Debt Solutions: When They Help and When They Hurt

Hey, welcome to the Get Out of Debt Guy podcast. I’m Steve Rhode, the original Get Out of Debt guy.
And today we’re cutting through the noise and pulling back the curtain on what it really takes
to get out of debt because let’s be honest. Too many people are sold a solution before they even
understand the problem. They get talked into some costly wrong program that drains their wallet
and delays their freedom. We’ve seen it happen time and time again. So today,
we’re going to demystify the process. We’ll talk about the real steps, the mind shifts,
and the warning signs to watch out for us so you can make smart decisions and not emotional ones.
And as always, Damon Day is here with me, the new Get Out of Debt guy. Say hello, Damon.
Hello, Damon. Whether you’re drowning in minimum payments being
handed by collectors are just sick and tired of feeling stuck. This episode is for you. So let’s
talk honestly about how to get out of debt without wasting time or money on solutions that don’t
actually work. Let’s get into it, Damon. This is a topic that, you know, we’ve talked about for
years about how people make the most emotional wrong choice that they can to get out of debt
because they’re being sold a solution rather than actually thinking about their problems. So
let’s talk about it. What are the big things that you see going on now and forever when it comes
to people making choices about how to get out debt? Well, today is going to be a somewhat boring
topic that we’re going to try to make not boring, but I sell it. I’m right up there with you. Hey,
I’m just being honest, Steve. But Steve used the word demystify. And I think that’s a good word
because what we wanted to do in today’s podcast was really educate you on the different things that
are going to be coming at you whenever you go online and you do Google searches for ways to get
out of debt, things like that. You fill out a form. You see these, you know, mailers online or in
your spam folder, hopefully, on consolidation loans. We just wanted to go through and really
educate you on what these different things were, how they actually work. So you can be educated when
you are on the phone talking to, I’m doing air quotes, the debt relief consultant, if you will,
that you know what the program is that they’re trying to convince you to do because the more you know,
right, the better you are. And so it’s really important because I, I still see this all the time
where I’ll be talking to somebody and they’ll say something like, oh, I consolidate my debt, you
know, like five months ago. And I’ll start asking questions. And it’s like, wait a minute. You didn’t
consolidate your debt. You hired a debt settlement company who convinced you that they were consolidating
your debt, but that’s not. Yeah, they were consolidating your monthly payments and then not paying
your creditors. But let’s take one step back because this is the same pattern I’ve seen in all my
many decades. So the way it works is you’re going along, life’s good. You’re thinking, well, you
know, I’m really enjoying life. We’re having a really good time. And then tomorrow you’re thinking,
how come I don’t have as much money as I thought? And then the following day you’re thinking,
oh my god, things are really getting tight. And then the next day you’re thinking, oh crap!
I got to do something. I need to make this pain go away now. And so you generally either,
I don’t listen to the radio anymore. So I don’t know if they’re radio ads. But you generally
either see an ad on TV or Steve. Yeah. Yeah. Yeah. Video killed the radio star. Okay.
Or you see something online or you do a quick search. And then here’s the most amazing thing.
You call one of these heavy marketing debt relief companies. And guess what?
They’re going to have a magic solution to solve your problem. You just have to buy it.
Yeah. So what we want to do is talk about these different companies, these different strategies
and really go through it. And Steve’s in a great position because he ran one of them for quite a
few years back in the 30s or 40s or something like that for us. Yeah, credit counseling group.
Yeah. So if you want to think about these options that are going to be coming at you,
we’re going to be talking about the main ones that people think about or they’re getting sold on.
But when you start filling out these forms, and you’re going to start getting into forums and
looking at things like the Dave Ramsey strategy, you’re going to look at companies, you know,
credit counseling companies or debt management plans. You’re going to be looking at debt settlement
companies or debt negotiation companies. And they’re also going to be looking at bankruptcy.
So today we’re going to break down these options and, you know, what the cost they’re typically
associated with them are. And more importantly, how they work and how they will potentially affect
you in your situation. So you can be educated when you are speaking to these companies and deciding
if it’s a strategy that you should be looking into. All right. You’re driving this bus. Which one
are you tackling first? I think the easiest way to start it is I look at it as a left-to-right
scale on how most people look at this on a time on kind of a timeline where you got Dave Ramsey,
kind of on the left side and you work your way down to the credit counseling approach,
a debt settlement approach, and then a bankruptcy approach. Not that they should be looked at in
that order, but that’s just typically the way it kind of progresses. Yeah, they’re safe.
