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Oprah Winfrey's Debt Diet Is Only Your First Step

Back in 2006, Oprah Winfrey presented her viewers with Oprah's "Debt Diet." an eight-step program designed to help people evaluate, control, and eventually eliminate the amounts they owed on bills, credit cards, and other loans. The program became quite popular, as it was aimed at ordinary people and involved financial experts helping families with their real debt burdens.

Getting out of debt is indeed an essential part of declaring your financial independence. But Oprah's Debt Diet is only the first step toward financial security. Let's take a closer look at what Oprah and her team suggested in the Debt Diet and then turn to what your logical next step should be after getting your debt issues resolved.


Oprah Winfrey. Photo by Alan Light, courtesy Wikimedia Commons.

Understanding Oprah's Debt Diet
For those who have already gotten out of debt, Oprah's Debt Diet might sound simple. But for the millions of Americans who owe more than they can afford, the day-to-day struggle against debt is real, and it's hard for many people to break the debt cycle for good.

Oprah's eight-step plan boils down to three key areas. In the first, you gather information about where you currently stand financially. By gathering bills and looking through credit reports, you can find out how much you owe and what your current spending habits are.

Next, you start taking action based on the information you've gathered. Steps like creating a budget and cutting your spending focus on the expense side of your financial situation, helping you make your money stretch further. Steps to boost income can also help you make ends meet.

Finally, as the Debt Diet starts to reduce your outstanding debt, you take a longer-term view at what drives your spending and saving behavior. The goal here is to find long-term solutions that will help you maintain your debt-free status and start building emergency savings.

Moving on to phase two
To Winfrey's credit, Oprah's Debt Diet ends with a single line that suggests a path forward beyond eliminating debt. In it, she notes that investing can help create a "real foundation of wealth for your future."

But to help you take further steps forward after you've successfully completed Oprah's Debt Diet, let me share some of the guidance that The Motley Fool has given its readers for more than two decades:

1. Investing in stocks is essential to produce long-term returns great enough to make you wealthy.
Historically, stocks have produced much higher returns than you'll get from a savings account. With many banks paying almost no interest in savings right now, keeping more than the three to six months' worth of expenses you might need in an emergency fund will cost you the chance at much more substantial returns in the long run.

Of course, many investors remember all too well the bloodbath that the stock market suffered in 2008 and early 2009. What many forget, though, is that the market had produced years of solid gains leading up to that drop. Moreover, in the years since the crisis, the stock market has regained all its lost ground and then some, rewarding those investors who stayed the course.

2. Mutual funds and exchange-traded funds can be a great way to get your feet wet in the stock-investing world.
Individual stocks are intimidating for many investors. That's why starting with mutual funds and ETFs can give you a great place to start. In particular, major ETFs SPDR S&P 500 (NYSEMKT: SPY  ) , Vanguard Emerging Markets (NYSEMKT: VWO  ) , and iShares MSCI EAFE (NYSEMKT: EFA  ) have become hugely popular among investors. The SPDR ETF has more than $150 billion in assets under management, while the Vanguard and iShares offerings both hold around $50 billion.

ETFs and funds are useful in letting you tailor your investment exposure. For instance, the SPDR ETF above tracks the S&P 500 Index, which includes 500 of the largest U.S. companies in the market. Adding international exposure, the iShares ETF invests in companies in more developed foreign countries, while the Vanguard ETF specializes in emerging economies worldwide. A combination of these and other funds can help you round out a well-diversified portfolio.

Focusing on the lowest-cost options in the fund world is usually the smartest move. Doing so will help you minimize the amount coming out of your pocket to pay for fund expenses and other costs.

3. For the best potential returns, individual stocks offer better prospects than more diversified funds.
If you really want the best returns, you have to take more risk by picking individual stocks. Obviously, the key there is being smart about which stocks you pick.

Fortunately, there are many ways to pick stocks well. Dividend stocks offer a combination of growth potential and regular income for those who need their investments to produce cash for living expenses. High-growth stocks often don't pay dividends, but the most successful of these high-risk companies can produce life-changing gains for investors who recognize their potential early on. Whether you prefer to pick stocks based on dividends, inexpensive valuations, potential for fast growth, or a combination of all three, the top picks can deliver gains over the long run that can add up to financial success.

Don't wait
If you're still struggling to get out of debt, following a plan like Oprah Winfrey's Debt Diet can rescue you from dire financial straits. But once you've solved your debt problem, don't stop there. Move on and get started with an investing plan that will give you the full benefit of the work you've done to get your finances in shape.

For many, that's easier said than done. That's why The Motley Fool has always tried to help would-be investors find out what they need to know in order to get comfortable with investing and start making money in stocks. Our brand-new special report, "Your Essential Guide to Start Investing Today," includes guidance from The Motley Fool's personal finance experts, who show you why investing is so important and what you need to do to get started. Click here to get your copy today -- it's absolutely free.

Tune in to Fool.com for Dan's regular columns on retirement, investing, and personal finance. You can follow him on Twitter @DanCaplinger.


Read/Post Comments (2) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 22, 2013, at 1:00 PM, TMFBreakerRob wrote:

    "Investing in stocks is essential to produce long-term returns great enough to make you wealthy."

    I'd say that claim is over-stated and would suggest saying "Investing in stocks is *one* important way we can produce long-term returns great enough to make you wealthy."

    What are other ways?

    * Investing in real estate

    * Starting a successful business

    ...and many others that are less common such as striking oil in your backyard, being a sports star, etc.

    In fact, I would suggest that real estate and growing a business have created more millionaires in this country than investing, but that's mostly based on what I've read.... I'll leave the googling to others.

    That's not to diminish the importance of investing. And frankly, it's how I was able to retire early.... and now be able to afford to develop a successful business. But investing in stocks is not *essential*. It's merely *one* way.

    </quibbling>

  • Report this Comment On October 23, 2013, at 8:03 AM, cmalek wrote:

    "Of course, many investors remember all too well the bloodbath that the stock market suffered in 2008 and early 2009. What many forget, though, is that the market had produced years of solid gains leading up to that drop. "

    And what you seem to forget is that, thanks to Wall Street pundits who advise(d) buying when the market goes up and selling when the market goes down, there were many Johnny-come-latelies who got into the market just prior to the bloodbath. The long term investors may have gotten a hair cut in 2008-09 but by now have had their hair grow back and then some.

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Dan Caplinger
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Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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