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16 Common Myths About Getting Out of Debt That Everyone Gets Wrong

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Introduction to 16 Common Myths about Getting Out of Debt

[0:00] Hey, you’re back with the Get Out of Debt Guy show. I’m the old Get Out of Debt Guy, Steve Rode, and with me is the new Get Out of Debt Guy, Damon Day.
Hey, Damon. Hey, Steve.
Today, we’re going to be talking about the 16 common myths about getting out of debt.
Now, Damon has not seen this list, and it’s going to be rapid fire, so this is even not an exhaustive list.
I could have come up with probably 100 common myths because people have so many misperceptions about dealing with debt.
I think my biggest problem, Damon, is that through those misperceptions and myths that people believe, it leaves them feeling depressed and sad and inadequate and feeling like failures and everything else.
And once you understand reality you will understand why people may have those emotions but they’re just not it’s not based in reality it’s not how life really works we all internalize this stuff and damon i’ve always said that you know when i used to host debt seminars and we would invite people to come it was like pulling teeth nobody wanted to come and it didn’t take take that long for me to realize that people showing up to learn how to do better with dealing with their debt was like, sign me up for a herpes conference.
Overcoming the stigma of debt and financial struggles

[1:27] Nobody wants to go to the free herpes meeting. So people suffer in silence when it comes to their debt.
Damon, I’m going to start without any delay.
So common myth number one, I’m a loser or failure for having too much debt.
What’s your opinion? Well, you know, I look at that like social media, right?
You’re not alone. Debt is a lot more common than you think.
And it’s just, you know, it’s part of the culture that we have.
Would it be better if you didn’t have debt?
Yes, it would be. But the nice thing is there’s a way you can fix it.
What’s your famous saying, Steve? Just do better moving forward.
Yeah. That’s it. You can’t repair the past. Let’s do better moving forward. Yeah.
So it is what it is. I know you look at the social media and it’s like, everybody’s life is perfect and my life sucks.
Well, that’s pretty much everybody’s life has problems in it.
They just don’t show you the herpes, right?
That’s right. Well, I mean, one of the things that I learned was I really avoid social media because it creates too much pressure and expectations.

[2:38] And if you’re looking at what your friends are doing and they’re all having these fabulous less vacations and stuff.
You see that they’re going fantastical places, but what you don’t see is their credit card bills.
Yeah. So they could be proudly going way in debt and it doesn’t, you’re not a loser or a failure for having too much debt.
It just is what it is. We can do better moving forward.
Yeah. All right, Damon, common myth number two, my credit will never recover from my debt problems? Oh, the biggest one. Oh my gosh.
Your credit will always recover. Why? Because banks want to loan you money.
That’s how they make money. Do you think they want you to be a leper and a pariah and, oh, we’re never going to loan you money again?
You know, when I filed bankruptcy, what was that? See, 2012, 2011, 2012.

[3:24] Remember, I tell this story all the time because I couldn’t even believe it myself. But when I got my discharge papers in the mail, like, hey, chapter seven’s done.
These debts are wiped out in the mailbox the very same day.
And it sounds like I’m making it up, but I, I swear I’m not.
I got my discharge papers from the court and in that mailbox the same day was capital one going, Hey, here’s our new fresh start program card. Congratulations.
And here’s a thousand dollars and no interest for a year and make your payments on time. And we’ll up your credit limit in six months.
I literally had a brand new credit card the same day I got a couple hundred thousand dollars discharged in a bankruptcy court.
It does not ruin your life and ruin your credit for 10 years.
That is the biggest myth.
Yeah. I like it when people say, well, what’s my bank going to think about me?
Nothing. Nothing. They don’t think anything about you. They don’t care about you.

[4:15] You’re a number on a spreadsheet. That’s all you are.
I remember years ago, Damon, I was sitting with the national collection manager of the nation’s largest credit card company at the time and her phone would ring and she would pick it up and she would go file bankruptcy and hang up the phone and this went on and i was like what what are you doing i mean.

[4:35] There’s help for these people. We can put them on a payment plan.
And she goes, look, Steve, I don’t care.
She goes, each month I have to go in front of my boss and justify my department’s performance.

[4:45] And if somebody files bankruptcy, it doesn’t count against me.
So they should all file bankruptcy. I don’t want to deal with them.
Yeah, it’s not my fault. They filed bankruptcy. Nothing I could have done.
Yeah, not a damn thing. It’s all a game, you know. Don’t hate the player. Hate the game. Dang.
I forgot to mention at the top of this podcast that if you have any sort of debt concerns, you need advice, you want to talk to somebody, you can reach Damon Day at d-a-m-o-n-d-a-y.com or you can visit the getoutofdebt.org website. You’ll see links there for Damon.
And he is doing personal consultations. You can reach out to him and there’s nothing that you can can say to Damon that he or I have never heard before.

[5:31] And I certainly don’t think any less about somebody that has debt problems.
I’ve had so many family members that have come to me in confidence and told me about their situation. Damon, here’s a good one.
I remember once I was doing a research on writing an article about farm debt.
You know, poor American farmers, they struggle with a lot of debt.
And so I contacted a farming association, the nation’s largest pork farmers association for some reason and they put me in touch with this farmer who’s doing it right everything’s going right and i interviewed him and at the end of the interview i said is there anything else i should ask you or do you have a question for me and he goes this this is off the record steve right now yeah yeah he goes oh i’m so screwed.
Debt and Credit Score: Debunking Common Myths

[6:20] So nobody’s a loser because they have debt and your credit can recover from your debt problems.
All right. Common myth number three, I must pay off my debt so my credit score will be okay in the future.