You know, that’s a thing. People always like here’s a statement I always hate is bankruptcy is your
last thing that you should consider. Yeah. Because they should all be considered at the same time.
Maybe instead of a timeline. We should say we’ll put it on a circle. Yeah. It needs to be a
scatter shot, right? Yeah. Exactly. All right. So which one? Go. So let’s talk about Dave Ramsey.
Because I’ve got a lot of things I like about Dave Ramsey’s approach and a lot of things I don’t
like about Dave Ramsey’s approach. But the stuff that he talks about is playing simple,
common sense financial stuff. What I don’t like about Dave Ramsey’s approach to getting out of debt
is he takes a one-size-fits-all essentially for everybody and it’s Dave’s way or the highway.
And that’s the biggest feedback that I get from clients when I’m talking to them. So I
explored Dave Ramsey. I went through his financial piece. But here’s the thing that we didn’t like.
Or we tried it for six months. And it was just in their opinion for them specifically. Not for
everybody. It was too extreme. Or it was something they liked the concepts. But they didn’t like the
idea that they had to live like a popper, you know, for five years. Or something like that. And
again, for some people, that’s a good strategy. And that’s what they need. But it’s hard to have something
where it’s like this is everybody has to do it the same way, no matter what the situation,
no matter what the circumstances. And there are other alternatives if you look at Dave’s strategy.
And if you like his, those ideas and you think it will fit really well in your life to help you
get out of debt, then that’s fine. There’s nothing wrong with it. But if you look at it and you’re like
that wasn’t written for me, then there are other options that you can look at.
Well, let’s just clarify one thing, too, is that if you, if you like his approach, right,
the eat beans and rice for five years or whatever, or take, you know, all these years to pay it off,
if you like that and you’re comfortable with it, then, you know, yay for you. But that doesn’t
mean that the math really adds up. So, you know, it’s like you need to evaluate every solution.
First, how do you feel about it? And secondly, what’s the truth about it? And are you going to,
are you trying to fix the past or fix the future? So let’s, you have more to say about
the Dave Ramsey. Yeah, like I was even talking to a client last week and Dave Ramsey came up
and I was talking to them about the strategy of what we could combine pieces of this with pieces
of another strategy and say we were talking about debt settlement and negotiating the debts down,
they owed about like $80,000 and we were talking about this idea of well, if we negotiated that 80
grand down to 40 or 50 grand and then you put the Dave Ramsey kind of budgeting and lifestyle
principles in place up to whatever your limits were, that would help accelerate the settlement
strategy that we are looking at and it would help you moving forward once we were out of the debt
to, you know, be on a budget and live within your means and so there’s a lot of good things you
can take out of that and we were just talking about, well, instead of paying back the whole 80,000,
which you could do at the cost of, you know, funds in your future, and things like that. You could
use those concepts from on a day-to-day basis to then, you know, raise those funds to negotiate
the debt down and get out of the debt even faster. So rather than Dave Ramsey for five years,
you could only Dave Ramsey for two and then we could be done and move forward. So it’s never
an all or nothing. We can take bits and pieces of this idea or that idea and apply it to these
other different strategies. Well, that’s what your best at is creating
custom solutions for people based on their own individual situation because there’s no two
situations that are like. Yeah, I had a client, I think a month ago, we’re talking about something
similar, but we were using that in the contents of talking about a bankruptcy. And for that client
circumstances, a chapter seven really made a lot of sense and they really wanted to kind of, you know,
Dave Ramsey their way out of it and I was like, well, we can and we just went over those numbers
and I said, but think about this, what if we filed the bankruptcy in that their situation,
they could keep the house, keep the cars and weren’t going to lose anything. In fact, on the
surface, nobody would even know they had filed. Their lifestyle wouldn’t have to change. There’s
no tow trucks in the driveway or anything like that. And I said, but then we can really incorporate
Dave Ramsey’s concepts if that’s how you want to do it. But now instead of, you know, eating beans
and rice to just make chase hole or make city bank hole, we can use that save money to accelerate
your retirement, actually catch up your retirement savings because they were only about 10 years
from retirement. They had nothing saved at that point. So again, same thing, we can utilize some of
those concepts that you like to do better moving forward. But if we can wipe out this whatever,
$50,000 in debt immediately or as quickly as possible, now this lifestyle sacrifice that you’re
making doing it Dave’s way can now go towards your future rather than the CEO of Chase’s future.
