AdditionalPraiseforRamitSethiandIWillTeachYoutoBe

Rich“RamitSethiisarisingstarintheworldofpersonalfinancewriting. . . one singularly

attuned to the sensibilities ofhisgeneration....Hisstyleispart fratboyandpartSiliconValley geek, with a little bitof San Francisco hipsterthrownin.”

—SANFRANCISCOCHRONICLE

“Theeasiestwaytogetrichisto inherit. This is the secondbest way—knowledge andsome discipline. If you’re

bold enough to do the rightthing, Ramit will show youhow.Highlyrecommended.”

—SETHGODIN,AUTHOROFTRIBES

“You’ve probably neverbought a book on personalfinance,butthisonecouldbethe best $13.95 you everspent. It’ll pay for itself bythe end of Chapter 1 (checkouttheboxonpage24tosee

whatImean).”—PENELOPETRUNK,AUTHOROFBRAZEN

CAREERIST:THENEWRULESFOR

SUCCESS

“Most students never learnthe basics of moneymanagement and get caughtup in the white noise andhype generated by thepersonal-finance media.Ramit’sliketheguyyouwish

you knew in college whowouldsitdownwithyouoverabeerandfillyouinonwhatyou really need to knowaboutmoney—nosalespitch,justgoodadvice.”

—CHRISTOPHERSTEVENSON,CREDITUNIONEXECUTIVES

SOCIETY

“Smart, bold, andpractical. IWillTeachYou toBeRich ispackedwithtipsthatactually

work.Thisisagreatguidetomoney management fortwentysomethings—andeverybodyelse.”

—J.D.ROTH,EDITOR,GETRICHSLOWLY.ORG

“Ramit demystifies complexconcepts with wit and anexpert understanding offinances. Not only is thisbookinformative,it’sfunandincludes fresh tips that will

help anyone master theirfinances.”

—GEORGEHOFHEIMER,CHIEFRESEARCHOFFICER,FILENERESEARCH

INSTITUTE

IWILLTEACHYOUTOBERICH

BYRAMITSETHI

For my parents, Praband Neelam Sethi, whotaught me that beingrichisaboutmorethanmoney

Copyright © 2009 byRamitSethi

Design copyright ©2009 by WorkmanPublishing

All rights reserved. Noportionofthisbookmaybe reproduced—mechanically,electronically,orbyanyother means, including

photocopying—withoutwrittenpermissionofthepublisher. Publishedsimultaneously inCanada by ThomasAllen&SonLimited.

Library of CongressCataloging-in-Publication Data isavailable.

ISBN 978-0-7611-4748-0

Cover illustrations byPeterSucheski

Interior illustrations byNoraKrug

Author photo by ScottJones

Workman books areavailable at specialdiscounts whenpurchased in bulk forpremiums and sales

promotions as well asfor fund-raising oreducational use. Specialeditionsorbookexcerptsalso can be created tospecification. Fordetails, contact theSpecialSalesDirectorattheaddressbelow.

Workman PublishingCompany,Inc.225VarickStreetNew York, NY 10014-

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Printed in the UnitedStatesofAmerica

First printing February2009

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AcknowledgmentsThe process of writing thisbook repeatedly made mewishIweredead.ButonceIwas done, I felt great, myposture improved, myeyesight got clearer, and theworld seemed great. Iimagine this is what givingbirthfeelslike.I was fortunate to have a

great team of people whohelpedmeturnthisbookintoitsfinalform.Jeff Kuo is simply the

finest researcher I’ve everworked with. He wasinstrumental in helping bringthisbooktogether.I’m grateful to Chris Yeh,

who’s not only a brilliantmarketer but perhaps themost frugal man I have evermet.AndtoBenCasnocha,adeep thinker who forced me

to dig deeper into everythingIwrote.Noah Kagan and Charlie

Hoehn helped me spread theword about this book.Couldn’thavedoneitwithoutthem.Several friends helped

immensely by reviewingdrafts of this book, includingBen Abadi, Julie Nguyen,Vivek Sankaran, and JenTsang.The folks at Workman

were amazing: MargotHerrera, my editor, wasincredibly skilled at helpingmeorganizemythoughtsintoa coherent book. Plus, she’sfun: In one of the firstchapters,Iwroteanover-the-top joke just to see how fastshe’d cut it. She just said, “Ithink we should keep it. It’spretty funny.” What morecould I ask for? CassieMurdoch, the perfectcomplement to Margot, is

ultra-organized andconstantly thinking two stepsahead.Many thanks to Peter

Workman, who is brilliantand eccentric—exactly asrumored—and to all thepeople who helped tell theworld about this book:Andrea Bussell, KristinMatthews, David Schiller,Andrea Fleck, and JustinNisbet. Kudos to JanetParker, Beth Levy, Barbara

Peragine,DougWolff,DavidMatt,andNoraKrug.Lisa DiMona has now

worked with me on twobooks.Youcouldn’taskforabetteragent.Seth Godin, who took a

chance on a college kidwitha cocky attitude and a lot ofambition, got me started inpublishing.BJ Fogg, my mentor and

professor, first showed methat you can use psychology

forpro-socialuses,notjusttogetpeopletobuymorestuff.To my family, Prab and

Neelam Sethi, Nagina,Ibrahim, Rachi, Haj, andManeesh—thanksforkeepingmemotivatedforthelasttwoyearsofwriting.Finally, to my readers. I

hope this book helps you onyourwaytobeingrich.

Contents

INTRODUCTIONWouldYouRatherBeSexyorRich?

Why do people get fat aftercollege? The eerily similarguilt about spending and notworking out •Counterintuitivebut true:Weneed less personal-finance

information • Commonexcuses for not managingmoney • Stop debatingminutiae and get somethingdone•ThekeymessagesofIWill Teach You to Be Rich •“Rich” isn’t just aboutmoney:Whatdoesitmeantoyou?

CHAPTER1Optimize Your CreditCardsHow to beat the credit card

companiesattheirowngame

Why Indian people lovenegotiating •How credit canhelpyouberich•Pickingthebest credit card for airlinemiles,cashback,andrewards• Getting a card when youhave no income • The sixcommandments of creditcards•Howtonegotiatewithyour credit card company toget fees waived and receivelowerrates•Whyyoushould

always buy electronics,travel, and furniture on yourcredit card •What not to dowithyourcards•Theburdenofstudentloans•Whencreditcards go bad • Five steps toridding yourself of debt •WeekOne:ActionSteps

CHAPTER2BeattheBanksOpen high-interest, low-hassleaccountsandnegotiatefeeslikeanIndian

Whyoldpeopleareafraidofonline banks—even thoughthey offer the best newaccounts you can get • Howbanks rake it in • Why youreallyneedaseparatesavingsaccount • Opening high-interest, no-fee accounts •Five marketing tactics banksusetotrickyou•Mypersonalfavorite accounts • Negotiateout of feeswith your currentbank (use my script) •WeekTwo:ActionSteps

CHAPTER3GetReadytoInvest

Open your 401(k) and RothIRA—evenwithjust$50

Why your friends probablyhaven’t invested a cent yet •

Investing is the single bestway to get rich • The ladderof personal finance •Everythingyouneedtoknowabout your 401(k) • Theimportance of crushing yourdebt • Why everyone shouldhave a Roth IRA • WeekThree:ActionSteps

CHAPTER4ConsciousSpending

How to save hundreds per

month(andstillbuywhatyoulove)

Spend less—without makinga detailed, irritating budget •Thedifferencebetweencheapand frugal • Consciousspending: how my friendspends $21,000 per yeargoingout—guilt-free•Usingpsychology against yourselfto save • The four buckets:fixed costs, savings,investments, and guilt-free

spending money • Theenvelope system for notoverspending •How tomakemore money • Handlingunexpected expenses •WeekFour:ActionSteps

CHAPTER5SaveWhileSleeping

Making your accounts worktogether—automatically

The power of defaults: Give

yourselffewerchoices•Howto spend only three hours amonthmanagingyourmoney•Wheredoesyournext$100go? • Setting up a bill-payand transfer system thatworks for you • Consultantsand freelancers: What aboutirregular income? • WeekFive:ActionSteps

CHAPTER6The Myth of FinancialExpertise

Whyprofessionalwinetastersandstockpickersareclueless—andhowyoucanbeatthem

We’ve been tricked by“expertise”—why financial“experts” can’t even matchthe market • You can’t timethe market • How expertshidetheirpoorperformance•You don’t need a financialadviser • Pundits worthreading • Most mutual fundmanagers fail to beat the

market • Why I love indexfunds

CHAPTER7Investing Isn’t Only forRichPeople

Spendtheafternoonpickingasimple portfolio that willmakeyourich

What’syour investorprofile?• The beauty of automaticinvesting • Asset allocation:moreimportantthanthe“beststock of the year!” •Convenienceorcontrol?Youchoose•Themanyflavorsofstocks and bonds • Creatingyour own portfolio: How tohandpick your investments •

Investing the easy way:lifecyclefunds•Feedingyour401(k) and Roth IRA • TheSwensen model of assetallocation•WeekSix:ActionSteps

CHAPTER8EasyMaintenance

You’ve done the hard work:Here’s how tomaintain (andoptimize) your financialinfrastructure

Feed your system—themoreyou put in, the more you’llget out • Ignore the noise •The tricky part of managingyour own portfolio:rebalancing your investments•Don’tletfearoftaxesguideyour investment decisions •When to sell • For highachievers: a ten-year plan •Giving back—an importantpartofbeingrich

CHAPTER9

ARichLife

Thefinancesofrelationships,weddings, buying a car, andyourfirsthouse

Student loans—Pay themdown or invest? • Don’t letyour parents manage yourmoney • Role reversal: Howtohelpwhenit’syourparentswho are in debt • The bigconversation: talking aboutmoney with your significant

other • Why we’re allhypocrites about ourweddings(andhowtopayforyours) • Negotiating yoursalary,IWillTeachYoutoBeRich style • The smartperson’sguidetobuyingacar• The biggest big-ticket itemofall:ahouse•Thebenefitsof renting • Is real estatereally a good investment? •Planningfor futurepurchases• Parting words (cue theviolins)

Index

INTRODUCTION

WOULDYOURATHERBESEXYORRICH?

