Review: Pay It Down

pay it downAs a lot of you know, I’m a fan of Money Magazine – in fact, I review each issue because there’s a lot of good stuff between the covers. One of the editors and regular columnists is Jean Chatzky – I find her columns quite interesting because I either think they’re a complete home run or a complete train wreck, rarely anywhere in the middle. Anyone who does that piques my interest, so I was quite happy to take a serious look at her book Pay It Down.

Pay It Down has an interesting premise, which it broadcasts loudly on the cover: From Debt to Wealth on $10 a Day. I’m a believer in the $10 a day concept; in the past, I wrote about the Alexander Hamilton plan, which illustrates that you can wind up with almost $4,000 in your pocket after a single year if you just put away a ten dollar bill each day. This book basically argues that you can actually do much better than that by using that $10 effectively and surrounding it with rational behavior.

One thing I like about Chatzky is her writing style – it’s loose and breezy and feels very light, but actually has quite a bit of content to it. Does her style and this $10-a-day concept add up to a personal finance book worth reading?

Moving Through Pay It Down

Introduction: Getting Ahead and Staying Ahead
The introduction here correctly names the biggest problem child in personal finance in America: the credit card. Chatzky basically spells it out as clearly as possible: if you have credit card debt that carries over from month to month, you have a problem, and learning how to combat that problem is pretty much the only way to financial success.

Step 1: Assess the Problem
Chatzky posits here that for most Americans, spending goes out of control in the aftermath of a significant life event, or usually a pairing of two or more of them. She offers a brief list of the common ones: job loss, missing an expected raise, a home purchase, an apartment rental, a divorce, a health scare, a very tight budget, no emergency fund for a jam, or simply a spending problem (personally, I’d also add to this list the addition of a child to the family). For me, it was an apartment rental, no emergency fund, a child, and a spending problem all at once that put me in a tight pinch. Not only does it hit the wallet hard, it causes stress and anxiety.

The first thing you need to do is simply to list all of your debts together in one place, along with their interest rate, your remaining balance, and the amount due each month. It’s simple, but I have to agree that from experience, it works. Putting them all in one place like that really lets you see the challenges set out in front of you in one picture rather than in a bunch of scattered fragments. Even more importantly, you can use this to help you define manageable steps for tackling that debt.

Step 2: Break Your Challenge into Manageable Steps
Another simple idea: simply specify a specific goal (such as paying off a specific debt) and determine a time frame (in three years, let’s say). From these, you have a fairly obvious metric for success (your balances). So how do you get there? Translate that debt and time frame into how much you actually need to save per day. This chapter provides a bunch of tables to help with this, but you can use the Bankrate loan calculator to provide the same information for your specific situation.

Step 3: Know and Manage Your Credit Score
This chapter provides a basic overview of your credit score, along with some basic information on how to keep it high. Your credit score determines how much you can borrow, what the interest rate is, and so on, and it’s just a single number that represents the content of your credit report, which lists all of your debts. You can see your credit report for free at (not; here’s why).

What can you do to improve your credit report (and thus your credit score)? Pay your bills on time. Use only up to 30% of your available credit limit. Don’t accept any credit card offer that comes your way – the more you apply for, the worse it is for your credit, even if you don’t use them. If you cancel a card, don’t cancel the one you’ve had the longest. Those are the biggest things you can do to improve your situation.

Step 4: Track Your Spending
This is one of the most powerful things that anyone can do to help out their financial situation; I’m simply amazed that more people haven’t done this. Simply keep track of every single penny you spend for a period of time (all receipts should be kept); for me, two months did the trick. Then, when you’re finished, sit down and divide them up into groups. You can decide what groups you want, but it should be clear whether or not a group is essential or nonessential. For example, I read a ton, so I would have a nonessential “book” group. You’ll probably have groupings like “utilities” and “rent” or “mortgage” and “groceries” and “clothes” and so on. Once you have all of that information, you can now start looking at what that information means and how you can use it to transform your debt situation.

Step 5: Find the Money
This chapter (and the next three chapters after it) is basically a laundry list of ways to come up with enough extra money regularly to pay down the debt you’ve accumulated. I found these to be the most interesting pieces of the book. So what’s inside? Most of the ideas are pretty well known but underutilized: reduce your income tax withholding (if you currently get a refund, instead just pay less throughout the year), call up your credit card companies and ask for rate reductions, refinance your home and auto loans, and see if you can get rid of any mortgage insurance if you’re paying any. All of these can free up substantial cash from your monthly budget.