[6:35] Okay. I mean, you can pay off your debt and your credit score will probably improve, but you also have to ask yourself, what’s the value of that credit score?
People get so fixated on that score itself. self, sometimes it clouds all the time.
It clouds their judgment on what they should be doing and what the priorities are.
Sometimes that is the right path. Pay off the debt, work harder, tiny feature way out of that sucker.
Sometimes that’s the right answer. Sometimes just filing bankruptcy and doing better moving forward is the right answer.
And sometimes something in between those two things is the right answer. It just really depends.
But the most important thing is take a step back, take the emotion out of it and research those different options and say, say, how would my life play out going down this path, this path, or this path, right?
Don’t make bad decisions because you’re worried about a credit score.
That’s how they trap you. That’s why there’s a credit score in the first place.
People think that credit score means it’s like a report card on how smart you are about personal finance.
It’s almost the exact opposite. Your credit score is not designed as a report card about how you’re doing.
Ultimately, it’s designed as a numerical number. so lenders can make quick decisions about your level of risk.
If you have an 800 credit score, you’re more likely to get access to credit, not because you’re brilliant at personal finance, but because the way your finances are set up and being reported makes you less risk of default. Yeah.

[8:02] So it’s not about how smart you are. It’s again, it’s a game.
Myth number four. It’s a game. Myth number four.

[8:09] Bankruptcy will ruin my financial life. No.
And again, every situation is different. It depends, right?
But every client I’ve ever had and ever talked to have a perception of bankruptcy that is usually off.
Well, once in a while they might, they understand it. But most of the time they think, oh my gosh, I’m going to be a leper.
I’m a pariah. my credit’s going to suck for 10 years. I won’t be able to buy a house. I won’t be able to buy a car.
No, all those things are not true. The best advice I can give is just look at that as an option.
Doesn’t mean you have to do it. Looking at it is free to look at, right?
And consider, if you see something that you don’t like, then you don’t have to do it, but don’t not explore it. Does that make sense? Don’t not explore it.
Don’t not explore it just because because you are afraid of X.
Just get the information first, get educated, and then you can decide, is that a good path for me or not?
Maybe it is, but maybe it’s not. That’s okay too.
We’re not, Steve and I aren’t sitting here saying everybody that has debt needs to file bankruptcy.
Far from it. We’re saying everybody that has debt needs to look at every option to make sure before they go down a specific path, it makes the most sense.
Yeah, without misperceptions. Yeah.

[9:23] Bankruptcy. The other thing too is you talk about getting out of debt.
That, you mentioned it in the beginning, but a mistake that drives me out of my mind is when people live on beans and rice and do the baby step thing, and they spend the next five years trying to dig their way out of debt, and they’re in their 40s or early 50s.
And instead of tackling the debt right now, instantly, and doing better moving forward.
If you do the beans and rice, you’re going to spend the next five years digging yourself out.
You’re essentially pissing away more than a million dollars in retirement money that you could have had by dealing with your debt today, learning from it, and moving forward and starting to save again for retirement.
Because the one thing that you can never recover by working harder or anything else is that lost time.
So don’t believe every myth. Don’t believe the one that we just said bankruptcy will ruin my finances for life.
That is not true. Myth number five, Damon.
Beware of Conflicting Advice: Credit Counselors vs. Debt Settlement Advisors

[10:28] A credit counselor or debt settlement advisor puts my interests first. No.

[10:35] Okay. I mean, I can elaborate, but it’s very simple. No, they don’t.
They’re making a commission.
They’re there to sell you something. Look, call a debt settlement company.
Call five debt settlement companies. Call five bankruptcy attorneys.
Call five credit counseling companies. Call five, quote unquote, Dave Ramsey certified financial advisors.
Whatever it is, I don’t care. every single time the five debt settlement companies will all five to a t say oh debt settlement our program is best program we should do here’s why five credit counseling companies oh our program is best program we should do here’s why settlement is a scam bankruptcy is going to ruin your life for 10 years bankruptcy attorneys oh no no no debt settlement’s a scam credit counseling is going to cost too much best way to do is just file a chapter seven and wipe this debt out to the person they’re all going to tell you the best thing you should do is just Just happens to be the thing that they’re there to sell.
That’s what they do. They’re not advisors.

[11:29] Well, that’s why I feel very strongly all these years that people should contact you and discuss their individual situation because there’s no one broad brush that you can use to paint a solution that fits everybody.
Everybody’s situation is unique and different. For some people, it might be bankruptcy makes the most sense, and here’s why.
Some people, settling your debt might make sense, and here’s why.
So there is no one-size-fits-all solution. And a big part of that, Steve, doesn’t even have anything to do with the money, the debt, the finances itself. It has to do with how they feel.
That person, specific person, feels about the money, the debt, the credit score. I can have two clients that on the surface look like they’re in the exact same situation.
And one client jumps headfirst into bankruptcy and loves it.
And the other client does the beans and rice in the tiny feet and loves that.
Right. That’s because that’s what they want to do. That’s what they’re comfortable.
So it’s not just about, well, let me look at the numbers. Oh, you have to do this.
It’s a big part of that is what does that person prefer to do? It’s their life.
It’s their money. It’s their credit. It’s their decision.
My job is just to help paint that picture, say, okay, here’s your options and here’s what your life will look like based on the different options you choose.
And it’s up to the client to decide what are they comfortable doing? It’s their choice.

[12:52] Yeah, I’ve never felt like if somebody listened to my advice and they went and did something else that they were, you know, broken or a loser or a failure or something.
And I know that you don’t feel that way because ultimately all I can do as an advisor and all you can do is present the information, be there to answer all the questions and let the client decide, knowing all of that, what is the best course of action?
Yeah. There’s no right or wrong answer. It’s not set in stone.
Like I might tell the client, Hey, look, based on all this stuff, I really think you should file a chapter seven and here’s why, blah, blah, blah, blah, blah.
And I’ve had clients come back to me saying, you know what? I hear what you’re saying. I just don’t want to.