Well, you know, one of the issues that I’ve always taken exception to is this idea that it’s
more morally right or more Christian or whatever for you to repay your creditors because that’s
what Dave says. And when you do the math, if you want to do that and that makes you feel better,
that’s your choice. But understand that you’re going to piss away a million and a half dollars or
more in retirement savings to feel better today to solve a problem that was created yesterday.
So if that’s what you want to do, you should do it, but you need to know.
And it’s okay to walk through that. I’m not here to tell somebody what they’re doing or not
doing with their money is right or wrong because I always tell clients, it’s not my money,
it’s not my life, it’s not my credit, it’s yours. I just want you to know. Yeah, that’s all.
Yeah, my job is not to say no, you’re wrong and I’m right. That’s what Dave does. That’s not what
I do. You know, my job is to support you in whatever decision you make, but it’s also to educate
you on those options. So for instance, if you really want to, you know, pay it back and I’m saying,
hey, look, a bankruptcy would make more sense and you really don’t want to do that. That’s fine,
but maybe your situation is such that by not filing that bankruptcy, you’re going to be well
short of your retirement goals and that’s going to cause you to potentially be a burden on your
three kids. And then maybe we phrase it like that and say, okay, I know you really from a moral
standpoint want to pay these debts back, but should your children have to pay for that?
You know, the funny thing is you’ve had it happen many times too. And I have in my decades of
helping people is you explain all of this to somebody. Somebody comes in and goes like, you know,
I’m absolutely not going to file bankruptcy. That’s your moral. That’s the last thing I should do.
It’s the last and then you explain everything to them. And you ask them, okay,
what do you think sounds most reasonable for your situation after I’ve explained that? And they
might say, well, bankruptcy. And at first, you say, well, you didn’t want to do that when you
came in. Well, why would I not want to do it? Well, the issue with bankruptcy is there’s just so
much misinformation about it. And just kind of, I don’t know, fear, fear is part of it. But just
like this, this cultural thing that we’ve kind of built into this whole thing, like bankruptcy
means failure, but businesses do it all the time. And churches, multi-million dollar bonuses,
because they call it strategic delever gene. We’re fixing the balance sheet. Yeah, we’re fixing
the balance sheet. Like, oh, my God, that guy’s a genius. Give him a raise. That’s right. We’re
taking responsibility for our, you know, terrible financial situation. So the stock goes up.
Yeah. And not, you know, and the other example I have to quite happens a lot where people say,
well, I want to make sure I repay all my debt. And then I said, well, you know, after you,
you know, file bankruptcy and legally discharge yourself of it, or after you negotiate and settle
your debt, and you’re legally just, you know, you don’t have to pay anymore. You can once you’re
in a spot where you’re doing much better financially. So everything’s covered, you can reach back out
to those creditors that you settled the accounts with, or you discharged in a bankruptcy. And you can
ask if you could send the rest of the money. And why would I do that? Nobody has ever said ever.
Like, that sounds like a good idea. Now, everybody says, why would I send it more money if I don’t
have to? I’m like, exactly. Why would you? Well, when I went, you know, bankrupt in the late 80s or
early 90s, whenever it was, I tried to repay my creditors after the bankruptcy. And what they
actually said to me was, please stop. Yeah, we don’t have a, we don’t have a button for that. We
don’t know what the money, yeah, we don’t have any place to apply it. Please don’t send it. Yeah,
we’re so broken up over the fact that you didn’t pay us the money that we can’t take it now.
Yeah, so broken up, I like your bankruptcy story. So broken up, the capital one gives you a new
credit card. Yeah, well, that’s what I was going to say. We can’t take your money for the old stuff.
But if you want a new card, you can do that. And you could send this money for that one.
It’s all a game. Oh, it’s absolutely. I was so client, say, don’t hate the player, hate the game.
I’m just showing you the rules and how to play it. That’s all.
Yeah. Well, it’s like, you know, comparing to other options, talking about credit counseling and
debt settlement. I remember a time when Bank of America told people who were calling about credit
counseling, we don’t settle debt. Yeah. And yet they’re settling debt every day. Yeah. Yeah.
