E-mail a friendLynnette Khalfani
original airdate September 10, 2004
Lynnette Khalfani is an award-winning financial news journalist who writes a weekly syndicated newspaper column, 'Financially Fit.' She personally eliminated more than $100,000 in credit card debt, without filing bankruptcy, credit counseling or missing a payment. Khalfani's new book, Zero Debt: The Ultimate Guide To Financial Freedom offers an action plan for those looking to jumpstart their finances; get out of debt; and save more money.
Lynnette Khalfani
Tavis: We continue our 'Road to Wealth' series tonight with Lynnette Khalfani. She's a syndicated columnist and author whose latest book is called 'Zero Debt: the Ultimate Guide to Financial Freedom.' She joins us tonight from New York City. Lynnette, nice to have you on the program.
Lynnette Khalfani: Hi there, Tavis. Thank you for having me.
Tavis: My pleasure. You know, I've been anxious to talk to you on this program as part of our 'Road to Wealth' series in part because of all the financial books I have in my library--even the ones I've read in my library--what's impressive about yours is that you really have had this experience. You're not somebody who is writing about what she heard, but you really were in some debt yourself. You care to share your story a little bit here?
Lynnette: I really should because it is true, and, you know, a lot of people don't believe me, Tavis, when I tell them this, but at one point, I actually had more than $100,000 in credit card debt. And really that's one of the reasons that I wrote 'Zero Debt' is because I know firsthand what it's like to have a lot of debt, what it's like to, you know, feel stressed about money and about bills. I'm very happy to say now that I have zero debt. I don't owe any credit card company a dime, so that definitely feels really good. But, you know, I really wrote 'Zero Debt' as a guide to tell people, look, here are some concrete steps that you could take to get out of debt. I paid off $100,000 in credit card debt, and I didn't file for bankruptcy protection. I did not go to credit counseling or get a debt management plan in operation, and if I can do it, I know millions of other people out there can do it, too.
Tavis: Let me ask you about 2 things you just mentioned. One--what do you make of the notion of credit counseling services? Are these things on the up-and-up?
Lynnette: Well, you know, there are definitely some bona fide, legitimate credit counseling companies out there. The problem, however, is that there are too many scams and outright bits of misinformation that consumers fall victims to. You know, you really have to do your homework on these companies. Go to one that stresses credit education and counseling as opposed to just force-feeding you a debt-management program when, frankly, for all consumers that may not be the way to go.
Tavis: You got out of your credit card debt without engaging in plastic surgery. That is to say, without cutting up your credit cards. How is that possible?
Lynnette: You know, this is one of the biggest myths. A lot of, you know, quote-unquote experts will tell people in debt to cut up your credit cards so that you won't use them. I definitely think that if you've been overspending and if you've been, you know, using too much credit, you definitely need to cut back and not use them as frequently, but cutting up the credit cards isn't the solution. In fact, that's a temporary measure that might in fact hurt your credit because a lot of people actually close out their accounts. And the way the credit-scoring system operates for your older, so-called more seasoned accounts--Fair Isaac, the company that actually does the credit scoring for, you know, millions of consumers, they say that most people who close their credit card accounts actually can hurt or lower their credit score. So you don't want to just cut up those credit cards and then close out those accounts.
Tavis: All right, I want to talk in a second here about this plan you've laid out, this 30-day plan, and break it down week by week for 4 weeks, but let me start by asking whether or not it's really possible to turn around one's debt situation in 30 days. You're promoting here a 30-day plan.
Lynnette: Right. Actually, this is one of the questions that I'm frequently asked. I certainly make no promises that I'm going to tell you how to eliminate your debt in 30 days, but I definitely give people an action plan. It's a 30-day plan, as you've said, and 'Zero Debt' lays out from day one through day 30 concrete steps you should do, and in a month from now, you'll be infinitely better off as it pertains to handling your debt, managing it, having paid off some of it, and taking some really practical personal finance steps--everything from negotiating with creditors to paying one extra payment on one of your credit cards to opting out of getting so many credit card offers in the mail, tons of things people can do to really shore up their personal finances.
Tavis: This might sound like a stupid question--God knows not the first and, I suspect, probably not the last--but how do you know when you actually have too much debt? Because I've heard people say there's good debt and bad debt.
