happy now that things have really improved?" And she said,  "You know, I haven't been able to look at my statements in over a year." I told her to go open them up because you should be up another 50 percent from the bottom of the market. A lot of people -- even at this point -- think that they're doing worse than they really are. But also, unfortunately, a lot of people stopped investing when the market tanked in 2008, millions stopped contributing to their 401(k) plans. And it was a pretty huge mistake because this has been one of the best rallies in the stock market in our lifetime, and it will probably continue. How can you coax people out of their cave?

Bach: Recessions lead to recoveries and recoveries create millionaires. This is not a time to miss that.

This is an opportunity for Americans to start over, whether personally, financially, emotionally or career-wise. My goal is to get people to feel better because if you don't have any confidence, it's hard for you to make good decisions. And right now, America is lacking in confidence. What I want to do is really raise the confidence level of Americans when it comes to their money and their lives. Stop the pity party. A good place to start is your "Dead On Last Payment" or DOLP strategy for paying down credit card debt. How does it work?

Bach: The purpose of DOLP is to reduce the number of credit cards you have as fast as possible. That's because every credit card you have in your wallet is a potential ticking time bomb, not just because of the interest rate, but because of the over-the-limit fees, late fees and so on. You can have a $100 credit card balance and be hit with $100 in fees a month. DOLP gives you a mathematical formula that helps you prioritize which card to pay off first. This enables you to raise your credit score faster. How does that work?

Bach: Ideally, as you pay these cards off, you're going to leave the accounts open. Now that those cards have no debt on them, you're improving your utilization rate and you have less potential to have late payments. If a person has 10 credit cards, they have 10 opportunities a month to have a late payment, 120 opportunities a year to be late. The faster you can get somebody from 10 cards down to five cards, the faster you reduce their ability to screw up their credit score significantly. That strikes many readers as counterintuitive.

Bach: What is really counterintuitive is that people are told over and over again to pay the highest interest rate first. With DOLP, what you usually end up doing is paying the smallest card (balance) off first. So it's more than just a numbers game.

Bach: Yes, because psychologically, I want people to get wins, even small wins. It feels good to start seeing yourself having a card paid off, then two or three cards paid off. Say someone has 10 credit cards, from a $500 credit card balance to a $20,000 balance card with the highest interest rate on it. If they focus on the $20,000 credit card, they'll never get the $500 credit card paid off. It's depressing to see that $500 bill every month. So just seeing that statement at $0 gives them greater confidence. More than half the battle of personal finance is having the confidence. You suggest that cardholders become more aggressive in asking their card issuer for a better interest rate. How do you know what rate you should be paying?

Bach: First, it starts by knowing what your credit score is. You can get your free annual credit report at But I think that people at this point should be buying their three-in-one credit reports and have access to them every month, looking at all three bureaus. Then you go to a Web site like and you look at your credit score and see what rate you should be paying. If you know that you're a super-prime borrower (credit score 760-850), you shouldn't be paying a subprime or punitive rate. If you're being offered a promotional rate, it better be in line with the promotional rates. How do you rectify the situation?

Bach: You call your card company and say, "This is my credit score. Why is my rate so high? What can we do to get my rate in line with where it should be?" You really can talk your rates down. It has become harder because so many people have been making these phone calls. The better your credit, the easier it is to talk your rate down. If you've never asked for a rate reduction, you have a better chance of getting a rate reduction. There's another avenue for relief: the card company's debt management plans or DMPs. Are they a good idea?

Bach: If you enter their plan, many credit card companies will lower your interest rate to zero, debit your account directly to pay your bill and freeze the card so you can't use it. You'll be locked into that for a year, 18 months or two years depending on the plan. Now, it can affect your credit score, but the reality is, if you can't pay your bill, that affects your credit score even more. America is a staggering $888.1 billion in credit card debt right now. Do you think the CARD Act can help us dig out of our credit card hole?

Bach: The CARD Act was really overdue. The credit card industry has had a license to mint money on the backbone of the financial ignorance of Americans. I think now they are shifting back to a fair approach.

Credit cards shouldn't be complicated; they should be simple: I'm borrowing money, here's what the rate is, here's what the fee is if I'm late, here's when it's due. Things should be fair. You shouldn't be able to move the due date and have these universal default clauses and double-billing cycles and all these crazy things they were allowed to do that made them billions of dollars. It just isn't right. They still have a lot of leeway to do things wrong. How can we avoid the lure of living on plastic?

Bach: It really comes back to the consumer. You have to be on top of it. There's always going to be a credit card industry, and candidly, we can't live without a credit card industry. Everything that we do today revolves around credit cards; people don't use cash now, we use debit cards and credit cards. You really can't afford to have a bad credit score these days.

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