I’vealwayswonderedwhysomany people get fat aftercollege.I’mnottalkingaboutpeople with medicaldisorders, but regular peoplewhowereslimincollegeandvowed that they would

“never, ever” get fat. Fiveyears later, theylookliketheStay PuftMarshmallowManafter a Thanksgiving feast,featuring a blue whale fordessert.Weight gain doesn’t

happenovernight. If itdid, itwouldbeeasyforustoseeitcoming—and to takesteps toavoid it. Ounce by ounce, itcreeps up on us as we’redriving to work and thensittingbehindacomputer for

eight to ten hours a day. Ithappens when we move intotherealworldfromacollegecampus populated bybicyclists, runners, andvarsity athletes who onceinspired us to keep fit (orguilted us into it).When wedidthewalkofshamebackatschool, at least we weregetting exercise. But trytalking about post-collegeweight losswithyour friendsand see if they ever say one

ofthesethings:

“Avoidcarbs!”“Don’t eat before you go

to bed, because fat doesn’tburn efficiently when you’resleeping.”“If you eatmostly protein,

you can lose lots of weightquickly.”“Eating grapefruit in the

morning speeds up yourmetabolism.”

IalwayslaughwhenIhearthese things. Maybe they’recorrect,ormaybethey’renot,butthat’snotreallythepoint.Thepointisthatweloveto

debateminutiae.When it comes to weight

loss,99.99percentofusneedtoknowonly two things:Eatless and exercisemore.Onlyeliteathletesneedtodomore.Butinsteadofacceptingthesesimple truths and acting onthem, we discuss trans fats,

diet pills, and Atkins versusSouthBeach.

WHYAREMONEYANDFOODSOSIMILAR?

Mostofus fall intooneoftwo camps as regards ourmoney: We either ignore itand feel guilty, orwe obsessover financial details byarguing interest rates andgeopolitical risks withouttaking action. Both optionsyieldthesameresults—none.The truth is that the vastmajority of young peopledon’tneedafinancialadviserto help them get rich. Weneed to set up accounts at a

reliableno-feebankand thenautomate savings and billpayment. We need to knowabout a few things to investin, and then we need to letour money grow for thirtyyears. But that’s not sexy, isit? Instead, we watch showswithtalkingheadswhomakeendless predictions about theeconomy and “this year’shottest stock” without everbeing held accountable fortheir picks (which arewrong

more than 50 percent of thetime). Sometimes they throwchairs, which drives upratings but not much else.And we look to these so-called “experts” more thanever in turbulent times liketheglobalcrisisof2008.“It’sgoing up!” “No, down.” Aslong as there is somethingbeingsaid,we’redrawntoit.Why? Because we love to

debateminutiae.Whenwedo,wesomehow

feel satisfied. We might justbe spinning our wheels andfailing to change anyone’smind,butwefeelasifwearereally expressing ourselves,and it’s a good feeling. Wefeel like we’re gettingsomewhere. The problem isthat this feeling is totallyillusory. Focusing on thesedetails is the easiest way togetnothingdone.Imaginethelast timeyouandyour friendtalked about finances or

fitness.Didyougo for a runafterward? Did you sendmoney to your savingsaccount?Ofcoursenot.Peoplelovetoargueminor

points, partially because theyfeel it absolves them fromactually having to doanything. You know what?Let the fools debate thedetails. I decided to learnaboutmoneyby taking smallsteps to manage my ownspending. Just as you don’t

have to be a certifiednutritionist to lose weight oran automotive engineer todriveacar,youdon’thavetoknow everything aboutpersonal finance to be rich.I’ll repeat myself: You don’thave to be an expert to getrich. You do have to knowhow to cut through all theinformationandgetstarted—which, incidentally, alsohelpsreducetheguilt.

Although I knew thatopening an investmentaccount would be asmart financial move, Iset up a lot of barriersfor myself. “Joey,” Isaid, “you don’t knowthedifferencebetweenaRoth IRA and atraditional IRA. There’sprobably a lot ofpaperwork involved ingetting one of thosestarted anyway, and

once it’s set up, it’sgoing to be a pain tomanage. What if youchoosethewrongfunds?You already have asavings account; what’swrong with just havingthat?” Clearly this wasthevoiceofmylazyhalftrying to talk my bodyintostayingonthecouchandnottakingaction.

—JOEYSCHOBLASKA,22

Whowinsattheendoftheday?Theself-satisfiedpeoplewho heatedly debate someobscure details? Or thepeople who sidestep theentiredebateandgetstarted?

WhyIsManaging

MoneySoHard?

People have lots and lots ofreasons for not managingtheir money, some of themvalidbutmostofthempoorlyveiled excuses for laziness.Yeah, I’m talking to you.Let’slookatafew:

INFOGLUT

The idea that—gasp!—thereis too much information is areal and valid concern. “ButRamit,” youmight say, “thatflies in the face of allAmerican culture! We needmore information so we canmakebetterdecisions!PeopleonTVsaythisallthetime,soit must be true! Huzzah!”Sorry, nope. Look at theactualdataandyou’llseethatan abundance of informationcanleadtodecisionparalysis,

a fancy way of saying thatwith too much information,we do nothing. BarrySchwartzwritesabout this inTheParadoxofChoice:WhyMoreIsLess:

. . . As the number ofmutualfundsina401(k)plan offered toemployees goes up, thelikelihood that they willchooseafund—anyfund—goes down. For every

10 funds added to thearrayofoptions,therateof participation drops 2percent. And for thosewho do invest, addedfundoptionsincreasethechances that employeeswill invest inultraconservativemoney-marketfunds.

You turn on the TV and

seeadsaboutstocks,401(k)s,Roth IRAs, insurance, 529s,

and international investing.Wheredoyoustart?Areyoualreadytoolate?Whatdoyoudo? Too often, the answer isnothing—and doing nothingis the worst choice you canmake, especially in yourtwenties.As the table on thenext page shows, investingearlyisthebestthingyoucando.Look carefully at that

chart. Smart Sally actuallyinvestsless,butendsupwith

about $80,000 more. Sheinvests $100/month from agetwenty-five to age thirty-fiveand then never touches thatmoney again. Dumb Dan istoo preoccupied to worryaboutmoneyuntilhe’sthirty-five, atwhich point he startsinvesting $100/month untilhe’s sixty-five. In otherwords,SmartSallyinvestsforten years andDumbDan forthirtyyears—butSmartSallyhas much more money. And

that’s just with $100/month!The single most importantthingyoucandotoberichistostartearly.

HOWTOMAKE$80,000MORETHANYOURFRIENDS

(WITHLESSWORK)

THE MEDIA ISPARTIALLY TOBLAME (I LOVECASTINGBLAME)

Why does just about

everything written aboutpersonal finance make mewant to paint myself withhoneyandjumpintoanestoffire ants? Personal-financeadvice has been gearedtoward old white men andtaught by old white men forfar too long. I don’tunderstand why newspapercolumnists continue to writeabout tax-optimizationstrategies and spending lesson lattes, hoping that young

people will listen. We don’tcare about that. We careabout knowing where ourmoney’s going andredirecting it togowherewewant it to go. We want ourmoneytogrowautomatically,inaccounts thatdon’tnickel-and-dime us with fees. Andwe don’t want to have tobecome financial experts togetrich.

WEDON’TWANTTOHAVETO

BECOMEFINANCIAL

EXPERTSTOGETRICH.

Now,Ifullyrecognizethat

I’mabigfancyauthor(that’sright,ladies)andamthereforepart of the “media.” Perhapsit’s uncouth to mock my

brethren. Still, I can’t helpmyself. Pick up any majormagazine and chances areyou’ll see an article called“10 No-Hassle Tips forGetting Ahead with YourFinances.” Amusingly, thesamewriterswhobreathlesslyencouraged us to buy realestate in 2007 are nowadvisinguson“whattodointhe downturn.” I’m sick andtired of the same old boring,tired, and frankly horrible

financial opinions that areparaded around as “advice.”MoreonthisinChapter6.

OTHER PEOPLEWE CAN BLAMEFOR OUR MONEYPROBLEMS

There are other commonexcuses for why we don’tmanage our money. Most of

themarecompleteB.S.:

“Oureducationsystemdoesn’t teach this,”people whine. It’seasy for people intheir twenties to wishthat theircollegeshadoffered somepersonal-financetraining. Guess what?Mostcollegesdoofferthoseclasses.Youjustdidn’tattend!

I also often hear thecry that “credit-cardcompanies and banksare out to profit offus.”Yes, theyare.Sostop complaining andlearnhowtogamethecompanies instead ofletting them gameyou.

“I’m afraid of losingmoney,” some of myfriends say. That’sfair, especially aftermarket losses duringthe global financialcrisis,butyouneedtotakealong-termview.Also, you can chooseamongmanydifferentinvestment options—some aggressive,someconservative—itdependsonhowmuch

risk you’re willing totake. (Because ofinflation, you’reactually losingmoneyeverydayyourmoneyis sitting in a bankaccount.) Fear is noexcuse to do nothingwith your money.When others arescared, there arebargainstobefound.

“What if Idon’tknowwhere to get an extra$100 per month?” Itdoesn’t have to be$100. And you don’tneed to earn anotherpenny. I’ll show youhow to streamlineyour existingspending to generatethat money to invest.Remember, $1 savedper day is $30 savedpermonth.

Toomanyofusareparalyzedby the thought that we havetogeteverysinglepartofourpersonal finances in orderbefore truly getting startedmanagingourmoney.ShouldIusemy401(k)fromworkoropenanIRA?ShouldIgoformutual funds or individualstocks?Do I need a variableannuity? Here’s my answer:Do you need to be the IronCheftocookagrilled-cheese

sandwich?No, and once youmakeyour firstmeal, it’ll beeasier to cook the next mostcomplicatedthing.Thesinglemost important factor togettingrich isgettingstarted,notbeingthesmartestpersonintheroom.

PuttheExcusesAside

Listen up, crybabies: Thisisn’t your grandma’s houseand I’m not going to bakeyou cookies and coddle you.A lot of your financialproblems are caused by oneperson: you. Instead ofblaming “the economy” andcorporate America for yourfinancial situation, you needto focus on what you canchange yourself. Just as thediet industry has

overwhelmed us with toomany choices, personalfinanceisaconfusingmessofoverblown hype, myths,outright deception—and us,feelingguiltyaboutnotdoingenough or not doing it right.But we can’t just blamecorporations and the media:With both food and money,we’re not taking personalresponsibilitytostepup,learnthisstuff,andgetstarted.Theresult is thatmany of us end

up fat, consumption-minded,andpoor.No,seriously:Two-thirds of Americans areoverweight or obese, and theaverage American is nearly$7,000indebt.