[13:33] Okay. Okay. Okay. Well, if you don’t want to, let me explain to you what we’re going to have. What’s the next best thing that you could probably do. And let’s explore that.
And then, Hey, maybe we set up a strategy where if you really don’t want to do the bankruptcy, even though you’ve, you looked at it, you understand that you just don’t feel, and that’s fine.
I mean, I just don’t have a good feeling about it. I don’t want to do it. Okay. No problem. Okay.
Here’s what we have to do. Well, we can try that strategy.
It’s like, it’s going to be a lot harder. It’s not impossible.
Nothing’s impossible. It’s just going to be harder.
Okay. We can see if we can do that. Well, maybe we try that for three months.
Maybe we try that for six months.
Maybe it works out great and it’s fine, or maybe it’s not working out.
And that client has a different perspective six months later.
And they go, Oh, you know what? I’ve been trying this.
I know you said bankruptcy made more sense, but I feel like I’ve been spinning my wheels for the last six months.
I really didn’t want to do it, but I think I’m ready to go down that path. Right?
So some of it’s also just about timing, but it’s never about, no, I said you have to go bankrupt. So you have to go bankrupt or you’re making the wrong choice.
It’s not like that. Well, here’s a classic situation.
We both had clients like this. But as I remember you telling me a story about a guy whose wife just kept spending on luxury items.
Oh, I remember this one. Yeah. And he was like, I can’t go bankrupt because she’s going to hate me or leave me or something like that.
She was spending thousands of dollars on handbags.
A $10,000 Purchase Raises Eyebrows

[14:50] Yeah. Well, that one was one where after we decided we needed to settle the debt, because he couldn’t go bankrupt for other reasons.
But when he sent me over his credit card statements to review, to kind of see where we’re at and come up with a plan, I noticed, I don’t know if it was Nordstrom’s or Macy’s or something, but there’s like a $10,000 purchase.
Like recently, like after we’d been talking and made a decision that we were going to need to try to negotiate these debts.
And I had called him up and I said, what’s this $10,000 purchase on this Macy’s card or Norton or whatever it was.
And he goes, oh, my wife bought a purse.
And I was stunned, actually. I was like, what?
And I’m like, well, he had legitimate hardship. He couldn’t afford any of this stuff.
And he’s like, yeah, because she knew we were going to be losing these cards because we were going to settle them.
I’m like, you realize I need to negotiate with this creditor and tell them about the hardships that you’re having. And they can see this charge on the card.
This wasn’t like, you know, I had to go to Walmart and get food.
This is a, I said, this is a $10,000 purse.
And he goes, well, she got a bag too. Like that, oh.

[16:00] That makes it better. So we got two things. Oh, okay, yeah, no problem.
But I told him, I said, look, And I’d never spoken to the wife up to that point, even though he’d been a client for a month or two. She always, I tried, but she’d always refused to get on the phone. She didn’t like what I had to say, I guess.
And I said, look, one of two things, either you need to return that purse or I can’t help you with that account.
There’s, I can’t, you know, I’m not going to say, I’m not going to go negotiate a debt that you had.
He didn’t do it, but your wife knowingly went out and purchased a $10,000 purse, knowing that she probably wasn’t going to have to pay a lot of it back.
I’m like, I’m not doing that. Right.
And so what ended up happening was a few days later, he’s like, yeah, I talked to my wife and you know, we really appreciate your advice, but yeah, we’re just not going to move forward with you. Oh, all right.

[16:48] Best of luck. And I never heard from him again. So I don’t know how it worked out. My guess is not great.
I had a client once and he told me, Steve, I’ve been dating this girl for seven years and she’s given me an ultimatum.
We’ve been engaged for seven years, and she gave me an ultimatum and she said unless we go through with this marriage and we get married i’m leaving you and he said to me the only reason i can’t get married is because i’m embarrassed about my credit report and you can guess what the ending of that was uh she left him yeah she never he never told her about the credit report and they could have worked through it it It wasn’t major issues, but he lost the love of his life because he was embarrassed about his credit. That really sucks.
Personal Finance Myths: TV Experts Don’t Always Know Best

[17:35] Myth number six, popular personal finance people on TV always tell me what is best for me. Denied.

[17:45] Declined. Declined. You are denied.
Can’t afford it. Yeah, personal finance people on TV are saying what, you know, basically what demographics and audience testing are resonating well so that they can keep doing their show and keep selling ads.
And I have heard some of the, the largest names out there.
I’m not going to mention any names, just say the most ridiculous stuff that makes no mathematical sense at all, because that’s their shtick.

[18:25] Yeah and and you know there’s lots of good advice out there i’m not you know we’re not saying yeah that some of these guys don’t have a lot of good advice it just it goes back to the absolutes this is my way this is the way i teach this is the way you have to do it if you don’t do it this way you’re not doing it right that’s the part i always hate and i i know we’re trying to keep this kind of short but i’m going to tell the story because it it still really chaps my hide to this day and this was this was 10 years ago i was listening on the radio that’s how long ago it was it was actual radio.

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[18:55] I’m listening to the show and I’m going to try to keep it brief.
But this gentleman had called in, they had a couple of kids and he was just very distraught over this debt that he had.
The only asset he had was his house. There was equity in his house.
And the radio host basically told him that after going through his stuff, his only option, only option was to sell his house.
And the guy was devastated by this news.
And he was telling the host that this house is our whole world.
The kids were born here. They’re growing up here.
It would just devastate my family to have to move. And he was like, basically, well, you need to man up and you need to do what you got to do and you got to sell the house. And I’m listening to the guy’s situation.
And I’m like, no, there are other strategies that he can use to resolve this debt.
Not mainstream, not something they’ve talked about on a radio show, but if he’s going to follow some certain method, he’d have to sell his house.
And the guy was literally in tears by the time the call was over and left that call with, well, you know, this person knows what he’s talking about.
And he says, the only way out is we’re going to sell our house.
And it just made me so damn mad.

