Lynnette Khalfani-Cox, The Money Coach and her best-selling book Zero Debt: The Ultimate Guide to Financial Freedom has been seen on the following television shows and networks:
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Some of you know that I’m a financial journalist by background and training. You may have read my articles in the Wall Street Journal, Black Enterprise and Essence magazines, or on Dow Jones Newswires and other publications. Or perhaps you watched me on television when I was a reporter for CNBC, or when I was a guest expert on CNN, The Oprah Winfrey Show, Dr. Phil, Good Morning America, The Tyra Banks Show, or The Rachael Ray Show. What many of you may not have known, however, is that at one point I was very deep in debt – to the tune of $100,000 worth of credit card bills alone.
Fortunately, I managed to pay them all off – in less than three years – without ever missing a single payment. And no, I didn’t file for bankruptcy protection to get rid of my debts. Nor did I enter a credit counseling program. I certainly didn’t cut up my credit cards and go into one of those debt management programs advertised so often on the radio and television. Instead, I got smart: about my spending, how I was handling my money, and especially how I was managing my credit and debt.
After I became debt-free, I wrote Zero Debt, and it soon became a New York Times and a Business Week bestseller. Zero Debt is written as a 30-day action plan to help you wipe out debt, improve your credit, and jump start your finances – no matter what your current situation.
Zero Debt has touched a nerve with tens of thousands of readers, around the country and around the world, because debt is such a huge issue for so many people. And I mean all people: Black and White, Asian and Latino; young and old; highly educated and not; well-paid workers along with those making the minimum wage.
All of the strategies I used to get out of debt – and more – are outlined in this book. I’m pleased to say that since the original publication of Zero Debt in 2004, I’ve remained debt-free. Since then, however, scores of other people have become mired in debt. More significantly, the entire credit and debt arena has shifted enormously. Congress passed new laws concerning consumer debt and bankruptcy. President Barack Obama also signed major credit card reform legislation. Interest rates fluctuated, the global credit crunch emerged, and consumers faced tougher borrowing requirements for everything from mortgages to credit cards to auto loans. Additionally, new credit-related products and services emerged. Here are highlights of some of the important developments that prompted the need for this revised, updated edition of Zero Debt:
A sweeping overhaul of the bankruptcy system
Bankruptcy reform legislation, passed in October 2005, made it more difficult for consumers to wipe out credit card debts. What options exist if you’re cash-strapped and can’t pay your bills? Also, what are the main differences between Chapter 7 and Chapter 11 bankruptcy filings now? How can you prevent serious financial difficulties and avoid bankruptcy? Finally, if you were among those individuals who did file for bankruptcy protection in recent years, how can you restore your credit standing? This updated version of Zero Debt provides the answers to these questions and more.
The debut of entirely new credit scores
In 2006, the “Big Three” credit reporting bureaus – TransUnion, Experian and Equifax – surprised the industry (and consumers) by launching a new credit score, called VantageScore to rival the benchmark FICO credit score that is used by most banks and financial institutions. This new credit score gives you various credit grades – either A, B, C, D, or F – just like the ones given in school. So, should you buy this credit score instead of, or in addition to, your FICO score? Or do you need the new VantageScore at all? Are lenders starting to use these instead of FICO scores? And is the new credit scoring system, which promises to offer one unified credit score, more accurate than what is currently available? You’ll find the information you need here in the second edition of Zero Debt.
Greater access to credit information
In the time since I first wrote Zero Debt, The FACT Act has taken effect nationwide, giving individuals in every state the right to obtain one free credit report per year. Now that you have ready access to your credit files, how can you best monitor, protect and improve your credit standing. Additionally, how should you battle one of the biggest problems of the industry, namely, that 70% of credit reports contain mistakes? This book gives you the tips and tricks that can help you tackle this issue, and more quickly boost your credit score.
Higher minimum payment requirements
As of 2006, a new federal law increased the minimum payments on most credit cards from 2% to 4% of the outstanding balance. How can you deal with this change, and is this good or bad for you overall? This updated rendition of Zero Debt tells you everything you need to know.