Step 6: Find the Money: Consolidating Your Debts
Another powerful option is to consolidate all of your higher interest debt into one lower interest debt. If you haven’t already had significant bad marks on your credit report, this is probably a good thing to consider. Call your local lending institution and inquire about a debt consolidation loan. Basically, you would use the money from this loan to pay off every debt with a higher interest rate than that loan (or at least as much of it as you can). The net effect is to drastically reduce the interest you are paying and likely also reduce your monthly payments, too. If lenders are frowning on this, don’t worry too much – just focus on the other techniques and also work on building your credit score.

Step 7: Find the Money: Spending Less
Here, the book tackles what I consider to be the big problem: overspending. Most people simply spend too much money on too many things – and the scary part is that we don’t even realize that we’re doing it. I really like the approach taken here; instead of jumping into the deep end of frugality, she basically moves from expense area to expense area, identifying some of the big ways to cut spending in each area. If you follow along and apply the tips in each area, you will save some money. Most of these tips are very basic frugality ideas, but collected together very cleanly and neatly in such a way that you can see where the money goes. The best part? Even though the advice comes from a book, she says that books are a low priority and that you should head to the library.

Step 8: Find the Money: Making Hard Choices, Selling Assets, Earning More
Most of the items in the previous chapters were relatively easy choices, but depending on how bad your financial situation is, you may need more – and sometimes a lot more. This means making some very difficult choices: selling your car, selling your possessions, downgrading your home, finding a second job, looking at bankruptcy, and so on. If this needs to be done in order to get you on some sort of healthy financial track, then do it.

Step 9: Pay it Down – Intelligently
Remember that list of debts you made back in the first chapter? Here’s where it pays off. Take that list and start focusing on repayment with the highest-interest one. All of the money you freed up should go towards eliminating that debt, starting with the one that’s eating the biggest piece of cake. Hopefully, you’ve been able to reduce a few interest rates while moving through the material in the book so this won’t be as painful. What happens if a situation prevents you from paying everything? Focus on the necessities, then focus on those debts backed by the government (like taxes and student loans).

Step 10: How to Deal When Things Go Wrong
This portion of the book deals with the dark side of things: addiction to gambling, addiction to spending money, dealing with creditors, and so on. If you’re in particularly dire straits, this chapter may be able to help with your situation. Most of the information here focuses on either seeking professional help for your problems or asserting your rights when dealing with creditors that keep calling you, excellent basic information for people in such a bad spot.

Step 11: Staying Ahead of the Game
The book finishes with a look ahead at what happens once you do start getting rid of the debt. You begin to build up some savings, start investing, and begin to feel like you have complete control over your money rather than a sense of things spinning out of control. One big tip, one that she spends a good chunk of the chapter on, is keeping a watchful eye on your credit report so that things don’t get out of hand with that – you can watch your debts vanish and your credit report look better and better over time.

Buy or Don’t Buy?

Pay It Down is a wonderful starter book if you’re in a dangerous debt situation and don’t know where to start. I’d recommend it to anyone who has found themselves in such a situation, is having difficulty tackling the problem, and is overwhelmed with information. Chatzky’s style and tone is just about perfect for this purpose. If this sounds like you (or someone you know that can be helped), buy this book; it’s a very good, easy to read, short starting guide to getting yourself on a good financial track.

On the other hand, if you were reading the summary above, hopping from chapter to chapter and just thinking to yourself “Yeah… yeah… yeah… this stuff is basic,” don’t buy this book. It really is basic stuff, but it’s important because so many people out there have a very loose grip on the basics.

I should also note that Chatzky lends something of a feminine tone to Pay It Down; although I enjoyed it, I felt that she was really targeting adult females with the writing.While I didn’t learn anything new while reading it, I did very much appreciate her writing style – it’s lively and crackles with energy. This is the first personal finance book I’ve read that I’d be willing to give to some of my relatives and friends who I suspect to be in some debt trouble, don’t know how to handle it, and are looking for help.

Pay It Down is the thirty-second of fifty-two books in The Simple Dollar’s series 52 Personal Finance Books in 52 Weeks.

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