BECAUSEOFINFLATION,YOU’RE

ACTUALLYLOSINGMONEYEVERY

DAYYOURMONEYISSITTINGINABANKACCOUNT.

In 2008, when the global

financial crisis really eruptedin the stockmarket, the firstthing many people did waspull their money out of themarket.That’salmostalwaysa bad move. Theycompounded one mistake—not having a diversified

portfolio—with a second:buying high and selling low.For all the people whoblamed the government,CEOs, and evil banks, hadanyofthemreadonepersonalfinance book? And yet theyexpected to get ahead withtheirmoney?Let’sputtheexcusesaside.

What if you couldconsciously decide how tospend your money, ratherthan say, “Iguess that’show

much I spent last month”?What if you could build anautomatic infrastructure thatmade all your accountsworktogether and automated yoursavings? What if you couldinvest simply and regularlywithout fear? Guess what?You can! I’ll show you howto take the money you’remaking and redirect it to theplaces you want it to go—including substantiallygrowingyourmoneyoverthe

longterm,nomatterwhattheeconomyislike.

TheKeyMessagesofIWillTeachYouto

BeRich

I believe in small steps. Iwanttoreducethenumberofchoices that paralyze us. It’s

more important toget startedthan to spend an exhaustiveamount of time researchingthebest fund in theuniverse.IWillTeachYoutoBeRichisabout taking the first step—understanding the barriersthat keep us from managingourmoney—and then tearingthem down and putting ourmoney in the right places sowe can achieve our goals.Frankly, your goal probablyisn’t to become a financial

expert. It’s to live your lifeand letmoney serve you. Soinstead of saying, “Howmuch money do I need tomake?”you’ll say, “WhatdoI want to do with my life—and how can I usemoney todo it?” And instead of beingdriven by fear, you’ll beguided by what history hasshownusaboutinvestingandgrowth.I’ll keep it simple: Too

many books try to cover

everything about money,leaving you holding a bookthat you “should” read butdon’t because it’soverwhelming. Iwant you toknow enough to get startedsettingupautomatedaccountsand investing, evenwith just$50.SoherearetheessentialmessagesofIWillTeachYoutoBeRich:

The 85 Percent Solution:Getting started is more

important thanbecominganexpert. Too many of us getoverwhelmed thinking weneed to manage our moneyperfectly, which leads us todonothingatall.That’swhythe easiest way to manageyourmoney is to take it onestepatatime—andnotworryaboutbeingperfect.I’dratheractandgetit85percentrightthandonothing.Thinkaboutit:85percentofthewayisfarbetter than 0 percent. Once

your money system is goodenough—or85percentoftheway there—you can get onwith your life and go do thethingsyoureallywanttodo.

It’s okay to make mistakes.It’s better to make themtogethernow,witha littlebitof money, so that when youhavemore,you’llknowwhattoavoid.

Ordinary actions get

ordinaryresults.Mostpeopleare, by definition, ordinary.Yetmorethanhalfofagroupofcollegegraduatessurveyedsaid they plan to bemillionaires by the age offorty, an expectation that isnot in linewith reality.Lookaround you: How many ofour parents are millionaires?Notmany.And ifwe followthe same ordinary route theydid, we’ll end up ordinary,too.Tobeextraordinary,you

don’thavetobeagenius,butyou do need to take somedifferentstepsthanyourfolksdid (like starting to manageyour money and investingearly).

There’sadifferencebetweenbeing sexy and being rich.WhenIhearpeopletalkaboutthe stocks they bought, sold,orshortedlastweek,Irealizethat my investment stylesoundsprettyboring:“Well,I

boughtafewgoodfundsfiveyears ago and haven’t doneanything since, except buymore on an automaticschedule.” But investmentisn’t about being sexy—it’sabout making money, andwhen you look at investmentliterature, buy-and-holdinvesting wins over the longterm,everytime.Forgetwhatthat money TV station orfinance magazine says aboutthe stock-of-the-month. Do

some analysis, make yourdecision, and then reevaluateyour investment every sixmonthsorso.It’snotassexyas those guys in red coatsshouting and waving theirhands on TV, but as anindividualinvestor,you’llgetfargreaterreturns.

Spend extravagantly on thethingsyoulove,andcutcostsmercilesslyonthethingsyoudon’t. This book isn’t about

telling you to stop buyinglattes. Instead, it’s aboutbeing able to actually spendmore on the things you lovebynotspendingmoneyonallthe knucklehead things youdon’t care about. Look, it’seasy to want the best ofeverything: We want to gooutallthetime,liveinagreatapartment, buy new clothes,drive a new car, and travelany timewewant. The truthis,youhavetoprioritize.My

friend Jimonce called to tellmethathe’dgottenaraiseatwork. On the same day, hemoved into a smallerapartment.Why?Because hedoesn’tcareverymuchaboutwhere he lives, but he lovesspending money on campingand biking. That’s calledconscious spending. (Learnhow one of my friendsconsciously spends $21,000per year going out on page98.)

I Will Teach You to BeRich is about sensiblebanking, budgeting, saving,and investing. I’ll teach youhow to set up your accountsto create an automaticfinancial infrastructure thatwill run smoothly withminimal intervention. You’llalso learn what to avoid,somesurprisingfindingsfromfinancial literature (is realestate really a goodinvestment?), and how to

avoid common financialmistakes. And you’ll starttaking action instead ofdebating minutiae. All thiswilltakeyoujustsixweeks—thenyou’ll beon the road tobeingrich.Doesn’tthatsoundgood?WhenIwasinhighschool,

my parents told me that if Iwanted to go to college, I’dneed to pay for it withscholarships. So like a goodIndianson, Istartedapplying

. . . and applying andapplying. In the end, I’dapplied for about sixtyscholarships and had wonhundreds of thousands ofdollars.But my best scholarship

was the first one—an awardfor $2,000. The organizationwroteacheckdirectlytome.I took it and invested in thestock market—andimmediately lost half mymoney.

Oops. That’s when IdecidedthatIreallyneededtolearnaboutmoney.Ireadthepersonal-finance books,watched the TV shows, andboughtthemagazines.Afterawhile, I also started sharingwhat I’d learned. I taughtinformal classes to friends atStanford. Then, in 2004, Ibeganwritingablogcalled“IWillTeachYoutoBeRich,”where I cover the basics ofsaving, banking, budgeting,

and investing. The rest, astheysay,ishistory.

WhyDoYouWanttoBeRich?

I’ve talked to more than amillion young people aboutpersonalfinanceoverthelastfour years through mywebsite and speaking

engagements. When I do, Ialwaysasktwoquestions:

Why do you want to berich?Whatdoesbeingrichmean

toyou?Most people never spend

even ten minutes thinkingthrough what rich means tothem.Suckers.Here’sahint:It’s different for everyone,andmoneyisjustasmallpart

of being rich. For example,myfriendsallvaluedifferentthings. Dan loves eating outat super gourmet restaurantswhere a meal might cost$100. Anton loves traveling.And Jen loves buying jeans.If you don’t consciouslychoosewhat rich means, it’seasy to end up mindlesslytrying to keep up with yourfriends.Iconsidermyselfrichnow that I can do thesethings:

Make career decisionsbecauseIwantto,notbecauseofmoney

Help my parents withtheir retirement, sothey don’t have towork if they don’twantto

Spend extravagantly onthe things I love and

be relentlessly frugalabout the things Idon’t (e.g., spend lotson visiting family inNew York, but don’tbuy the flashiestsportscar)

Startascholarshipfundfor youngentrepreneurs(launched in May2006!)

Before you go further, Iencourage you to set yourgoals today. Why do youwanttoberich?Whatdoyouwanttodowithyourwealth?

WhatYou’llGetOutofThisBook

I love to laugh at people

when they talk aboutinvesting. People think thatinvesting means “buyingstocks,”sotheythrowaroundfancytermslikehedge funds,derivatives, and call options.Sadly,theyactuallythinkyouneed this levelofcomplexityto get rich because they seepeopletalkingaboutthisstuffonTVeachday.Guesswhat?For individual investors likeyouandme,theseoptionsarecompletelyirrelevant.

It sounds sexy, but whenindividual investors talkabout complicated conceptslike this, it’s like twoelementary school tennisplayers arguing about thestring tension of theirracquets. Sure, it mightmatter a little, but they’d bemuch better tennis players iftheyjustwentoutsideandhitsome balls for a few hourseachday.Simple, long-term

investing works. This ideagets nothing but yawns androlling eyes during aconversation.Butyouneedtomake a decision: Do youwanttositaroundimpressingothers with your sexyvocabulary,ordoyouwanttojoin me on my gold-linedthrone as we’re fed grapesandfannedwithpalmfronds?I Will Teach You to Be

Richwillhelpyou figureoutwhere your money is going

and redirect it to where youwant it to go. Saving for avacation to China? Awedding? Just want to makeyourmoneygrow?Here’sthesix-weekprogramthatwillletyoutackleit.

SIXWEEKSOFACTIONSTEPS

IN WEEK 1, you’ll set upyour credit cards and learn

how to improve your credithistory (and why that’s soimportant).

IN WEEK 2, you’ll set upthe right bank accounts,including negotiating to getno-fee, high-interestaccounts.

INWEEK 3, you’ll open a401(k) and an investmentaccount(evenifyouhavejust$50tostart).

IN WEEK 4, you’ll figureout how much you’respending. And then you’llfigure out how tomake yourmoneygowhere youwant ittogo.

INWEEK5,you’llautomateyour new infrastructure tomake your accounts playtogethernicely.

IN WEEK 6, you’ll learnwhy investing isn’t the same

as picking stocks—and howyou can get the most out ofthe market with very littlework.

