Photo by Alan Light
Oprah has been replaying some episodes of her show from a few years ago when she introduced her Debt Diet program. I was doing a little research on the content of this Debt Diet and a few things jumped out at me that are worth mentioning. Overall, there is a lot of good information presented. The biggest disagreement I have involves dealing with debt.
The thing that jumped out at me the most was the order that her experts propose paying off your existing debt. The method proposed is the DOLP method created by David Bach. It stands for Dead on Last Payment. I’m not quite sure about that title. It refers to the fact that your credit cards will be Dead on the Last Payment, but I think it lends itself too much to be twisted to meaning YOU will be Dead before you make your Last Payment. But anyway, I digress. This method involves taking the balance on each debt and dividing it by the minimum payment. This gives you the debt’s DOLP numbers. You then put the debts in order from lowest DOLP to highest DOLP and pay them off in that order. The lowest DOLP gets paid first. Any extra money or Latte Factor as David calls it, goes toward this debt. Once it is paid off, all your extra gets focused on the next lowest DOLP in the list until eventually everything is paid off. Now, in principle, this is fine, but to me, it seems overly complex. Why all the math?
I recommend a much more simple plan. Just list your debts from lowest balance to highest balance. Start putting any extra money toward the lowest balance first while paying the minimums on the rest of the debts. Once that debt is paid off, you can use it’s former minimum payment, plus any extra to pay off the next debt, and so on and so forth until the debts are gone. Simple. Straightforward. No math required.
Some say you should start with the highest interest debt and work it in that order. Why do I recommend the lowest debt first instead of highest interest or lowest DOLP? Well, these other methods rely on the concept of math. Sure, mathematically you want to pay off the highest interest first. Or in the case of the DOLP you are paying on the one that has the least number of remaining payments at the minimum payment rate. But if it was just a matter of doing the math, you probably never would have spent more money than you had in the first place, would you? It’s not about the math, it’s about the emotion. You’re in over your head, and you really want to get out. If you take that smallest debt and get it knocked out, you’re going to feel pretty good about yourself. That’s going to give you the incentive to hit the next one with even more enthusiasm. And then the next one, and the next one. As that snowball of payments toward the next debts gets bigger and bigger, you’re going to get more and more excited about that end that is in sight and you’re going to get it done. So just keep the plan simple and straight forward and then work the plan.
I also have a couple of other issues with the Debt Diet. If you go to her website, you’ll find that the Chase Blueprint credit card is one of her primary sponsors. Seems like a little conflict of interest there doesn’t it? No wonder she is not an advocate of cutting up all of your credit cards.
The other thing is that her plan is a compilation of several different experts’ ideas. That in itself isn’t such a bad thing, but it doesn’t seem like they all collaborated to come up with a plan. It seems more like they were just all stuck together into a plan. There is a lack of continuity.
All in all, it’s not a bad plan. I just think there are other better plans out there like Dave Ramsey’s and Crown Financial Ministries’ programs. They are well crafted programs with a ton of resources available to help you no matter what your situation. Or even better, find a Finance Coach to tailor a program specifically to your needs. Now there’s some math that really adds up!