Well, speaking of that, so let’s jump into, okay, what is credit counseling? Because this is
another one of those options that people are going to see. Sometimes they call it debt management
plans. In fact, this is the option that you mentioned Bank of America. Bank of America is kind of
famous for this. All the other creditors do too. You, you, you can’t afford your payment. You call
it Bank of America. I can’t, you know, afford this $250 payment is due on Monday. I can’t pay it.
Can you help me out? And they say, well, there’s really nothing we can do, but you can call this
number if you need help. Great. And they give you the number to a credit counseling program,
which is the type of program that Steve ran for many, many years back in the day. And so Steve,
enlighten us a little bit about how credit counseling programs work. And, you know, the ins and
outs of what would happen if you enrolled into one. Well, everything’s on a continuum and things
constantly change. So when credit counseling programs first evolved, they were there as,
actually was established by a group of debt collectors that started a nonprofit group
that wanted to help people with financial literacy and budgeting and helping them to find a
way to repay what they could afford. So back in the day, when I started a credit counseling group,
94, the situation was much different than it was today. Because back then, if you couldn’t
afford to pay your creditors when you enrolled into a credit counseling program,
your payment was immediately cut in half. The interest always went to zero. So you instantly got
breathing room that you didn’t have before. Yeah. And real quick, just let me interject. So you
started that just a few years after your bankruptcy. And that was the bankruptcy was kind of like
your driving force, you know, towards getting into that because you weren’t, you didn’t do that
before the bankruptcy. It was like that experience of going through that made you want to say,
hey, I could, I need to figure out how to help other people so they can avoid what I had to go
through. Right. When I went through my bankruptcy, I did everything that people normally do and
look for solutions. And one of the groups that I contacted at the time was a credit counseling
group. And I couldn’t afford half the payment. And they said, too bad. So sad. And, you know,
there was no other hope. And so after living through the experience myself, I thought,
man, I got a different perspective on this. And there’s got to be a way to give people real
advice holistically, give them the whole picture and help them out. So, but here’s how credit
counseling changed by the early 2000s. The creditors kind of got it into their heads that, you know,
what we could kind of really control this industry because we’re giving them money
when they send payments to us. So a credit counseling group doesn’t really consolidate your debt.
You send them one payment. They cut it up and send it out individually to the creditors.
And the creditors back then would give the credit counseling groups about 15% of the money
that they send in every month. And that’s how they funded themselves. So in the early 2000s,
the creditors decided, you know, what we can take kind of more control over this industry. And
instead of giving them a percentage of money that they send in, we’re just going to arbitrarily
give them money based on how we feel about them. And so we’re really going to turn them into
collectors for us and kinder kinder gentler form of debt collection is what I tell clients
kind of is. Right. And your payments not going to be cut in half like it once was and your
interest rate might not go to zero. And the credit counseling groups going to be judged based on
their performance rather than, you know, the advice that they give you. And so credit counseling
really turned into a creditor controlled nonprofit. I’m doing air quotes like you were before.
Industry that people think is there to help them. But in reality is mostly there to qualify them
for their debt management plan or their repayment program. So it’s changed a lot since the very
beginning. And you know, there’s going to be more change like like right now. You’ll notice
that credit counseling programs really don’t talk to people about debt settlement. And one of the
reasons is because for years, the creditors that fund credit counseling programs told them if you
talk to people about settling their debt for less than they owe, you’re not going to get any
money from us. Yeah. So can’t serve two masters. No. Yeah. I mean, you call a credit counseling
program. And you say, let’s talk about bankruptcy. Oftentimes, first thing you’re going to hear is
that’s the last resort. You don’t want to think about that. You want to get enrolled in our program.
Because who’s funding the credit counseling companies? Right. Credit banks. And do the banks want
you filing bankruptcy? No, they do not. Well, that department doesn’t. Yeah. Because if you talk
to a different department, my this all time story, this is, this still blows my mind. So as a chase
bank and not chase, it was another large company. Anyway, I met their collection center and I’m
sitting in the office of the supervisor of the collection department. And she’s on the phone,
keeps ringing. She’s picking up the phone and she goes, file bankruptcy hangs up the phone. I
said, I don’t understand. I mean, I can help those people. And she goes, look, Steve, at the end
of the day, I have to go in front of my manager and show my results. And people that file bankruptcy,
they don’t count against me. It’s just easier. I think her money. No. It’s like I said, it’s all a
game. Don’t hate the player. That’s right. So when you think that you’re doing the right thing,
you got to understand the only person you should be looking out for is you. Yeah. Yeah.