Plus, there’s plenty more.You’lllearntochoosealow-cost automatic portfolio thatbeats typical Wall Streetportfolios, and how tomaintainyourinvestmentsbysetting up a system thatenables you to remain ashands-off as possible while

your money accumulatesautomatically.Thereareevenanswers to many specificmoney questions, includinghow to buy a car, pay for awedding, and negotiate yoursalary.After reading this book,

you’ll be better prepared tomanageyourfinancesthan99percent of other people intheir twenties and earlythirties. You’ll know whataccountstoopenup,waysnot

to pay your bank extra fees,how to invest, how to thinkaboutmoney,andhowtoseethroughalotofthehypethatyou see on TV and inmagazineseveryday.Therearen’t any secrets to

getting rich—it just takessmall steps and somediscipline, and you can do itwith just a little bit ofwork.Nowlet’sgetstarted.

CHAPTER1

OPTIMIZEYOURCREDIT

CARDS

Howtobeatthecreditcardcompaniesattheirowngame

You’ll never see an Indiandriving a two-door coupe.Seriously, think about it. Ifyou have a neighborhoodIndian—let’s call him Raj—he’s probably driving a four-

door car, usually a HondaAccord or Toyota Camry.However, Indian peoplearen’t just fanatical aboutdriving practical four-doorcars. We’re absolutely nutsabout hammering down theprice to the last penny. Takemy dad, for example. He’llbargain for five straight daysjusttobuyonecar.DearGod,it’s not pretty. I’ve beenalong for the ride on theseweeklong negotiating

sessions with him before.Once, as he was literallyabout to sign the papers, hestopped,askedthemtothrowin free floor mats (a $50value), and walked awaywhentheyrefused.This,afterhe’d spent five daysbargainingthemdown.Ashedragged me from thedealership, I just staredstraightahead,shell-shocked.Asyoucanimagine,bythe

time I went to buy my own

car, I had been steeped in arichtraditionofnegotiating.Iknew how to makeunreasonabledemandswithastraight face and never takeno for an answer. I took amore modern approach,however: Insteadofspendingaweekgoingfromdealershiptodealership,Isimplyinvitedseventeen dealers in northernCalifornia to bid against oneanotherformybusinesswhileI sat at home, watched The

Real World, and calmlyreviewed the e-mails andfaxes as they came in. (Formore aboutbuyinga car, seepage244.)Intheend,Ifoundagreatdeal inPaloAlto andwalked in ready to sign thepapers.Everythingwasgoingsmoothly until the dealerwent to checkmy credit. Hecame back smiling. “Youknow, you have the bestcredit of anyone I’ve everseenatyourage,”hesaid.

“Thanks,” I replied,actually wanting to say,“AWWW, YEAH, I KNEWIT.” That is because I am aweird twentysomethingIndian who chooses a four-doorAccordforhisdreamcarand prides himself on hiscreditscore.Then the dealer said,

“Hmm.”“Hmm?”Iasked.“Well,” he said, “it looks

likeyouhavegreatcredit,but

not enough credit sources.”The bottom line, he toldme,was that they couldn’t offermethelow-interestoptionwehad talked about. Instead of1.9 percent interest, it wouldbe 4.9 percent. That didn’tsoundlikemuch,butIpulledoutanotepadanddidaquickcalculation. The differencewould be more than $2,200over the life ofmy car loan.Because Iwasgettingsuchagreat deal on the car, I

convinced myself that thehigherinterestratewasokay,and I signed the papers forthe loan. But I was stillpissed.WhyshouldIhavetopayanextra twograndwhenIhadgreatcredit?

HowCreditCanHelpYouBeRich

People love to pick sexyinvestments and use fancywords like distressedsecurities andEBITDA whenthey focus on getting rich.But they often ignoresomething that is so simple,so basic, that it just doesn’tseem important: their credit.Ironically,creditisoneofthemost vital factors in gettingrich, but because it’s hard towrapourmindsaroundit,we

oftenoverlookitentirely.It’stime to wake up and payattention to it (and not justbecause of the credit crisis),because establishing goodcredit is the first step inbuilding an infrastructure forgetting rich. Think about it:Our largest purchases arealmost always made oncredit, and people with goodcredit save tens of thousandsofdollarsonthesepurchases.Credit has a far greater

impactonyour finances thansavingafewdollarsadayonacupofcoffee.Whatyousawin2008was

the unraveling of credit,including personal spendingthat relied on phantom creditfrom credit cards and homeequity. Those days of easycreditaregone (at least forawhile until Americans forgethistory and do it all overagain).Sounderstandingyourcredit ismore important than

ever.There are two main

components to credit (alsoknownasyourcredithistory):thecreditreportandthecreditscore.Theseboringtermscanactually save you tens ofthousands of dollars overyour lifetime, so listen up.This is what will enable youto justify heading to Vegasand staying at the HughHefnersuiteatthePalms.

CREDITSCOREVS.CREDITREPORT

Your credit report givespotential lenders—the people

who are considering lendingyoumoneyforacarorhome—basic information aboutyou,youraccounts, andyourpaymenthistory.Ingeneral,ittracks all credit-relatedactivities, although recentactivities are given higherweight.

Your credit score (oftencalled your FICO scorebecauseitwascreatedbytheFair Isaac Corporation) is a

single, easy-to-read numberbetween 300 and 850 thatrepresents your credit risk tolenders.It’slikeCliff’sNotesfor the credit industry. Thelenders take this number(higher is better) and,with afew other pieces ofinformation, such as yoursalary and age, decide ifthey’ll lend you money forcredit like a credit card,mortgage,orcarloan.They’llcharge you more or less for

the loan, depending on thescore, which signifies howriskyyouare.

It’s ridiculously easy tocheck your credit score andcreditreport—andyoushoulddo it rightnow.Onceayear,by law, you’re allowed toobtain your credit report forfree atwww.annualcreditreport.com.It includes basic informationabout all your accounts and

http://www.annualcreditreport.com

payment history. Be carefulto type that URL correctly,nottheonethatfirstcomestomind when you think “freecreditreport.”To get your credit score,

ontheotherhand,you’llhaveto pay. I recommend gettingthebasiccredit report,whichwill run you about $15.You’ll get the option to pickany of the three majorreporting agencies. Just pickany one—it doesn’t really

matter.Whyareyourcredit report

and credit score important?Because a good credit scorecan save you hundreds ofthousands of dollars ininterest charges. How?Well,if you have good credit, itmakes you less risky tolenders, meaning they canofferyouabetterinterestrateon loans. “But Ramit,” youmight say naively, “I don’tcare about this. I don’t need

to borrow money.” Maybeyoudon’t today.But in threeorfouryears,youmightneedto start thinking about awedding or a house. Whataboutcars?Vacations?Thoseridiculousbabycribsthatcost$7,000? And it goes on andon.So please don’t scoff or

dismiss what you just read.One of the key differencesbetween rich people andeveryone else is that rich

people plan before they needtoplan.If you doubt that a loan’s

interestratereallymakesthatmuch of a difference, checkout the following table.Assuming you borrowed$200,000 for a 30-yearmortgage, look at thedifferencesinwhatyou’dpaybasedonyourcreditscore.

HOWCREDIT

SCORESAFFECTWHATYOUPAY

As you can see, a high

credit score can save you

hundreds of thousands ofdollars over your lifetime—andthat’sjustonamortgage.While other people spendmany hours cutting coupons,growingfoodintheirgardensto save on grocery bills, orbeing frugal with lattes,they’re failing to see thebigger picture. It’s fine to befrugal, but you should focuson spending time on thethings that matter, the bigwins.So,let’sdigintotactics

for improving your credit,which is quantifiably worthmuch more than any adviceaboutfrugality.

BuildingCreditwithCreditCards

Credit comes in many forms(car loans,mortgages,andsoon), but we’re going to start

with credit cards becausealmostallofushaveone,andmost important, they’re thefastestandmostconcretewaytooptimizeyourcredit.Mostpeople are making at leastone or two major mistakeswith their credit cards. Thegood news is that it’sincredibly easy to fix this bylearningalittlebitabouthowcreditcardswork.

GUESSHOWMUCHANIPODCOSTSIFYOUFINANCEITWITHA

CREDITCARD?

One of the biggestproblems with creditcardsisthehiddencost

of using them. It maybe incrediblyconvenient to swipeyour card at everyretailer, but if youdon’tpayyourbill thesamemonth,you’llendup owing way morethanyourealize.Take,forinstance,aniPod.Itlooks like itcosts$250,but if you buy it usinga credit card with theaverage14%APRand

a 4% minimumpayment,andthenonlypay theminimumeachmonth, you’ll be outalmost20percentmoreintotal.

If you paid only the

minimum monthlybalance on your

$10,000 purchase, itwould take you morethan 13 years and costyou more than $4,000in interest alone.Remember, thisdoesn’t even factor inyour “opportunitycost”: Instead ofpaying off a $10,000sofa for 13 years, ifyou’d invested thesame amount andearned8%,itwould’ve

turned into about$27,000! Trycalculating how muchyour own purchasesreally cost atwww.bankrate.com/brm/calc/minpayment.asp

From one perspective,credit cards are like adelightfulgiftfromheaven.Ifyou pay your bill on time,they’re actually a free short-

http://www.bankrate.com/brm/calc/minpayment.asp

term loan. They help youkeep track of your spendingmuch more easily than cash,and they let you downloadyour transaction history forfree.Mostofferfreewarrantyextensionsonyourpurchasesand free rental car insurance.But unfortunately, there’smoretothemthanthat.Credit cards are also

convenient enemies. Almosteveryone has a bad storyabout late fees, unauthorized

charges,oroverspending.Notsurprisingly, many pundits(and parents) have a knee-jerk reaction to credit cards:“Using credit cards is theworst financial decision youcan make,” they shout. “Cutthem all up!” What an easybattle cry for people whowant simple solutions anddon’t realize the benefits ofmultiplesourcesofcredit.Thetruthaboutcreditcards

liessomewherebetweenthese

twoextremes.Aslongasyoumanage them well, they’reworth having. But if youdon’tcompletelypayoffyourbill at the end of the month,you’ll owe an enormousamount of interest on theremainder, usually about 14percent.Thisiswhat’sknownastheannualpercentagerate,or APR. Credit cardcompanies also tack on awhoppingfeeeverytimeyoumiss a payment—usually

around$35.Anddon’tforgetthe fees for making apayment even just a day ortwo late. It’s also easy tooveruse credit cards and findyourself in debt, as mostAmerican credit card usershavedone.Most of us don’t think

about these fees. We justcharge away and then makeourmonthlypayments,right?Unfortunately, althoughthey’re not obvious, credit

card charges are someof thelargest unnecessary feesyou’ll ever pay—muchmorethan the costs of eating outonce a week or buying thatnice outfit you’ve beeneyeing.This isn’t meant to scare

you away from using creditcards. In fact, I encourageyou to use credit cardsresponsibly. Ifyoucanavoidthe unreasonable fees andtricks, credit cards offer

exceptionalbenefits(moreonthislater).Togetthemostoutof using credit, you need tooptimize your credit card(s)and use them as a spearheadto improve your overallcredit. This is all the moreimportant in the wake of thecreditcrisis;ifyoudon’thavegood credit, it may bedifficult to get an affordablehomeloan—evenifyouhaveahighincome.Bytheendofthischapter,you’llknowhow

to squeeze the credit cardcompanies for everythingthey’re worth—withoutpaying unnecessary fees orlate charges—and you’llknow how to use your cardsto boost your all-importantcreditscore.Let’sdoit.

