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I can’t help but chuckle about the sponsors of Oprah Winfrey’s Debt Diet website. The page title reads, “How to get rid of debt, step by step”, yet on the banner and sidebar it reads … Life takes Visa. Oh me … that is too funny. On with the show. Oprah Winfrey also has a plan to rid yourself of the evil debt so you can too be one with your inner most being. Sorry, I don’t know where that came from or what it ever meant.

Step 1: Oprah wants you to start out your journey to repayment ascertaining just how much debt you really have.

1. Chart Your Debt
2. Know Your Credit Score
3. Prioritize Payment

It’s time to get real about your debt and answer the question: How much debt do youhave? Jean Chatzky says that many people don’t know—and even if they do know, often their spouses don’t. To get rid of debt and get yourself on the road to repayment, Jean, David Bach and Glinda Bridgforth all agree that it is crucial to know how much debt you’re carrying and at what interest rates. Pull out all your bills and print out the chart below to see how much debt you really have. Once you know your total debt, you can start paying it down!

You really do need to know just how much debt you are toting and how to prioritize it. While I am not so concerned about my credit score O makes a valid point later in this review about why she feels it is important to know.

In the prioritization of payments she wants you to pay necessities first, Uncle Sam second, and everyone else third. Necessities being those things you absolutely need to live on. Uncle Sam need no introduction and everyone else is pretty much stands on its own two feet.

Step 2: Track Your Spending and Find Extra Money to Pay Down Debt

 Now that you know how much debt you have, you need to find out where your money is going! David Bach’s Latte Factor® is a simple concept that can help you get out of debt. If you put just $10 a day towards your debt rather than spending it on fancy cups of coffee, cigarettes, bottled water or fast food, in one year you could put $3600 towards your debt!

Every day, you may be needlessly spending money on little things that you could be using to pay down your debt. Take David Bach’s Latte Factor® Challenge form with you everywhere you go tomorrow and write down every penny you spend.

Interesting concept that I do happen to agree with. Most of us can find an extra ten bucks a day. When that money is applied toward debt and once the debt cloud starts slowly lifting away, you start to see that there is light and that light is good.

Step 3: Learn to Play the Credit Card Game

Here in step 3, O wants to make sure you understand that $10 a day applied to your credit payment will get you out of debt substantially faster than if you just make a minimum payment. She goes on to urge you to call and lower your interest rates on existing credit cards. While I do agree with getting the lower interest rate I just hope this does not trigger a mechanism in our brains that it is OK to again start spending like there is no tomorrow. Personally I would rather you cut up and toss out the credit cards completely at this stage.

In step 3 Oprah helps you decipher the most common question I hear of someone that is beginning the debt free journey. That question is which credit card do I pay off first? Here is her answer.

When you have a lot of credit cards, figuring out how to pay them all off can be pretty daunting. Do you pay a little on all of them at once? Or should you concentrate on one card at a time? And if so, which one goes first? Follow these steps and your credit cards will be Dead on Last Payment—or DOLP™—for short.

The basic idea here is to reduce the amount of debt you’re carrying on the credit cards you have as fast as possible. Why is this important?

• The fewer credit cards you use, the better!
• The more credit cards you have the greater the chance you have of being hit with late fees (up to $39 a month), over the limit fees (up to $35 a month) and annual fees on your cards that can range from $25 a month to $150 or more.
• Getting the amount of cards you have paid off is a huge emotional boost. You’ll see yourself make progress quickly!

Here’s what you do:

1. Make a list of the current outstanding balances on each of your credit card accounts.
2. Divide each balance by the minimum payment that particular card company wants from you. The result is that account’s DOLP™ number. For example, say your outstanding VISA balance is $500 and the minimum payment due is $50. Dividing the total debt ($500) by the minimum payment ($50) gives you a DOLP™ number of 10.
3. Once you have figured out the DOLP™ number for each account, rank them in reverse order, putting the account with the lowest number first, the one with the second lowest number second, and so on.
4. You now know the most efficient order in which you should pay off your various credit card balances. Take half of your Latte Factor® money and apply it to the card with the lowest DOLP™ number. For each of your other cards, you make only the minimum payment.
5. Once a card is paid off, don’t close it! Leave the account open so you have credit you are not using, which will help improve your credit score.
6. Finally, ask the credit card companies to waive your annual fees on the cards you have, whether you use them or not. You should continue doing this until you’ve DOLPed your way to being debt-free!