[19:59] That this poor, and I hope he didn’t sell his house, but the fact that it was like, my way is the right way.
And I’m going to tell you that. And there’s no other option.
And you have to listen to me because I’m the guy or the gal or whatever.
And I, I was just so, I was screaming at the radio, like, that’s not his only option. You son of a bitch.
I swear. I was like, and then I was like, how can I get this guy’s number?
I need to call this guy. I’d be like, dude, you don’t have to sell your house.
There’s other options. Screw that guy.

[20:26] Or it’s like if you hear on the radio or watch a video or somebody who’s a financial planner, it always drives me crazy when they say the only way to deal with your debt is you have to make a budget and stick to it like not everybody is good at that i’m not good at sticking to a budget i suck i hate budget oh my god i have a hard time just making one and then i look at it and i go oh that’s cool all right let’s go do something yeah i mean i honestly i honestly don’t think that i’ve done a budget 20 years 97 of us don’t think that way they don’t live that way and what a right what a crappy life to live having to carry a budget in your pocket remember the cash in the envelope system that some guys who’s gonna live like this like hold on let me get my walmart envelope out all right here we got 50 bucks i mean and i know it works for some people but But most, that’s the problem. Nothing works for everybody.
Budgeting and Housing: Not One-Size-Fits-All Solutions

[21:20] Right. Oh, it’s like when they say, you shouldn’t spend more than 27% on your housing.
What if you live in LA? Yeah. Just spend less than something else.
Well, just sell your house. It’s the only way, Steve. Yeah. You have to sell your house. Okay, myth number seven.
I had a friend that did debt settlement and is happy about it.
So that should be a good move for me in my situation.
Okay. Maybe it is. Maybe it’s not.

[21:46] It’s worth investigating, get all the answers. Everything you have to investigate because you hear both sides.
Oh, I had a friend that tried debt settlement and it was horrible, so that’s not going to be good for me. Or I had a friend that filed bankruptcy and they said that ruined their life.
Well, Dave Ramsey also said bankruptcy ruined his life and it was the worst thing he ever did.
I don’t know. Dave’s doing pretty good. I think it’s all right.
Well, and you mentioned your bankruptcy and I filed bankruptcy in 1990, I think. Yeah. Yeah.

[22:14] And living through that experience gave me a great perspective on helping people.
And I’ve helped so many, I don’t know, a hundred thousand plus people over the years that, Hey, it was a great benefit for me.
Sometimes shit happens and it’s better to, like you say, do better moving forward.
Sometimes trying to spend time and resources, repairing the mistakes of the past, don’t make financial sense, especially the older you get, The opportunity cost of the dollars that you’re earning right now are much higher than if I’m talking to a 60-year-old client that’s going to retire in five years.
That is a very different scenario than if I’m talking to a 25-year-old that’s got some debt and they’re not sure what to do with it.
The 60-year-old has a much higher opportunity cost of those dollars than the 25-year-old does. The 25-year-old has a little bit more time to recover from things.
You’ve got to be cognizant of that. You know, you don’t want to be, and I have so many clients are like, I don’t want to be a burden on my children.
You know, they’re paying their parent plus loans and all this stuff.
And it’s like, well, if you don’t change things, you’re going to be a burden on your children.
It’s just not going to be right now. You’re just shifting the timeline of when you’re going to be a burden because you’re spending all your money on this debt and these things and not saving for retirement. So what happens when you don’t have your income anymore, but you still haven’t resolved all these debts?
Now you’re then going to end up being a burden on your children, even if you don’t want to be, assuming you have kids that love you and don’t want you, you know, living in, I don’t know, squalor and eating dog food or whatever.

[23:44] Well, I’m always amazed where people feel so bad about their debt that they think, what are people going to think about me?

[23:51] So Damon, what drives me crazy is when people feel so bad about their debt and they feel like a failure because something you mentioned, you know, life happens.
So if you’re a farmer and you plant your crop and it doesn’t rain that year and you’ve run up that debt for that crop, how, we don’t perceive that farmer to be a failure because it didn’t rain.

[24:12] So how are you a failure if you were working hard and lost your job unexpectedly and now you’re, it’s not raining money for you either.
You’re not a failure don’t worry about that you know the way this system is set up it’s actually set up for people to take a big swing take a chance take some risk that’s what it’s designed for yes i mean it’s the embodiment of the you know american dream right it’s like take a swing for the fences and try to hit a home run and that’s what bankruptcy is for right hey look i did everything i could i tried i you know i tried to do everything right i took this investment for of this business and I gave everything I had to it.
It just, for whatever reason, didn’t work out or whatever the scenario is, we have a system set up to encourage people to take risks.
That’s how America has gone from where we were 200 years ago to where we are today.
It’s because we have this system that’s set up not to say, hey, you need to just sit there and stay on the farm and work your plot of land and that’s it.
No, it’s like, hey, let’s take some risks. Let’s try to be great. Let’s go for it.
And if it doesn’t work out, we got some checks and balances in place in the system to give you a reset.
And guess what? I mean, how many people have, you know, gone out, had a business opportunity, whatever, filed bankruptcy and then came back bigger, better, faster, stronger and succeeded?

[25:28] That’s what the system is designed for, is to encourage people to take some risks and dare to do something great.
Yeah. Not dare to do something really stupid, but dare to do something that’s great.
All right, Damon, myth number eight, I need to pay off all my debt before I start saving money for emergencies. Yes, that is a myth.
Importance of Saving While Paying Off Debt

[25:48] Because that… I think that people should, if they’re going to try to spend their way out of debt, that they should also start saving at the same time.
You don’t have to… It’s not all or nothing, right?
You got to have some emergency money there in case the tires or like I was talking to somebody yesterday, all of a sudden the truck breaks down.
Yeah. Because the, the, the, the myth about that and the problem with that is the math makes sense, right? You think, why would I save money?
If I’m paying 20%, I should take that a hundred dollars and pay it on a credit card. So I’m not paying 20% on that a hundred dollars anymore.
That is logical. And that makes sense. The problem is if you don’t make some major changes while you’re doing that, In a vacuum, that would make a lot of sense.
But unless you’ve cut up all those cards and you’re not using them anymore, then that money tends to get spent again and spent again.
And what a lot of people try to do is say, well, I’ll save as soon as I get out of this debt.
But five years later, they’re still paying the debt. It’s still kind of circling around.
It’s just not going down. They’re paying all the debt and they’re not saving anything.
So you almost have to get yourself off that treadmill, have a certain amount of money that you’re going to set aside no matter what.
And then you’re going to go out and make some extra money. Go over our Penny Stupid podcast. Those little shameless plug for that.
Learn how to make some side hustle money, and then you can use that money to start paying down debt at a more rapid pace.