GettingaNewCard

Whether you’ve never had acredit card before or you’rethinking about getting anadditional card, there are afewthingstothinkabout.

Avoid those credit cardoffers you receive in themail.Let’scuttothechase:Ifyou hate those credit cardoffersinthemailasmuchasIdo, visitwww.optoutprescreen.com togetofftheirlists.Theaverage

http://www.optoutprescreen.com

American receives twentycredit card offers every year,and four out of everythousandpeopleacceptthem.The numbers are markedlydifferent for students.Out ofevery thousand students whoaremailedoffers, 150 acceptthem, an astonishingly highnumber. Students—andyoungpeopleingeneral—areespeciallysusceptibletotheseoffers because they don’tknow any better. Let’s get

real. Taking a credit cardoffer you get in the mail islikemarrying thefirstpersonwho touches your arm—99percent of the time it’s theeasy decision, not the rightone.Mostpeopleknowbetterand go out and find what’sbest for them; theydon’t justsettle for the horrible offersthat fall in their lap. Forsomething as important asyour credit, make the effortandpickagoodcard.

Avoid cash-back cards,whichdon’tactuallypayyoumuchcash.Peopleget reallymad at me when I say this,but cash-back cards areworthless. “Get 1 percentback on all your spending!”Wow, if I spend $2,000 permonthonmycredit card, I’llget back $20. “But Ramit,”you might say, “twentydollars is better thannothing.” Sure, but what ifyou could save more by

getting a free $500 flight? Itwouldn’t be as obvious asreceivingmoneyeachmonth,but in the long term, you’dsave more with a travelrewardscard.

GettingaCreditCard

WhenYouHave

noincome

Awhile ago, one ofmyfriends called me andasked if she couldborrowmycreditcardtobuy something online.“How come? Don’t youhave a credit card?” Iasked. Given all thebenefitsofhavingacard

(assuming you use itwisely),youcanimaginehowangryIwaswhenIlearned that she didn’thave a card of her own.Inmymind,thiswastheequivalent of oneofDr.Koop’s friends beingmorbidly obese becauseofeatingonlybutter.Anyway, I toldher to

getacreditcardandstartbuilding her credit. Herresponse: “I can’t get

approved for a creditcard because I have noincome.”Okay, fair enough.

Getting your first creditcard can be tricky,especially if you’reyoung. But there’s aneasy solution: Get asecured credit card.These are cards thatrequireyou toputdownafewhundredbucksinasavings account, and

then the bank uses thatascollateraltoissueyoucredit. After a fewmonths, assumingyou’ve behavedresponsibly, you cangraduate to a regular(“unsecured”) creditcard. To get one, callyourbankandaskaboutit.

Compare cards online. Thebestwaytofindacardthatisrightforyouisbyresearchingdifferent offers online (trywww.bankrate.com). In mostcases, the simplest creditcards are offered by yourbank, so this is often a goodplacetolook.They’llconnectwith your bank account andyoucanchoosefromavarietyof options, including creditlimit, rewards, andmore.Onthe plus side, they’re easy to

http://www.bankrate.com

get without much research.The downside is that therewards are usually fairlymediocre.

Rewards are important.You’regoingtobeusingthiscard a fair amount, so makesure the rewards it offers aresomething you’ll actuallywant.Itravelalot,soIgotanairlinecardthatgivesmefreecompanion tickets, freeflights, and points for every

dollarIspendandeverymileI fly. I get multiple freeflightsperyear,andeachonesaves me about $350. But ifyou hardly ever travel, thiscardwouldn’tmakesenseforyou. Bottom line: If you’regetting a rewards card, findonethatgivesyousomethingyouvalue.

Don’t go card crazy. Nowthatyou’reinthemarket,youmight be tempted by any

number of card offers. Butdon’t overdo it. There’s nomagic number of cards youshould have. But eachadditionalcardyougetmeansadded complexity for yourpersonal-financesystem.Twoor three is a good rule ofthumb. (The averageAmerican has four creditcards.) Your credit score isbased on overall sources ofcredit. Remember, there areother sources of credit

besides credit cards. Theseinclude installment loans(suchasautoloans),personallines of credit, home equitylines of credit, and servicecredit (such as utilities).“Take it slow,” Craig Wattsof Fair Isaac Corporationsays, cautioning againstprescribingaspecificnumberofcreditsources.“Itdependson how long you’ve beenmanaging credit. The lessinformation in your credit

report, the higher theprominence of each newreport.Forexample,ifyou’reincollegeandyouonlyhaveonecreditcardinyourname,when you open anotheraccount, the weight of thataction is more than it wouldbetenyearsdowntheline.Ifyou limityourself toopeningone card a year, you’ll bedoingyourselfafavor.”

TheSixCommandmentsof

CreditCards

Now it’s time to take fulladvantage of your cards as ameans to improving yourcredit.Optimizingyourcreditis a multi-step process. Oneof themost important factorsis getting out of debt, whichwe’ll tackle at theendof the

chapter.Butfirst,we’llsetupautomatic credit cardpaymentssoyounevermissapayment again. Then, we’llseehowtocutfees,getbetterrewards, and take everythingyou can from the credit cardcompanies. (Hey, it’sbusiness, and they’re in it togetyourmoney,too.)

1. Pay off your credit cardregularly.Yeah,we’ve all heard it, but

what you may not know isthat your debt paymenthistory represents 35 percentof your credit score—thelargest chunk. In fact, thesingle most important thingyou can do to improve yourcredit is to pay your bills ontime.Whether you’re payingthefullamountofyourcreditcardbill or riskingmywrathby paying just part of it,payit on time. Lenders likeprompt payers, so don’t give

yourcreditcardcompanytheopportunitytoraiseyourratesand lower your credit scorebybeingafewdayslatewithyourpayment.Thisisagreatexampleof focusingonwhatwill get you rich, not onwhat’s sexy. Think aboutyour friends who catalogevery single website to getthe best deals on travel orclothes. They might bethrilledaftersaving$10—andthey can brag to everyone

about all the special dealsthey get—but you’ll quietlysave thousands byunderstanding the invisibleimportance of credit, payingyourbillsontime,andhavingabettercreditscore.

AwfulConsequences

If you miss even onepayment on your creditcard, here are fourterrible, horrible, nogood, very bad resultsyoumayface:1. Your credit score

can dropmore than 100points,whichwouldadd$240/month to anaverage thirty-yearfixed-mortgageloan.2. Your APR can go

upto30percent.3.You’llbechargeda

late fee, usually around$35.4. Your late payment

cantriggerrateincreaseson your other creditcards as well, even ifyou’ve never been lateonthem.(Ifindthisfactamazing.)Don’t get too freaked

out: You can recoverfrom the hit to your

credit score, usuallywithin a fewmonths. Infact, ifyou’rejustafewdays late with yourpayment,youmay incura fee, but it generallywon’tbe reported to thecredit bureaus. Turn thepage to findoutwhat todo if you miss apayment.

“Paying your bills on time

is absolutely critical,” saysFICO’sCraigWatts. “It’s byfar the most important thingyou can do to improve yourcredit rating.” If you miss acredit card payment, youmight as well just get ashovel and repeatedly beatyourself in the face. Thecredit card companies aregoing to get you—and theworstpartis,youearnedit.Most people pay their

credit card bills online now,

but if you haven’t set upautomatic payment yet, logon to your credit card’swebsite to set it up now.Note: Don’t worry if youdon’t always have enoughmoney in your checkingaccount to pay off the fullamount you owe on yourcredit card. You’ll get an e-mailfromyourcardcompanyeach month before thepaymentgoesthroughsothatyou can adjust your payment

asneeded.

I just totally forgot thedue date for my creditcard. So not only didthey charge me a latefee,buttheychargedmeinterest on that month’sand the previousmonths’ purchases. Icalled up the customerservice lineofmycredit

cardandtoldthemthatIhad been a goodcustomerinthepast,andasked if they could doanythingformewiththefees. The representativeremovedthelatefeeandrefunded $20 of theinterest charge back tomy account. Theyreturnedatotalof$59tomewithonephonecall.

—ERICHENRY,25

2. Get all fees waived onyourcard.This is a great, easy way tooptimize your credit cardsbecause your credit cardcompanywilldoalltheworkfor you. Call them using thephonenumberonthebackofthe card and ask if you’repaying any fees, includingannual fees or service

charges. It should go a littlesomethinglikethis:

WhattoDoIfYouMissaPayment

Nobody’s perfect.Despite my warnings, I

understand thataccidents happen andyou might miss apayment at some point.Whenthishappens,Iusemy Indian heritage tobeat the companies bynegotiating with them,andyoucan,too:

YOU: Hi, I noticed Imissedapayment,andIwanted to confirm thatthis won’t affect my

creditscore.

CREDIT CARD REP: Letme check on that. No,the late fee will beapplied, but it won’taffectyourcreditscore.(Note: If you pay

within a few days ofyour missed bill, itusually won’t bereported to the creditagencies.Callthemtobesure.)

YOU: Thank you! I’mreallyhappytohearthat.Now,aboutthatfee...Iunderstand I was late,but I’d like to have itwaived.

CREDITCARDREP:Why?

YOU: It was a mistakeand it won’t happenagain,soI’dliketohavethefeeremoved.(Note: Always end

your sentence withstrength. Don’t say,“Can you remove this?”Say, “I’d like to havethis removed.”) At thispoint,youhaveabetter-than-50-percent chanceof getting the feecreditedtoyouraccount.But just in case you getan especially tough rep,here’swhattosay.