Rising late charges and credit card penalty fees
If you’re carrying plastic in your wallet – and 75% of all adults in the U.S. have at least one credit card – you’d be wise to know the true cost of using credit. This second edition of Zero Debt details the litany of fees you may be subjected to; including many charges that you didn’t know existed. I’ll explain how to avoid these costly fees, as well as how to fight credit card penalties if they appear on your monthly statements. I’ll also tell you how to negotiate with your creditors to make your debts more manageable.
Mandatory credit counseling
If you file for bankruptcy, credit counseling is now mandatory. This change is a huge boon to the credit counseling industry, which is notorious for consumer abuse. Even if you’re not on the verge of bankruptcy, I’ll reveal what you should look for – and what to avoid – in picking a credit counseling or debt management firm.
Credit card reform
In May 2009, President Obama signed into law the Credit Card Accountability, Responsibility and Disclosure Act, also known as the Credit CARD Reform Act, to be rolled out over 15 months.
In August 2009, two provisions of the Credit CARD Reform Act became effective. One required banks to give consumers 45 days notice before an interest-rate hike (up from the previous requirement of 15 days notice). Another provision required banks to mail credit card statements 21 days before the due date, instead of 14 days, in order to give consumers more time to pay their bills.
The Credit Card Reform Act Ushers in Big Changes In 2010 and Beyond
Effective February 2010, a host of changes to your credit card agreements take effect. For example, the Credit Card Reform Act:
As a result of these and other important changes, this revised version of Zero Debt not only provides fresh insights throughout the book, it also contains 40% more content than the original.
Shift from Over-Spending to a Debt-Free Life
When I give financial workshops or keynote addresses around the country, I often cite a study from Northwestern Mutual which found that Americans in all income categories spend an average of $1.22 for every dollar that they earn. That overspending explains, in part, why excessive debt is the number one financial problem in this country. But trust me: if I could rid myself of $100,000 in debt in just three years, you can get out of debt and achieve financial freedom, too.
My goal in revising and updating this book is to give you greater knowledge, skills and inspiration for living a debt-free life. Not only will I give you new pointers about how to achieve Zero Debt, I’ll also offer you some unconventional personal finance advice, including some pearls of wisdom no one has probably ever shared with you.
If you’re sick of making those credit card payments month after month – and year after year – without really getting ahead, it’s about time you learned the secrets of achieving Zero Debt. Otherwise, you’re bound to continue in the financial rat race, spinning your wheels, working hard but aimlessly in a fruitless bid to rid yourself of credit card debt and other bills. Getting out of debt isn’t rocket science, but it won’t happen by accident, either. To eliminate your debt you need a game plan. Zero Debt is that plan. It’s simple. It’s easy to understand. And it works. Try it for yourself and see if you can prove me wrong. With all the debt you’re carrying around, what have you got to lose – besides that stack of bills piling up each day?
Rising Credit Card, Mortgage and Student Loan Debt
Besides, you already know in your gut that you have too much debt. The same thing is probably true of most of your colleagues, friends and family members. Federal Reserve Bank data show that, as of 2008, Americans have collectively racked up $2.4 trillion in consumer debt, with about $1 trillion of that in the form of credit card debt. With the average credit card interest rate at nearly 15%, did you know that if you pay the minimum payments on $10,000 worth of credit card debt it will take you more than 25 years to pay it all off?! And that’s assuming you never charge another dime … which obviously isn’t realistic for most people.
I hate to be the bearer of bad news, but I have to point out that that $2 trillion in aggregate debt doesn’t even take into consideration what we owe on our homes. If you throw in mortgages, that’s another $10 trillion or so worth of debt in America. Plus, we haven’t even talked about student loans. The College Board reports that the average college grad leaves school with roughly $20,000 in student loans. One out of four graduates finishes school with more than $40,000 in college debt. Moreover, if you’re a doctor or a lawyer – or if you have a child in college – you know it’s not uncommon for people with advanced or professional degrees to graduate with $100,000 or more in student loan debt.