[27:06] Yep. You, if you have a lot on your credit card and you don’t have anything in an emergency fund, you’re just putting all the money towards the credit card and the engine goes, or you need something unexpected.

[27:19] Where’s that expense going to go? It’s going to go right back on the 20% credit card.
And that’s another myth that people have where they say, oh, I have to have a credit card. So in case there’s an emergency, you know, when we talk about something like a bankruptcy or a debt settlement or something like that, and those cards are going to get closed and they freak out and like, oh my, I have to have a credit card.
Well, no, you don’t. Wouldn’t you rather have $5,000 cash in a bank versus credit available on a $5,000 card?
Because guess what? If your credit score starts to drop and drop and drop, because your utilization ratio starts getting pretty high because you’re having trouble, that $5,000 you have available on a card for emergencies could get taken away from you with a simple letter that says, ah, yeah, we’ve reevaluated your life choices here and we’ve decided to lower your credit limit.
So now you have no emergency fund. That credit card that you’ve been working so hard to keep open and save and have available is now gone versus if you have five grand in the bank, the bank’s not going to write you a letter and say, yeah, we’ve taken that away from you. It’s there in your bank.
That bank letter should say, it’s not us, it’s you.
We quit you.
College: Not Always a Smart Financial Move

[28:22] Myth number nine.
Going to college is a smart financial move. Sometimes.
Again, you notice a pattern, Steve, a theme? There’s nothing that’s absolute.
It’s always good for everybody.
That’s the problem. Nothing is always good for everybody.
College is a great option for some people depending on what you really want to do.
But you have to look at it as, what am I investing in terms of time and money and resources?
And what am I hoping to get from it? And what am I likely to get from it?
You have to evaluate it like you would any other investment.
What was the statistic we saw recently? It was like 50% of Fortune 500 companies are no longer requiring someone to have a bachelor’s degree.
Dude, I was ahead of the curve on that. You go back years in some of our podcasts.
Didn’t we do a podcast where I kind of floated the idea of, do you really need a degree? Or can you just tell the employer you have a degree?
And as long as you’re competent, you’ll be fine. i swear i said that on a podcast like 10 years ago well so here’s the head of the curve bro ahead of the curve that drive me you’re the curve i set the curve to.
The Reality of College Debt

[29:37] You’re one of those curves where people just go off the road in the middle of the night hold on baby hold on for the ride hold my beer it’s gonna be a ride it’s gonna be a ride, So, two facts that people never consider about the whole college thing is it’s like a merry-go-round where you win a prize on the ride if you get the brass ring.
Because you don’t get the benefit of all that money for college unless you actually graduate.
Three-quarters of people with college debt never graduate.
They have the debt. They don’t have the benefit of it.
It so if you’re going to go to school and you think that’s the smart thing to do start at your community college where it’s cheaper and you can see if you really like it see if you like this major or whatever you want to go study get your two-year degree and then go to a four-year school.

[30:33] Don’t spend 150 000 on an english degree because you went to the best party school that makes no no sense in your trash and your life.
Yeah. And I know it’s easy to say, but ideally know what you want to do before you go to college.
Or like Steve said, go to, if you’re not sure you’re 18, you’re at that stage, you know, you’re finding yourself or whatever it is.
Like Steve said, go to a community college where you can like have a part-time job and just pay for your school.
You’re not taking out monster student loans, even if they don’t seem like that much in the beginning.
And even if they don’t seem like that bad of an interest rate, oh my gosh, if I have so many many clients that are working jobs under 50 grand a year with a hundred, $200,000 in student loan debt.
And to the person, if you ask them, would you go to college again? No way in hell.

[31:22] Like they feel a lot. I have so many clients that college ruined my life and they feel like they’re trapped and they’re slaves to this debt now.
And they’re having a hard time getting ahead. And college is no guarantee of a great paying job.
No, I feel bad for the, the, the high school senior, they’re getting a lot of pressure from their peers.
You need to go to college. Which college are you going to? From their parents.
It always makes them feel like, well, you’re no good if you don’t go to college.
It’s like, well, wait a minute. Right.
You need to do better than we did. You need to go to college or you need to go where I went. The high school counselor focused on you applying for college.
Everything is focused on you going to college except logic. Yeah.
It’s like everybody assumes, well, you’re graduating high school, then you just go to college. That’s what you do. Yeah. When did we get stuck there?

[32:10] Hey, my generation, we could pay for college and not have all this debt.
We didn’t have the debt, but okay. Let’s go on to myth number 11.
Credit Cards as Financial Instruments, not Evil

[32:17] Credit cards are evil.
I like the points.

[32:23] I love the points. Steve flies all over the country on the points. Yeah. The.
I get the benefit of it. You know, you don’t have to go deep in debt to get all sorts of points.
In fact, I just got a new point card yesterday. I mean, here’s the thing.
Credit cards are evil like cars are evil. It’s just an object. It’s a tool.
And can they be misused? Yes. Can you get yourself in trouble? Absolutely.
Are these banks using these cards to try to hopefully get people hooked and paying them interest for the rest of their lives? Yes. Yeah? Yes, they are.