CREDIT CARD REP: I’m

very sorry, butwe can’trefundthatfee.Icantrytogetyouourlatestblahblah marketing pitchblahblah....YOU: I’m sorry, but I’vebeenacustomerforfouryears and I’d hate forthis one fee to drivemeaway fromyour service.What can you do toremovethelatefee?

CREDIT CARD REP:Hmm

...Letmecheckonthat.

. . . Yes, I was able toremovethefeethistime.It’s been credited toyouraccount.

You don’t believe methat itcanbesosimple?Itis.Anyonecandoit.

YOU: Hi, I’d like to confirmthat I’m not paying any fees

onmycreditcard.

CREDIT CARD REP: Well, itlookslikeyouhaveanannualfee of $50. That’s actuallyoneofourbetterrates.

YOU: I’d rather pay no fees.Which card can you switchme to that doesn’t chargefees? I’d like to make suremycreditscore isn’taffectedby closing this account, too.Canyouconfirm?

Yes,Ireallytalklikethat.Thevastmajorityofpeople

don’tneed topayanyannualfeesontheircreditcards,andbecause free credit cards areso competitive now, yourarely need to pay for theprivilege of using your card.The only exception is if youspend enough to justify theextra rewards a fee-chargingaccountoffers.(Ifyoudopayan annual fee, use the break-even calculator on my

websitetoseeifit’sworthit.)Mostpeople should switch

from a for-fee card to a freecard, so ask your credit cardcompany what they’ll do foryou. If theywaiveyour fees,great! If not, switch to a no-feecredit card. I suggestyoudothisatthesamecreditcardcompanytosimplifyyourlife—and so you don’t have toclose one account and openanother, which will affectyour credit score. If you

decide to close the accountand get a new credit card,lookforonewithnofeesandgood rewards (read moreaboutthoseonpage29).

3.NegotiatealowerAPR.Your APR, or annualpercentagerate,istheinterestrateyourcreditcardcompanycharges you. The averageAPR is 14 percent, whichmakesitextremelyexpensiveifyoucarryabalanceonyour

card. Put another way, sinceyou can make an average ofabout 8 percent in the stockmarket, your credit card isgetting a great deal bylending you money. If youcouldgeta14percentreturn,you’d be thrilled—you wantto avoid the black hole ofcredit card interest paymentsso you can earn money, notgive it to the credit cardcompanies.So, call your credit card

company and ask them tolower your APR. If they askwhy, tell them you’ve beenpaying the full amount ofyour bill on time for the lastfew months, and you knowthere are a number of creditcards offering better ratesthanyou’re currentlygetting.Inmyexperience, thisworksabout half the time. It’simportant to note that yourAPR doesn’t technicallymatter if you’re paying your

bills in full every month—you could have a 2 percentAPR or 80 percentAPR andit would be irrelevant, sinceyou don’t pay interest if youpay your total bill in eachmonth.Butthisisaquickandeasy way to pick the low-hanging fruitwithonephonecall.

4.Keepyourcardsforalongtimeandkeepthemactive.Lenders like to see a long

history of credit, whichmeans that the longer youhold an account, the morevaluable it is for your creditscore.Don’t get suckered byintroductory offers and lowAPRs. If you’re happy withyour card, keep it. And ifyou’re getting a new creditcard, don’t close the accounton your old one. That cannegatively affect your creditscore.Aslongastherearenofees, keep it open and use it

occasionally, because somecredit card companies willcancel your account after acertain period of inactivity.Toavoidhavingyouraccountshut down, set up anautomatic payment on anycard that is not your primarycard.Forexample, Iset itupsothatoneofmycreditcardspays a $12.95 monthlysubscription through mychecking account eachmonth, which requires zero

intervention on my part. Butmy credit report reflects thatI’ve had the card for morethan five years, whichimproves my credit score.Play it safe: If you have acredit card, keep it activeusing an automatic paymentat least once every threemonths.

5. Get more credit.(Warning! Do this only ifyouhavenodebt.)

This one is counterintuitive,and to explain it, I had toreach into personal-financelessonsofyore.Manypeopledon’t realize this, but in theclassic’80sSalt’NPepasong“PushIt,”whentheysaythatthedanceisn’tforeverybody—“Only the sexy people”—they are actually detailing asound personal-financestrategy:BbeforeIexplain,Iwantto

first acknowledge that yes, I

didjustquoteSalt’NPepainan actual, published book.Anyway, when Salt ’N Pepatalk about “only the sexypeople,” what they reallymean is “this tip is only forthe financially responsiblepeople.” I’m serious aboutthiswarning:This tip isonlyforpeoplewhohavenocreditcard debt and pay their billsinfulleachmonth.It’snotforanyoneelse.It involves getting more

credit to improve somethingcalled your credit utilizationrate, which is simply howmuch you owe divided byyour available credit. Thismakes up 30 percent of yourcredit score. For example, ifyou owe $4,000 and have$4,000 in total availablecredit, your ratio is 100percent (4,000 ÷ 4,000 ×100), which is bad. If,however, you owe only$1,000 but have $4,000 in

available credit, your creditutilization rate is a muchbetter 25 percent ($1,000 ÷$4,000 × 100). Lower ispreferred because lendersdon’t want you regularlyspending all the money youhave available through credit—it’s too likely that you’lldefault and not pay themanything.

AlwaysTrackYourCallstoFinancialCompanies

Unfortunately for you,credit card companiesare very good at usingB.S.latefeestoincreasetheir revenues.

Unfortunately for them,I’m giving you lots oftactics for getting thesefeesreversed.Oneofthebest ways to improveyour chances of gettingfees waived is bykeeping track of everytime you call yourfinancial institutions,including credit cardcompanies, banks, andinvestment companies.Thisisespeciallytrueof

credit card companies,whom you should treatjust slightly better thanyou would an armedmilitiacomingafteryouryounger sister. It’stempting, when calling,to be really nasty, butbecause I was raisedright, I don’t scream orthreaten violence.Instead, when I call todispute anything, I openaspreadsheetthatdetails

the last time I calledthem, whom I spokewith, and what wasresolved. If only allcriminals were asdiligentasIam.

ThePocketTrackerforTrackingCredit

CardCalls

Wheneveryoumakea

call regarding a disputeonyour credit card, youwouldn’t believe howpowerful it is to referbacktothelasttimeyoucalled—citing the rep’sname, date ofconversation, and yourcall notes. Most credit

cardrepsyoutalktowillsimply give in becausethey know you came toplayinthebigleagues.When you use this to

confront a credit cardcompany or bank withdatafromyourlastcalls,you’ll bemore preparedthan 99 percent of otherpeople—and chancesare, you’ll getwhat youwant.

TheCardsIUse

I have two credit cards.My primary credit cardis a Citibank PremierPass Elite. Citibankoffersno-feeandfor-fee

versionsofthiscard(theno-fee card offers halfthe rewards). I ran thecalculations anddecidedtopaythe$75annualfeebecause I spend enoughto justify the cost.Withthis card, I earn onepoint for every dollar Ispend and one point forevery mile I fly, plusfreecompanionfaresfordomestic flights over$379. You can check

thiscardout,alongwiththe free version, atwww.citicards.com.I also have a United

AirlinesstudentcardthatI got many years ago. Iuse this card only tomaintain my credithistory,soI’vesetupanautomatic charge of$12.95/month for amusic subscription site(seepage26forwhythisis important). You can

http://www.citicards.com

learnmore details aboutthis card atwww.united.com.

To improve your creditutilizationrate,youhave twochoices: Stop carrying somuch debt on your creditcards (even if you pay it offeachmonth)or increaseyourtotalavailablecredit.Becausewe’vealreadyestablishedthatif you’re doing this, you’re

http://www.united.com

debt-free,all that remainsforyou to do is to increaseyouravailablecredit.Here’s how: Call up your

card company and ask for acreditincrease.

YOU:Hi, I’d like to requestacredit increase. I currentlyhave five thousand dollarsavailable and I’d like tenthousand.

CREDIT CARD REP: Why are

you requesting a creditincrease?

YOU:I’vebeenpayingmybillin full for the last eighteenmonths and I have someupcoming purchases. I’d likeacredit limitof ten thousanddollars.Canyou approvemyrequest?

REP: Sure. I’ve put in arequest for this increase. Itshould be activated in about

sevendays.I request a credit-limit

increase every six to twelvemonths. Remember, 30percentofyourcreditscoreisrepresented by your creditutilizationrate.Toimproveit,the first thing you should doispayoffyourdebt.Ifyou’vealready paid off your debt,only then should you try toincreaseyouravailablecredit.Sorry to repeat myself, butthisisimportant!

WhenmyhusbandandIwereincollege,wegotafreeT-shirtorsomethingandgotcreditcardswithreasonablelimits($500).Sure, I had no income,but that didn’t seemimportant at the time.Wouldn’t you know it, Iwas responsible enoughto have my limit raisedto $2,000 after a very

short period of time!Except that I wasn’tactuallyresponsible,andI paid thousands ofdollars in interest andlatefeesandwreckedmycredit rating for severalyears.Ittookmanyyearsfor us to clear up thisdebt. I can’t name onepurchase that was trulynecessaryeither.

—MICHELEMILLER,38

6.Useyourrewards!Before I get into rewardsprograms, let me say this:Just like with car insurance,you can get great deals onyour credit when you’re aresponsiblecustomer. In fact,there are lots of tips forpeople who have very goodcredit. If you fall in this

category, you should callyour credit cards and lendersonce per year to ask themwhat advantages you’reeligible for. Often, they canwaivefees,extendcredit,andgive you private promotionsthat others don’t have accessto.Call themupanduse thisline:“Hi there. I just checked

my credit and noticed that Ihave a 750 credit score,which is pretty good. I’ve

beena customerofyours forthe last four years, so I’mwondering what specialpromotions and offers youhaveforme.. .I’mthinkingof fee waivers and specialoffers that you use forcustomerretention.”Credit cards also offer

rewards programs that giveyoucashback,airlinetickets,and other benefits, but mostpeople don’t take advantageof all the free stuff they can

get.Forexample,whenIhadto fly to a wedding in anobscure towninWisconsin, Iredeemed my credit card’stravel reward to save morethan $600 on the flight.That’s an easy one, butthere’s better:Did you knowthatcreditcardsautomaticallygive you amazing consumerprotection? Here are a fewexamples you might notknowabout:

DisputingaCharge:HowtoMobilizeYourCreditCard’sArmyforYou

Once, when I canceledmy Sprint cell phoneservice,theytoldmemyaccount had a $160

charge. For what? Iasked.Waitforit....“Anearlycancellation

fee.”Yeah, right. I knew I

didn’t have a contract,andIhadnegotiatedoutof an early cancellationfee a long time beforethat. (Cell phonecompaniesmakealotofmoneyfromtryingtheseshady moves, hopingcustomers will get

frustrated, give up, andjust pay.) Unfortunatelyfor them, ever sinceSprint had started tryingtoripmeoff threeyearsbefore, I had keptrecords of every phoneconversation I’d hadwith them. Thecustomer-service repwas very polite, butinsisted she couldn’t doanything to erase thecharge.