Lynnette: Yeah, you know, that's not a stupid question. That's a great question, and I definitely agree that there is good and bad debt. I think good debt, for example is things like a mortgage, where you're having an investment that is going to appreciate in value. Bad debt are things that you buy and you pay for in the past and it immediately starts to lose value. Say that new car you purchased, and as soon as you drive it off the lot, it starts to depreciate in value. A lot of telltale signs: one is if you're maxed out. 2 is if you have to constantly switch cards just to be able to pay the bills. 3--if those bill collectors are calling you. 4--if you find you can't get enough or any new credit extended to you. If you're arguing with your spouse about debt or how much bills you have, that's another telltale sign. And then, finally, just the sort of stress test. If you personally feel uncomfortable with the amount of debt you have, chances are you are carrying too much debt. If it's keeping you up at night--and for a lot of people, debt keeps them up at night, and that's a big problem in this country.
Tavis: Let me move quickly and walk through and kind of top-line what you advise people to do week by week, at least, since we don't have time for all 30 days, day by day. Week one--after you clearly determine how much debt you have, you say start negotiating with your creditors.
Lynnette: Absolutely. You know, a lot of people don't know that they have leverage. You should call up year credit card companies and ask for things like a lower interest rate or ask for them to eliminate late fees or over-the-limit charges. Banks don't want to lose your business, frankly, especially if you've been paying on time, even if you've been paying minimum payments. Ask them for a lower rate. A lot of times they'll give it to you.
Tavis: Number 2--you say educate yourself about your legal rights when it comes to debt collectors.
Lynnette: Oh, this is a big area because, frankly, a lot of debt collection firms abuse consumers. You should know a lot of things about your rights. For example, they can't call you all hours of the day. It's against the law for them to call you, for example, before 8 A.M. in the morning or after 9 P.M. your local time. They can't call you on the job and harass you. They can't talk to your neighbors, colleagues, friends, coworkers, or anybody about your debt status. That's against the law. So you definitely have to put creditors in their place if they do any of those illegal actions.
Tavis: Now you tell me. Anyway,
Lynnette: Yeah. This is another big area for a lot of people. Frankly, so many of us--and this is what got me into trouble--we're just over-consuming. We're spending a lot of things. You know, I tell people to do things like visit lowermybills.com for example. That's a great web resource for people. It's a free service to use. It gives you 18 categories of bills--common household bills--where you can save money: web service, DSL, Internet connections, life insurance, that kind of thing. If you have a car, you can refinance your auto loan. Go through a place like Capital One Auto. They have a great web site, capitaloneauto.com, and get a lower interest rate and thus pay less on your auto loan. You know, save money here and there. Cut out those $5.00-a-day lattes, that kind of stuff, and you'll start to chip away. The money you save, you apply that towards your debt, and then you knock it out faster.
Tavis: And finally, in week 4, you say apply for a home equity loan or a line of credit, which I'm trying to figure out how you do if they know you've got debt.
Lynnette: Well, this is a big thing that people think they might not be able to get a loan, but they actually can. The reason, Tavis, is this: that house is collateral for the bank. If you don't make the payment, they know that they can come and foreclose upon this. I tell people, look, in a lot of cases it would be better off for you to go to a lender, say, countrywide--you know, that's the nation's largest mortgage lender--seek out a home equity line of credit. In a lot of cases, the interest is tax-deductible, so, in effect, Uncle Sam is sort of underwriting your getting out of debt. You use that home equity loan or home equity line of credit to pay off the higher interest rate credit card debt, and, then, again, you start to chip away at it that way. So, yeah, using the home as a resource, as a way to pay off the debt is a very good strategy. Don't do it, though, if you haven't got that spending under control. And if you're just gonna go out and run up the credit card bills again, you're not ready to take out a home equity line.
Tavis: Zero debt is not just a notion. It is, in fact a book--in fact a 30-day plan to get you to have zero debt, written by Lynnette Khalfani. Lynnette, nice to have you on. We'll do it again sometime.
Lynnette: Thank you, Tavis. Take care.
Tavis: Take care. Up next on this program, one of my favorites: singing sensation, performer extraordinaire, Al Jarreau. Stay with us.
Back to September 10, 2004