[32:56] It’s just like anything else, you can use it for your benefit or it could be to your detriment. It’s just in how you use the tool.
But make no mistake, yeah, they want you to pay interest for eternity. Absolutely.

[33:08] Yeah. It’s like these 0% balance transfers. They want you to transfer all your debt there so that when the interest rate goes up to what it’s going to be, you can’t afford to pay it. You’re just paying minimum interest. Yeah.
Credit cards are not evil. Like you said, Damon, it’s just a financial instrument.
That’s all it is i always am amazed when somebody goes i can’t have a credit card because you know i’m gonna go deep in debt and i always say do you own sharp kitchen knives you know how many people have you killed with them well and what about let’s say you know somebody uses credit cards to start a business right and they use that money and they didn’t have any other access to money no friends or family anything like that and they they use ten thousand dollars on a credit card at very high interest, at 25% interest rate or whatever, but that’s the only access to money they could get.
The credit card gave them that opportunity and they go on and they grow a successful business and now they’re millionaires.
Was that credit card evil, right?
Or what about the person that does the same thing, but the business is not a success.
Maybe they have 50,000, $100,000 in credit card debt and that business, they gave it their all for four or five years, but they use $100,000 in credit card debt. Now they’re upside down. There’s no way they can pay it.
They’re able to file a chapter seven bankruptcy and wipe that out and start fresh again.
They didn’t lose $100,000 of their money.

[34:28] They lost $100,000 of the bank’s money. They never paid anywhere near $100,000 back.
They got that free, not free swing, but they got to have a chance to take that swing for the fences.
It didn’t work out. They filed bankers. They wiped it out. How does that make the credit card evil?
It provided an opportunity that the individual otherwise wouldn’t have had.
And in the worst case scenario, they totally struck out and they got a fresh start. And these same banks were like, hey, we’ll give you another chance.
You know, give us a year, give us two years. here’s another chance try again that’s not that evil to me how many people i wonder how many people at the bank feel stupid because they took a risk on somebody and it didn’t work out you know are they like losing sleep what are they going to think of me for giving them a card they’re not yeah well it’s not even it’s not even an individual i think i’ve told this story before right when when i was younger in my younger days probably 22 23 and i needed a loan for something i don’t remember what it was but i had my local bank and i got dressed i’m 23 years old i got got dressed up pretty nice.
I went down to the bank and this would have had to been in the very early two thousands.
Right. So like 20 years ago and went to the bank, went up to the teller, you know, and they had back then they still had the offices where people sit in the offices.

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[35:39] And I was like, Hey, who do I speak to about getting a loan?
Right. And I was all, I was ready, dude. I had my plan. Here’s what I need the money for. I’m ready to go.
And the teller just looked over and pointed to the telephone on the wall and said, go over there, pick up the the phone so i was like oh so i did that and i could have done it at home but it was just an automated thing put in your social put in this put in that and i was denied.
Appearance Denied: A Game of Automated Systems

[36:08] But you look good how am i denied i have a freaking tie on bro and i’m denied look at this tie, And my breath is really flat. Oh, man. I got my hair combed.
Whatever. But yeah, at that point, I realized it wasn’t about you anymore.
It’s just an automated system. It’s just a game. It’s a game.
Play the game. Hey, I’m going to say it again. If you need some sort of debt help, debt advice, and you’d like to talk to Damon and talk about your specific financial situation, go to DamonDay, D-A-M-O-N-D-A-Y.com or getoutofdebt.org.
And you can find a way to get in touch with him and he will talk your head off.
Damon, myth number 12. Advice is suspect, but the jokes are on point. Yeah.
Interest Rate vs. Rewards: What Matters More in Credit Cards?

[36:56] When selecting a credit card, I should always go for the lowest interest rate. Sure, why not?
Yeah, why not? My answer to that is absolutely not.
That sounds counterintuitive, but hey, don’t overextend yourself.
Shelf, if you’re going to get a credit card and you have the ability to pay it off every month, the interest rate is the least important consideration for that credit card because you’re not going to be paying interest anyway.
So you want to look for something that’s going to give you maximum rewards.
And those reward points can really add up to really beneficial things.
You should never go into debt that you can’t afford to repay just to get points.
But you You just used that example of somebody starting a business.

[37:46] We’ve been doing this side hustle thing over on our YouTube channel, the Penny’s Stupid Project.
You’ve been driving, and I’ve been doing Amazon FBA, and I started from scratch a year ago.
All of my purchases have been on credit cards.
I’ve paid them off every month. but last year we got two new iphone 15 pro maxes using reward points free hotel stays free air travel just for using the credit card and paying it off every month just looking for the reward program that makes the most sense to you now damon you’ve like you have a reward program i think with with one of your cards, American Express, maybe, where you get these great gift cards.
Yeah, I do Home Depot. And we get several hundred dollars, usually every month, every other month, in Home Depot gift cards.
It’s free money.

[38:46] And it’s funny because you mentioned when we talked about that myth of credit cards are evil, that we didn’t bring up this point.
The protections that you get when you buy something with a credit card, that’s often overlooked. You know, and…

[39:00] I never, ever, ever use a debit card for anything.
Credit Cards vs. Debit Cards: The Benefits of Using Credit Cards

[39:05] I know Ramsey just clutched his chest, but I don’t ever use a debit card.
I use usually my American Express card because they make it super easy.
And then I just pay the American Express.
It’s one of those unlimited cards, but you have to pay off every month.
So there’s no interest on it. You don’t carry a balance on that card.
You just use it to buy everything. everything and it’s so easy if there’s ever a fraudulent charge or i’m having an issue with the merchant and they’re like well we’re not going to ref or whatever it is i go online to my amex and i’m like yeah i dispute that charge and every single time now i don’t abuse it or anything it’s got to be legitimate but every time i’ve ever had to do that amex is like boom credit your account immediately and then they always resolve it in my favor every freaking time you have a debit card that you buy something with good luck getting your money back yeah yeah this is one of those those personal finance myths that we were talking about earlier on, when personal finance people say, you know, a debit card is the only thing that you should use.
That is the worst possible. I don’t even carry a debit card in my wallet. Don’t even carry one.
No, neither do I. Neither do I. Because here’s this argument.
I have to use a debit card so I don’t run up debt because it comes out of my bank account.
All right, well, Well, use a credit card, go home, send a check.