Well, the O and I will disagree just a smidgen here. I think her DOLP factor makes something that should be simple all too complicated. Now before the hate mail starts coming to my inbox let me say this … Why not just tackle the smallest debt first. Then take that money and apply it to the next smallest debt next. Dave Ramsey calls this the snowball effect and it happens to work very well. My wife and I can both testify to that. I understand the mathematics applied behind the method here. I am not going to get too worked up over this because most of the time, and I do mean the majority of the time the lowest DOLP number will also be the smallest debt.

Step 4: Stop Spending

Step 4 says it all. You just have to stop spending in order to make the rest of this plan or any plan work.

Step 5: Create a Monthly Spending Plan

In other words … start a budget. For the life of me I don’t know why some people get so defensive about writing down the money that comes in and the money that goes out. Here, O basically says to calculate your cash flow and make sure you have money left over to pay down debt. She also mention Murphy’s law here. For those of you that don’t know Mr. Murphy; you will. He will visit you when you have no cash and cause problems in your life. Problems that make you want to revert to those old credit cards and spend money you don;t have. O says to add an extra 10% to the spending plan in case Murphy shows up. This is one area where I agree with Dave Ramsey’s plan more-so that O’s and here is why. Dave tells you up front to save $1,000 bucks in case anything goes wrong. Again, making it just more simplified allowing you to focus on putting all you left over money each month to reaching the ultimate goal of being debt free.

The next part of step 5 assigns certain bills to each paycheck you get each month. I will just post it so you can read for yourself.

If you get paid more than once per month, the next step is to determine which bills to pay from which paycheck. Verify the due dates on your bills and plot them on a calendar. Then pay as many bills on time as possible from each paycheck. An expense like groceries should be allocated based on pay periods. For example, if your monthly plan is $400 and you’re paid on the 1st and 15th, you can allocate $200 per check.

If you and your spouse agree to a cash allowance for personal expenses, use the same process to determine how much cash each person needs for lunches, gasoline, personal care items, etc.

Remember, fine-tuning your spending plan is a process. If the plan you put in place for one month doesn’t work, it doesn’t mean you should quit the Debt Diet. It means you should continue to tweak the plan and figure out how to make it work to accomplish your goals. Plus, just doing this exercise will inevitably make you more conscious of how you choose to spend your money and how motivated you are to pay down your debt.

Keep it simple, just make a budget and stick to it.

Step 6: Take Big Steps to Grow Your Income

She goes into a lot more detail in step 6, simply put: Tighten up your belt and sell anything you don’t need, quit driving so much, take your kids out of private schools, and get a second or third job.

Step 7: Prioritize Your Debts and Raise Your Credit Score

In step 7 you are going to look at all your other credit. (other than credit cards)

1. Your secured debts need to be at the top of your priority list.
2. Debts for which your wages can be garnished. These include your student loans and any child support payments. If you don’t satisfy these, your paycheck is at risk.
3. Any services you need to continue using. If you are not paying your doctor bills, that particular doctor is not going to be willing to see you again, right? That’s a problem if you’re relying on that doctor for care for a chronic condition.
4. Unsecured debts, like credit cards. Once you’ve satisfied all of these urgent debts, you can begin to really focus on making headway with your credit cards. Use Step 3 to get them paid off as fast as possible.
5. Family and friends. Hopefully your family and friends are the most understanding of your creditors. Confirm your commitment to repay the debts, but make them a lower priority and choose accounts that can improve your credit score first.

This is the order in which you pay off debt after credit cards, according to Oprah. Another note I find humorous is how once again family and friends get thrown under the bus. Some family members tare first to help you out when the loan is needed however when it comes time to pay up they come in dead last. Even though O has it right, it just seems wrong.

The latter part of Step 7 is to raise your credit score. I touched on this earlier but this is where she has it officially in the O Plan.

Working on your credit score is also an important part of this process. Why? The higher your credit score, the lower you can reduce the interest rates you’re paying to all of your creditors—mortgage lenders, auto lenders, credit card companies. If you’re in debt, then servicing those debts takes a big chunk out of your monthly nut. A high credit score can make that chunk as small as possible.

Step 8: Understand Your Spending Issues…and Save!

I am not going to spend much time on step 8. If you are even still reading this I feel sure you do not me to rehash all of this. Basically, take a personally inventory of your spending habits and change them. If not you are never going to change and you will stay in debt.

Summary

There you have it, my review of Oprah’s Secret to Becoming Debt Free. She has basically a good plan that is very doable. The plan is not a get rich quick scheme but a fundamentally sound plan to rid yourself of the excess debt.

You can check the plan out for yourself here at: http://www.oprah.com/money/debtdiet/money_debtdiet_main.jhtml