Really?I’veheardthistune before, so I pulledoutthenotesIhadtakenthe previous year andpolitely read themaloudtoher.As soon as I read

them, I experienced amiraculouschangeinherability to waive the fee.Within twominutes,myaccountwasclearedandI was off the phone.Amazing!!!!! Thank

you,madam!!!Wouldn’titbegreatif

thatwere the end of thestory? Although theytold me they wouldn’tcharge me, they did itanyway.By thispoint, Iwas so fed up that Icalledinthebigguns.Many people don’t

know that credit cardsofferexcellentconsumerprotection. This is onereason I encourage

everyone tomakemajorpurchaseson theircreditcard(andnotusecashoradebitcard).Icalledmycreditcard

companyandtoldthemIwanted to dispute acharge. They said,“Sure; what’s youraddress and what’s theamount?” When I toldthem about myexperience with Sprint,theyinstantlygavemea

temporary credit for theamount and told me tomail in a form with mycomplaint,whichIdid.Two weeks later, the

complaint was totallyresolvedinmyfavor.What happens in

disputes like this is thatthe credit card companyfights the merchant foryou.Thisworkswithallcreditcards.Keepthisinmind for future

purchasesthatgowrong.

Automatic warrantydoubling: Most cardsextend the warrantyonyourpurchases.SoifyoubuyaniPodanditbreaksafterApple’swarrantyexpires,yourcredit card will stillcover it up to anadditional year. This

is true for nearlyevery credit card fornearlyeverypurchase,automatically.

Carrentalinsurance:Ifyou rent a car, don’tlet them bully youinto getting the extracollision insurance.It’s completelyworthless! Youalreadyhavecoverage

through your carinsurance, plus yourcredit card willusuallybackyouupto$50,000.

Trip-cancellationinsurance:Ifyoubooktickets for a vacationand then get sick andcan’t travel, yourairlinewillchargeyouhefty fees to re-book

your ticket. Just callyour credit card andask for the trip-cancellation insurancetokick in, and they’llcover those changefees—usually up to$1,000peryear.

Concierge services:When I couldn’t findLA Philharmonictickets last year, I

called my credit cardand asked theconcierge to try tofind some. He calledme back in two dayswith tickets. Theycharged me (a lot,actually), but he wasabletogetthemwhennobodyelsecould.

Most important, your creditcardmakesiteasyforyoutotrack your spending. For

thesereasonsIputalmostallmypurchasesonacreditcard—especially the large ones.Call your credit cardcompany and ask them tosendyouafulllistofalltheirrewards.Thenusethem!

Mydigitalcamerabrokeabout eighteen monthsafter I bought it. Themanufacturer’swarranty

expired after twelvemonths, but I knew thatAmerican Expressextended warranties onelectronics for an extrayear. I called AmericanExpress and explainedthe problem. They justasked how much I hadpaidforthecamera,andone week later I had acheck for the fullpurchase price in mymailbox.

—RAVIGOGIA,26

MistakestoAvoid

Avoid closing your accounts(usually). Although closingan account doesn’t

technically harm your creditscore,itmeansyouthenhaveless available credit—withthesameamountofdebt.(Forexample, having $2,000 indebt and $8,000 in availablecredit is better than havingthe same debt with only$4,000 incredit.This isyourcredit utilization rate frompage28.)Thebottomline is that it’s

usually a bad idea to closeyour credit card accounts

unlessyouknowyourselfandyou know you’re going tospend any credit you haveavailable. (Hey, it happens.At least you’re being honestwithyourself.)Peoplewithzerodebtgeta

freepass.Ifyouhavenodebt,close as many accounts asyouwant.Itwon’taffectyourcreditutilizationscore.

Manage debt to avoiddamaging your credit score.

“If you close an account butpay off enough debt to keepyour credit utilization scorethe same,” says Craig Wattsof FICO, “your score won’tbe affected.” For example, ifyoucarry$1,000debtontwocredit cards with $2,500credit limitseach,yourcreditutilization rate is 20 percent($1,000 debt ÷ $5,000 totalcreditavailable). Ifyoucloseone of the cards, suddenlyyour credit utilization rate

jumpsto40percent($1,000÷$2,500). But if you paid off$500 indebt,yourutilizationrate would be 20 percent($500 ÷ $2,500) and yourscorewouldnotchange.

Think ahead before closingaccounts. If you’re applyingfor a major loan—for a car,home, or education—don’tcloseanyaccountswithinsixmonths of filing the loanapplication. You want as

muchcreditaspossiblewhenyouapply.However, ifyouknowthat

an open account will enticeyoutospend,andyouwanttoclose your credit card topreventthat,youshoulddoit.Youmay take a slight hit onyour credit score, but overtime, it will recover—andthat’s better thanoverspending.

Don’t play the zero percent

transfer game. Some peoplehave started playing the 0percent transfer game toprofit off of credit cards bymaking balance transfers ortaking cash advances. Theytake the introductory zeropercent APR that you getwhen you open many creditcards (which usually onlylasts for six months). Thenthey borrowmoney from thecardatthislowrateandstickit in a high-interest savings

account, which allows themto profit off the interest.Some actually invest themoney in short-term CDs orevenstocks.At theend, theyplan to return themoneyandkeep the interest. I find these0 percent credit card gamesso moronic. Sure, you canmake a few bucks a year, ormaybe even a few hundred,but thewasteof time, riskofmismanagingtheprocess,andpossibility of screwing up

your credit score just aren’tworthit.Mostimportant,thisis a distraction that gets youonly short-term results.You’re much better offbuilding a personal-financeinfrastructure that focuses onlong-term growth, not ongetting a few bucks here orthere. Dave Ramsey, apopular personal-financeauthor and radio host,specializes in helping peopleget out of debt. He says, “I

have met with thousands ofmillionaires inmyyears as afinancial counselor, and Ihavenevermetonewhosaidhemade it all with DiscoverCard bonus points. They alllived on less than theymadeandspentonlywhentheyhadcash.”Focuson thebigwinsifyouwantbiggerresults.

OhNo!MyCreditScoreJust

Dropped

Some of my Type-Areaders worry too muchabouttheircreditscores.If your credit scoresuddenlydrops,firstyoushouldfigureoutwhybygetting a copy of your

credit report and score(see page 15). Thenwhat’s important is howyou deal with it goingforward. Your creditscore can startrecovering immediatelyas more positiveinformation is reported,likepayingyourbillsontime.Soworktomanageyour credit wisely andconsistently. As FICO’sCraigWatts notes, “The

natural movement ofthesescores is toslowlygrow.Howdoyouthinkpeople end up withscores in the mid-800s?It’s through years andyears of consistentlyboring creditmanagement.”

Avoid getting sucked in by“Apply Now and Save 10

Percent in Just FiveMinutes!” offers. Stay awayfrom the cards issued byevery single retail store.These cards might as wellhave “You Are a Dumbass”writtenon them in thirty-six-point type. I can’t count thenumber of times I’ve seensomeone standing in front ofme at The Gap orBloomingdale’s who getssuckered into thesecards. “Ifyou signup today,you’ll get

10 percent off yourpurchase!” the clerks say.They forget to mention thatthese cards, with an averageAPR of 21 percent and lowcredit limits, are issued topeople with little regard forhow credit-worthy they are.And, predictably, theycontain some of the mostonerous terms of any cards,including tremendous rateincreases if your payment islateevenonce.Andforwhat?

Twenty dollars off a singlepurchase?Askyourselfifit’sworth it. Here, I’ll just tellyou:It’snot.Stayawayfromretailcards.

RateChasers:WastingTime

Earning$25/Month

Oneofmyblogreaders,a guy named Mike,wroteintotellmeabouthis rate chasing. In thiscase, it was savingsaccounts, not creditcards, but they’re verysimilar: It’s justmovingmoney around from oneaccounttoanothertoekeout a few additional

percentagepoints.Mike admitted, “I’m

one of those rate-chasers,so[with$40kinemergencysavings],I’veconsistently beenearning anywherebetween 0.65 and 0.85percent higher than myoperatingmoneymarketaccount. . . . That’s anextra $300/year ininterest, which isdefinitely worth

changing banks everyfour to six months forme.”

MY RESPONSE: “Mike,if you were smartenough to sock away$40k in an emergencyfund (which is reallyimpressive,by theway),I bet you’re smartenough to spend yourtime doing somethingbetter than earning$300/year—something

that will let you earnmuch more sustainably.You’re only earning$0.82/day doing that!Howabout spending thesame time optimizingyour asset allocation?(seepage170)Thatstepalone is probably worththousands per year. Orstarting a side business?Or even spending thosefew hours with yourfamily? I don’t know

what you value, but inmy eyes, any of thosethings would producemore value than$300/year . . .especiallyfor someone who’s sofar ahead of everyoneelse,likeyouare.Thisisjust my two cents . . .about1/40thofwhatyouearned today (sorry,couldn’tresist).”Focusonthebigwins

to get the big results.

They may not be asobvious or sexy asjumpingfromaccounttoaccount and getting afewextra bucks, but thebig wins will make yourichoverthelongterm.