[40:24] You know, go online, schedule a payment. You don’t have to do that.
If you’re at a merchant and there’s a problem with it, with a debit card, you’re hoping that your bank is going to intervene.
But in the meantime, you might have things bouncing.

[40:40] Here’s an actual example. I had a client once who went through a Burger King drive-thru, and it was supposed to be $20.
But whoever put it in didn’t hit the decimal point or whatever and they hit his bank account for two thousand dollars that’s a whopper yeah that was jokes are on point jokes are on point, you’re the king hey welcome to the club, so in the meantime well he said well my bank’s gonna take care of it everything was bouncing all over the place. He was getting bounce check fees.
It just, it wasn’t worth it. Use a credit card.
If there’s ever a problem with a merchant, the banks in between you, they’re running interference between you and your bank.
A debit card is nothing more than an electronic check, direct access into your checking account, which seems really risky. I mean, would you walk around giving people blank checks?
You know, no, that would be stupid. So why do banks always push debit cards?
And the answer is because they get a percentage out of every transaction that card’s used for. That’s it.
All right. Myth number 13, a payday loan is always better than falling behind on my bill. Oh, contraire, mon frere. No, no, no.
The dangers of payday loans and better alternatives

[42:08] No. Yeah. No. If you’re down to payday loans. A payday loan is never a good idea.
Honestly, it’d be better if you were faced, it depends on the bill, but let’s say, I don’t know, even your car payment or even your mortgage.
Before you get a payday loan, a payday loan is just that trap because then how are you going to make up for it, right? right? It’s all of a sudden interest starts accruing.
Once you get into those, it’s like you can never catch up and get out of that.
You’d be much better off calling your bank, lender on your car, whatever, especially a lot of cars, even banks now, especially with COVID.

[42:39] You call, ask for a payment forbearance.
A lot of banks will give it to you, even a month, right?
Getting a payment forbearance where, hey, you could skip your mortgage payment for one month. They tack it onto the end of the loan.
That frees up a thousand dollars this month. That’s a hell of a lot better than going and getting a payday loan to try to stay on top of your bank, even if you miss a payment, let’s say you have to miss a payment, it’s not going to hit your credit report until you’re 30 days late.
You have to miss your second payment on that credit card or on that car payment or whatever it is before it’s even going to hit your credit report.
So if you’re 10 days late on a credit card, you’re going to get hit with the late fee.
Yeah, you’re going to pay 39 bucks, but you can make it up in 10 days and everybody’s fine again, right?
It’s going to cost you a lot more than that credit card late fee if you go get a payday loan trying trying to pay that bill on time when you can maybe just wait, come up with the money in 10 days and then catch it back up.
But if you’re struggling, first thing you should do is just call some of those bigger bills and ask if they can give you, some of them call it a payment holiday.
Some of them call it a payment forbearance, but just ask, Hey, struggle a little bit right now, but you know, turn in the corner next year or whatever with Christmas.
Hey, can I skip a payment this month? You’d be surprised. A lot of times we’ll say, yeah, you’ll qualify for that. No problem.
Yeah. I would say the percentage of people I’ve always talked to over the years, Damon, never had one payday loan, right?
It was always a series of payday loans. Yeah. Cause they had to get another payday loan to keep up with the first payday loan.

[44:05] Yeah. It’s just like drowning in quicksand. Like never, never, don’t ever, ever.
There’s never a scenario ever that going to a payday loan place or even, you know, these days do it online.

[44:17] There’s, there’s never a scenario where that makes more sense. It is not.
Myth number 14. Talk about absolutes. I can only afford to make.
There’s one of the absolutes. It never makes sense. That is an absolute. Yeah.
I can only afford to make the minimum payments on my debt. I’ll never get ahead.
Well. So here’s where I was going with that one. That might be a little obtuse.
Yes, if you can only afford to make the minimum payments on your debt, you might not get ahead.
But making minimum payments alone is not your only option.
Yeah if you do you want to make minimum payments or do you want to get ahead.

[44:57] There’s other ways of attacking the problem. If right now you only have enough money to make minimum payments, well, maybe we can make some additional money.
Or maybe we need to look at something a little bit more aggressive to dealing with these cards because you don’t have the ability to make any more money.
You’ve already looked at your budget and got it down as low as you can.
And that’s all the money you have every month to put towards that.
And now it’s just a matter of time before you run up against something unexpected where the whole thing’s going to fall off the rails anyway.
So maybe it’s time to be proactive with that and say, maybe we need to look at something more aggressive, like a bankruptcy or a debt settlement, or even a credit counseling program or whatever to get you off this track that you’re on.
Because if you’re just barely making it every month and just paying the minimums, you’re not going to be able to do that for the next 20 years.
I know the banks want you to do that for the next 20 years, but unless something’s about to change on the income side increasing or the expense side decreasing, you’re going to have to proactively do something different because just treading water with minimum payments, it’s not going to work out.
You know, when you get laser focused on one thing, like only minimum payments, I always think about soldiers at war.
Like the only thing that we can do is storm the line and just get as many people slaughtered as possible.
Why don’t we come up with a strategy that may has the best chance of success?
Yeah. When you watch those movies, that’s what we’re talking about.
Like from the civil war and stuff.
And you watch those movies, you’re like, oh yeah, the revolutionary war, just line them up. Why did they just line up like that and walk towards each other? Who thought of this?

[46:26] Like, what are we doing? The same people that thought minimum payments only were the only way to get out of debt.
Ready? March! Like, wait, no, that’s not a good idea.