In the original edition of Zero Debt, I didn’t address student loan debt at all. In this updated version, however, I offer a wealth of tips for students, college grads and parents who are grappling with student loan debt. Over the past few years, the price tag for getting a college education has increased phenomenally – so much that I’ve written a sequel to Zero Debt called Zero Debt for College Grads: From Student Loans to Financial Freedom. While you’ll get some good advice about how to manage student loans and mortgages in the pages of this book, I’m primarily focusing on credit card debt throughout this updated version Zero Debt.
Consumer Debt on the Rise Internationally
Unfortunately, we’ve also exported our culture of debt globally. In decades past, credit-card use was not common at all in Europe, Asia and other parts of the world. But that trend has changed dramatically in recent years. When Zero Debt was originally published in 2004, the Bank of England reported that personal debt stood at a record $1.8 trillion. In the three years since, consumer debt in the U.K. has swelled by $400 billion to $2.2 trillion. Debt from mortgages and credit cards exceeds the U.K.’s annual national income from its production of goods and services. Like Americans, Britons have also been entering debt repayment programs and filing for bankruptcies at record rates. And experts forecast more households will go broke there and elsewhere.
According to the Office of the Superintendent of Bankruptcy, personal bankruptcies in Canada fell by 4.1% in 2006. However, the number of “consumer proposals” in Canada shot up by 6.7%. Consumer proposals allow people in debt to work out deals with their creditors to repay some, but not all, of their bills. Since a consumer proposal is one step short of filing for bankruptcy, this suggests that despite the drop in the number of personal bankruptcy filings, many Canadians are still living on the edge financially. The fact that Canadian debt levels are rising confirms this point. Currently, the average Canadian owes $5 for every $4 earned.
Meanwhile, the tide also continues to change in Asia, where citizens are noted for being fastidious savers and have preferred cash to credit for generations. However, in places like South Korea and Hong Kong, credit card usage rates now mirror those in America. The urge to splurge is even seen down under, as Australians max out their credit cards. Back in 2004, the typical Australian owed a record $4,937 in personal debts. Three years later, that figure rose by 15%, 2007 Reserve Bank figures show. Obviously, credit card debt is no longer merely a U.S.-based phenomenon, but one that is international in scope.
Keeping Up with the Joneses
It’s enough to make you wonder how this all came about. Certainly, our parents and grandparents never struggled with this kind of debt.
At some level, it’s easy to see how readily many of us fall into debt. First of all, even though our paychecks may not go up every year, the price of everything we purchase is always rising: from healthcare premiums, to college tuition, to gas for our cars and homes. Secondly, Madison Avenue markets heavily to all of us. Advertisers are very clever at getting us to want to “Keep up with the Joneses.” If you allow yourself to get caught up in this “I-want-it-all” consumer-driven mentality, and if you habitually engage in unhealthy over-spending, you’ll find in short order that you’ve veered off the path to financial freedom and onto the road to economic ruin.
The Threat Debt Poses to Your Relationship
The consequences of rampant over-spending, mostly on credit, are enormous. Not only are credit card delinquencies, bankruptcies, and foreclosures on the rise, debt is even a huge factor in families being split apart. Studies show that seven out of 10 couples who divorce say that financial strife played a big part in the breakup. If you’re married, be honest with yourself for a minute. Has your partner’s spending habits or financial patterns ever driven you crazy? Or perhaps you actually need to look in the mirror. Does your way of handling money – maybe buying things that the two of you can’t afford – cause friction in the relationship? It seems like a cruel joke of the universe that so many couples are financial mismatches, with one person being a care-free spender and the other a staunch saver. So, I don’t care how lovey-dovey you and your honey were on that last vacation as you sipped champagne together in a hot tub. If you don’t take the time to straighten out money conflicts, no matter how large or small they may be, these issues will continually surface, and they’ll haunt you for the duration of your relationship. I know you might have vowed “Until death do us part,” after you walked down that aisle. But if you’re not careful, that once-happy marriage can unravel over money battles. Don’t let your relationship turn into a case of “Until debt do us part.”
Next – Two Groups of People Who Are Deep In Debt