Don’t make the mistake ofpaying for your friendswithyourcreditcardandkeepingthecash—andthenspending

itall.Finally,pleasedon’tdothe same dumb thing I keepdoing.ThelastfewtimesI’vegone out to dinner, the billhas come, everyone hasplopped down cash, and I’verealizedIcanjustpayonmycredit card and earn somemiles.Here’swherethingsgohorribly wrong. Don’t wakeup the next day and say,“Wow! I have $100 extracashinmywallet!”NO!!!Putit in thebank!!I forget todo

this all the time and end upregretting it. Last time, Ichecked my statement andhad shared-meal charges of$50, $64, $25, and so on.Then, my mouth agape, Iopenedmywalletandsaw...one$1bill.Great.

Debt,Debt,Debt

Statistically speaking, beingin debt is normal. And yet,think about it: Is it reallynormaltoowemorethanyouhave? Maybe for certainthings, like a house oreducation,butwhataboutforrandompurchasesonacreditcard?Some people differentiate

debts by calling them “gooddebt” and “bad debt,”depending on if the debtappreciates (education) or

depreciates (car) over time.Others despise debtaltogether.Whateverthecase,most of us have a lot of it.Anditdoesn’tfeelgood.Iwanttotalkaboutstudent

loansandcreditcarddebt,thetwo largest types of debtfacing mosttwentysomethings andthirtysomethings.Theyget intheway of your getting rich,so I want to help you knockthese barriers down with a

simpleplan.

THE BURDEN OF STUDENTLOANS

I’m not going to lie to you:Getting rid of student loandebt is hard. The averagestudent graduates with about$20,000 in student loandebt,but lots of my friends havemore than $100,000 in loanstopayoff.Unfortunately,it’snot like you can justwave a

magic wand and make itdisappear.Infact,evenifyoudeclare bankruptcy, you’llstillhave topayyourstudentloans. However, even if youhave huge student debt, Iwant you to pay attention tohow much money you’reputting toward the monthlypayments. Because the loanamountsaresolarge,evenanextra $100/month can saveyouyearsofpayments.Let’s look at an example.

“Tony,”afriendofminewhograduated fromStanford, has$20,000 in student loandebt.If he pays off the loan overten years, his monthlypayment will be about$230/month, meaning he’llpay just over $7,600 ininterest. But if he pays just$100more/month, he’ll havetopayonly$4,571ininterest—andhe’llpayoffhisloanin6.3years.Most of us accept our

student debt as is. We get abill each month, we pay it,and we shrug, frustratedabouttheburdenofourloansbut not really sure ifwe candoanything.Guesswhat:Youcanchangeyourstudentloanpayments.First,toinspireyoutotake

action on paying off yourstudent debt, play with thefinancial calculators atwww.dinkytown.net. You’llbe able to see how paying

http://www.dinkytown.net

differentamountschangesthetotalamountyou’llowe.Second, I want to

encourageyou toput at least$50moreeachmonthtowardany debt you have.Not onlyisitapsychologicalvictorytoknowthatyou’reconsciouslyworkingtopayoffyourdebt,but you’ll also be able tofocus on investing sooner.Make sure this is automatic,drawing right out of yourchecking account, so you

don’t even see themoney. (Idescribe automatic paymentsinChapter5.)Finally,ifyoufindthat,no

matter how you run thenumbers,you’renotgoing tobeabletopayyourloanoffinany reasonable amount oftime, it’s time to call yourlender. Look at the phonenumber on that monthly billyoukeep ignoring.Call themup and ask them for theiradvice.Ican’temphasizethis

enough: Call them. Yourlendershavehearditall,from“Ican’tpaythismonth”to“Ihave five different loans andwant to consolidate them.”You’ll want to ask them thefollowing:

WhatwouldhappenifIpaid $100 more permonth? (Substitute inthe right amount foryou.)

WhatwouldhappenifIchanged the time lineof the loan from fiveyearstofifteenyears?

If you’re looking for ajob, you might ask,What if I’m lookingfor a job and can’tafford to pay for thenextthreemonths?

Yourlenderhasanswersto

all these questions—andchancesaretheycanhelpyoufindabetterway to structureyour payment. Typically,they’ll help you by changingthe monthly payment or thetime line. Just think: Withthat one call you could savethousandsofdollars.

WHENCREDITCARDSGOBAD

Justlikewithgainingweight,most people don’t get into

serious credit card debtovernight. Instead, things gowronglittlebylittleuntiltheyrealize they’ve got a seriousproblem. If you’ve ended upin credit card debt, it canseem overwhelming. Whenyou watch Dr. Phil, youwonder why those peoplecan’t figureouthow to solvetheir problems when theanswers are so clear: “Yes,you should leave him! Hehasn’t had a job for the last

eightyears!Andhelookslikea rat. Are you blind?” Butwhen we have our ownproblems, the answers don’tseemsosimple.Whatshouldyoudo?Howdoyoumanageyour day-to-day finances?And why do things keepgetting worse? The goodnews is that credit card debtis almost alwaysmanageableif you have a plan and takedisciplined steps to reduce it.Yes,it’shard,butyoucanget

outofdebt.Now, almost nothing

makes people feel guiltierthan having credit card debt.Seventy-five percent ofAmericans claim they don’tmake major purchases ontheir credit card unless theycan pay it off immediately.Yet from looking at actualspending behaviors, 70percentofAmericanscarryabalance and fewer than halfare willing to reveal their

credit card debt to a friend.Those numbers are anindication that Americanconsumers are ashamed oftheir debt levels, says GregMcBride, a senior financialanalyst fromwww.bankrate.com, whichcommissioned the study.Referringtoarecentstudyonconsumer behavior, he toldme,“They[are]morewillingto give their name, age, andeven details of their sex life

http://www.bankrate.com

than provid[e] the amount oftheir credit card debt.”Really? Their sex lives? Iwould like to talk to thesepeople...alone.

When I was engaged, Iaskedmycredituniontoraise my Visa limit of$500to$1,500.Thiswasa horrible mistake. Myweddingdressbudgetof

$500 suddenly became$1,200 when I “fell inlove” with a dress in aboutique. I’ve paid onlytheminimumbalanceonmy Visa each month,since emergencyexpenses seem to bekeeping our budgetstretched paper-thin, soI’m throwing away $30or more per month ininterestforacreditcardbalance from just one

day in my life. Myhusbandand Iwillmostlikely be paying for thewedding for years tocome.

—CLAIRESTUBBLEFIELD,24

This shame means thatthose in debt often don’teducatethemselvesonhowto

stop the madness. Instead,they fall victim to the creditcard companies’ nefariouspractices, which prey on theuninformed—and theundisciplined. Thesecompanieshavebecomeverygood at extracting moremoney from us, and we’vebecome very bad at knowingenoughtosayno.For instance, the number

one mistake people makewith their credit cards is

carrying a balance, or notpaying it off every month.Astonishingly, of the 115millionAmericanswhocarryamonthlycreditcardbalance,half of them pay only theirminimummonthly payments.Sure, it’s tempting to thinkthat you can buy somethingand pay it off little by little,but because of credit cards’insanely high interest rates,that’sacriticalmistake.Let’ssayitagain:Thekey

to using credit cardseffectively is to pay off yourcredit card in full everymonth. I know I said thatprosaically, in the same waysomeone would ask you topass the salt, but it isREALLY IMPORTANT.Askyourfriendwith$12,000in credit card debt how ithappened. Chances are he’llshrugandtellyouhedecidedto “just pay the minimum”everymonth.

I’m not going to belaborthe point, but you would beshockedbyhowmanypeopleI talk to who chargepurchases without knowinghow much they’ll actuallyenduppayingonceinterestisfigured in. Paying theminimum amount on yourcredit card is the grown-upequivalent of a little boyletting the school bully takehis lunch money on the firstday of school, then coming

backwithhispocketsjinglingevery single day afterward.Notonlyareyougoingtogetyourasskicked,butit’sgoingto happen again and again.But by learning how thesystemworks,youcanfigureout how to avoid the cardcompanies’ traps and get outofdebtmorequickly.

PAY YOUR DEBT OFFAGGRESSIVELY

If you’ve found yourself increditcarddebt—whetherit’sa lot or a little—you have atriple whammy workingagainstyou:

First, you’re payingtons of high intereston the balance you’recarrying.

Second, your creditscore suffers—30

percent of your creditscoreisbasedonhowmuchdebtyouhave—putting you into adownward spiral oftrying to get credit toget a house, car, orapartment,andhavingto pay even morebecause of your poorcredit.

Third, and potentially

most damaging, debtcan affect youemotionally. It canoverwhelm you,leading you to avoidopening your bills,causing more latepayments and moredebt, in a downwardspiralofdoom.

It’stimetomakesacrifices

to pay off your debt quickly.Otherwise, you’re costing

yourselfmoreandmoreeveryday.Don’tputitoff,becausethere’s not going to be amagic day when you win amillion dollars or “haveenough time” to figure outyour finances. You said thatthree years ago! Managingyour money has to be apriorityifyoueverwanttobein a better situation than youaretoday.Think about it: The

averageinterestrateoncredit

cards is a hefty 14 percent,which means you’re likelypaying a tremendous amountof interest on any balanceyou’re carrying. To see howthis plays out, let’s assumesomeone has $5,000 in debton a card with 14 percentAPR. IfDumbDan pays themonthly minimum payment,it will take him more thaneight years to pay off thisdebt—assuming he doesn’trackupmoredebt,whichyou

knowhewill.Overtheentireprocess, he’ll pay more than$1,900 in interest alone.Smart Sally, by contrast,decides to pay $400 eachmonth, which is double theminimum payment. It takesherjustoverfiveyearstopayoffthefulldebt,andshecutsthe amount of interest bymore than half. Plus, sinceit’s automatically withdrawnfrom her checking accounteachmonth,shedoesn’teven

notice the extramoney she’spaying.

DUMBDANVS.SMARTSALLY:PAYING

OFF$5,000CREDITCARDDEBTAT14%APR

That’s just from paying

$200extraeachmonth.Don’thave $200 extra?How about$50? Or even $20? Anyincrease over the minimumhelps.If you set up automatic

payments(whichIdiscussonpage131)andworkyourdebtdown, you won’t pay feesanymore. You won’t payfinance charges. You’ll befree to grow your money bylooking ahead. In the creditcard companies’ eyes you’llbe a “deadbeat,” a curiousnickname they actually usefor customers who pay ontime every month andthereforeproducevirtuallynorevenue. You’ll be worthless

intheireyes,whichisperfectin mine. But to beat them,you have to prioritize payingoff whatever you alreadyowe.

The day I paid off mylast credit card bill wassurreal