[46:38] They’re shooting at us, bro! Can we run around the side?
We can only fight in line. Yeah, let’s flank them! No, no, that’s too avant-garde.
No, it’s not. It would not be noble, right?
Finding strategies beyond minimum payments for debt management

Do You Have a Question You'd Like Help With? Contact Debt Coach Damon Day. Click here to reach Damon.

[46:53] Oh, that’s true. Let’s walk into the face of the debt.
Myth number 15, there is no way I can think about saving for the future or retirement as long as I’m trying to pay off my old debt.
Well, I guess we kind of covered that already. Yeah.
That, like you said, don’t spend the next five years digging yourself out of your financial past.
Think about doing better moving forward. Okay. Myth number 16, Damon, you’re going to love this one.
Do I really owe taxes on my debt if it’s forgiven?
Big question. I get it all the time. If you have debt forgiven in a bankruptcy, absolutely no. You do not owe the taxes on that.
If you have debt forgiven in like a settlement, you could owe taxes on that depending on your situation.
You know, it’s always strange to me why it seems like debt settlement people don’t make that fact apparent.
If you’re not insolvent and you have debt forgiven, you may owe income tax on that. Wait, wait, wait, wait, wait, wait.
That’s strange to you that they don’t make it apparent.
I know you’re just saying that for the show, but Steve, why would they not want to make it apparent that you might owe taxes on the forgiven debt? I don’t know.

[48:05] Want to make a sale. They want to give you the rosy version of what they’re selling you. They don’t want to sit down and say, okay, let’s look at all the facts.
Let’s crunch all the numbers. Hey, you’re in a situation where you are solvent.
So you may owe taxes on any debt that we have forgiven.
So we have to factor that into the equation so you can make a decision about whether the risk that you’re about to take on by falling behind on payments and settling this debt is worth the amount of money that you’re potentially going to save. It’s all a risk reward analysis.
That’s That’s all it is. And if somebody is going to save $5,000 and they have to fall behind on all their payments and they’re going to drag this out for a couple of years and they’re going to go through all this hassle and at the end, they’re going to save $5,000, they might say, yeah, you know what?
For only five grand, I don’t think the hassle is worth it.
Well, if they’re going to save 50 grand or 100 grand, well, maybe that hassle is worth it.
But unless you know exactly what you’re going to be able to save and what the actual hassle hassle is, you’re not in a position to make that decision about whether or not that’s a good path.
So the sales guys, either A, and I’m fully convinced that most of the time, they just don’t even understand what the hell they’re selling, which is why they don’t explain it to you.
And B, the ones that did understand it, don’t proactively explain it because it would make their solution look like you would save overall less money if you did it, which makes it harder for the commission.

[49:26] Yeah. Over the years, Damon, we’ve both been attacked by debt relief salespeople of every sort of flavor.
You guys don’t know what you’re talking about. Well, actually. Yeah.

[49:37] I could give you the form 982 and file on your 1040. Look at that.
Dude, I’ve even had, I can’t even tell you how many times where I’ve had a client and I was like, look, you’re going to have to get 982 when you go, because I don’t do taxes. I’m not a tax guy.
You go to your CPA. CPA, I’ve had clients come back to me and say, my CPA doesn’t know what that is. And I’m like, what?
And I have to give them the form. I’m take the form to yours.
And then I’m like, yeah. And while you’re at it, find a new CPA.
Understanding IRS Form for Debt Forgiveness

[50:08] Yeah. It’s an IRS form. I’m like, what do you mean? They don’t know what that is.
You know, it’s like, yeah, if you’re insolvent, if your liabilities are more than your assets and you have debt forgiven, you don’t have to pay tax on it. Yeah.
You have to file the form with the 1040 when you get the 1099s that show, oh, you had 5,000 forgiven from this creditor and 6,000 forgiven for this creditor.
You have to file those as if you had a, just like if you had a side hustle and you made $5,000 in extra income, you would get a 1099.
It’s the same kind of concept. You’d get a 1099 for that.
That debt was forgiven. You didn’t have to pay it back. So therefore it’s technically income because you borrowed the money, but never ever paid it back.
So the loan, which was not taxable, turned into income.
Now, the IRS has a waiver that if you have debt forgiven, but you’re insolvent at the time the debt was forgiven, which means if you add up all of your assets and all of your liabilities at that time, if that number is negative, you can request a waiver of any taxes due on that forgiven debt, but you have to ask.
You have to file that form, the 982 form, to ask for the waiver.
And the way our tax system works, you’re going to get the waiver. You get it.
Now, if you lie about it or you’re ill-informed about it or you put the wrong information in and you get audited, then you could get in trouble if the information is not correct.
But you put in the waiver form, you get it. They give you the waiver and then they’ll audit you later.

[51:35] If they audit you later and they find out it was wrong, then you’ll owe the tax and the penalties or whatever.
But all you have to do is file that form with the the 1099 and get the waiver, just make sure you have a competent CPA that knows what they’re doing and can actually look at your net worth at the time the debt was forgiven.
That’s also important too. You got to take a snapshot in time of what your financial life was looking like, what your house was worth, what you owed on it, any assets that you have, what was the balance in your 401k, all that stuff needs to be written down on there so you can see if you’re positive or negative.
Get it yeah if you fill out the form and you send it in the irs is going to go okay yeah no no taxes on all right damon hey we reached the end of our 16 and if anybody has heard what uh we’ve said and wants to know more about preconceptions and myth then how do they get you damon damonday.com or you can google me my name’s not that common so you find me in google too Yep.
Where to Find More Information on Preconceptions and Myths

[52:39] Yep. All right. Google me, Steve. Google me.
I don’t know. That might be kind of scary.
But it’s been a pleasure helping you. And Damon, we will be back for the next podcast.
If you haven’t subscribed to the podcast, you liked anything that you heard, be sure to subscribe.
And I will see you next time, Damon. See ya. Peace.

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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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