Today’s Friday Book Club will feature Chapter 7 of The Automatic Millionaire and is entitled The Automatic Debt-Free Lifestyle. In this chapter David Bach focuses on debt and lists several reasons why it is usually a bad thing to have and why wealthy people most often will not be in debt.  I really appreciate the first sentence that he starts the chapter out with and I’ll quote it here for you.  It’ll be a great way to start this week’s Friday Book Club.

For most of us, debt can be a trap that forces us to work longer than we should have to.

What a great statement.  I know from first-hand experience (and David says he does as well in this chapter) that debt can literally trap you in this meaningless cycle of minimum monthly payments on credit cards and living literally paycheck to paycheck sometimes being forced to use your credit card just to live which of course usually negates any payments you might have made on your credit card in said month.  It’s a terribly depressing cycle and one that’s not always easy to get out of.  This much is true and is a sad reality for a large number of people in the world.  In fact for us in the U.S. of A it’s almost a way of life.

The Average American Family’s Credit Card Debt: $8,400

How’s that for a depressing statistic?  According to David we American’s have half a trillion dollars in credit card debt, which works out to be that $8,400 average number.  The question is… why?  Are we living above our means or are we literally just unable to survive without using our plastic?  I’m sure that there are many who will agree with the first answer and many who will agree with the second.  I’m inclined to think both ways… after all I’ve been in the second cycle, but I also can’t say that I didn’t at one point deserve the debt that I got myself into by purchasing things I didn’t need and couldn’t afford.

“Operation No More Debt”

So what do we do about it, David asks.  How can we fix this and get ourselves out of debt?  He lists five steps here which I’ll outline for you.  Of course I’d recommend picking up a copy of this book yourselves so you can read the full details.  It really is a motivational read.  Anyway moving on, here are the five steps.

1. Stop Digging: In other words, don’t take your credit cards shopping with you.
2. Renegotiate the Interest Rate on Your Debt: Call up your creditors and ask for a lower rate – if they don’t respond positively then threaten to transfer your balances to someone who will.
3. Pay For The Past, Pay For The Future: Don’t just pay down your debt, but pay yourself as well by moving money into a savings account or retirement account.  This will keep your attitude positive when your debt doesn’t dissipate as quickly as you’d like it to.
4. DOLP Your Debt Out of Existence: In other words if you can’t consolidate your credit card debt into one place then make a list of which one to pay off first and pay them off one by one.
5. Now Make It Automatic: This one’s easy.  Set up your credit card payments to pay automatically so you won’t have any say on if you’re paying extra this month or not.

That’s it for this week’s Friday Book Club.  This chapter has been one of my favorites because it applies so clearly to so many people.  Debt is a big problem in the U.S. and something that really needs to be reevaluated.  Remember that The Automatic Millionaire is not someone who carries debt.  See you next week!