All right. Next section. So because you, so just circle back, you know, because I mentioned
when you call like Bank of America, a lot of these creditors, you know, and they say, I can’t
pay my payment. And they direct you to credit counseling. So you know, they have a hand in that. Now,
credit counseling is not all bad. It’s not like credit counties. We’re not saying that’s not
something that you should consider and look at because there are benefits to enrolling in a credit
counseling program. There’s just not as good as they used to be. Well, but they’ve got the same
problem that we just complained about about the Dave Ramsey approach, which is I dare you to call
a credit counseling program. And they tell you to enroll in their program. I dare you
to see if they tell you about how much you’re going to lose in retirement savings because you
signed up for their five year repayment program. Is that a double dog dare or a triple quadruple
dog dare because they’re not going to tell you, you know, if you sign up for our program,
you’re going to piss away a million and a half dollars in retirement. But, you know,
sign here. But that’s not their job. They’re counselors in name only.
I remember back in the days, one of the banks said, well, we need you to get certified in credit
counseling, you know, some type of program like certified in what? What do you?
Yeah. So credit counseling programs just, you know, so here’s the long and short of it.
If you’re in a position where you’re paying all of your debt, right? And you’re paying it on time,
you’ve got enough cash coming in. It’s not about the cash. It’s just about your saying, I want to
pay this off in as fast as I can. No matter what, I’m paying in full, but I’m paying 25% rates.
I’m paying 30% rates. And I want this like an easy button that I can push. And I just,
my rates will go down and I can make one payment. And all my credit cards are going to get closed
because I’m really kind of into the day of Ramsey way or whatever. And so I’m okay with all my
cards getting closed. And I just want to pay this $50,000 off with with lower interest and pay it
off as fast as I can, right? That would be what a credit counseling program could benefit you on.
If you wanted to enroll, there’s other ways you can do that outside of a credit counseling program.
Oh, yeah, you call the banks directly. Yeah, you could. But in order to get better rates with the
banks directly, you’re typically going to have to essentially strategically default for
at least a month, sometimes two months before they’ll even get you into a department that you
can say, hey, I need a better rate or whatever. But so there is some benefits to a credit counseling
program. They’re just not as great as they used to be. And the big gotcha with the credit
counseling and the reason why a lot of people drop out. Credit counseling has a very high drop
out rate. And here’s the reason is because most people, when they think they have a debt problem,
the more immediate problem they actually have is a cash flow problem. The debt is a big cause
of the cash flow problem because of your shell and out $1,500 a month or $2,000 a month. But really
the issue is the cash flow problem, which is what wakes most people up to the debt problem.
Steve was alluring to that at the very beginning of the call where they go, holy shit, we’re in trouble.
Because they have a bill due and they don’t have the cash to pay it. And then they go, well,
we got 50 grand in debt, we got to get rid of that. So they rush in, they get into some program
like a credit counseling program and they say, oh, we’re going to lower your rates because that’s
where people’s brains go. Over my rate, it’s going to be better. But the problem with the credit
counseling programs is like Steve said earlier, they don’t cut your payments in half anymore,
like they used to. And so oftentimes your payments in a credit counseling program could go up or
they could be usually about the same. Maybe they give you a little relief, but it’s not going to be
a big cash flow month to month relief. And that’s why people end up dropping out because they think,
okay, I’m going to get my average rate from 25% to 6% and that’s awesome. But what they don’t
think about is that credit counseling plan is only amortizing that entire repayback over four
years, four and a half years. So even though the interest rate that you’re paying in the overall
interest is going to go down, you’re going to have to repay all the principal at a much shorter
time frame, right? So that tends to make your payment about the same as you were struggling to pay
before. So people get into it thinking I’m lowering my rates. But after a few months, they realize,
I still can’t afford this payment either. And they end up dropping out. So that’s the big gotcha
with credit counseling. And then the other thing that I forgot to mention at the beginning was,
that’s the same problem that happens when people get into consolidation loans. The same exact problem,
they have a cash flow problem and a debt problem, but they’re not thinking about the cash flow,
they’re only focused on how do I fix the debt problem and they don’t have the cash flow to support
the solution that they’re trying to do. And that’s why people get stuck with these personal loans,
these consolidation loans thinking they’re going to be lowering their rate and put it all into one
payment. And then they end up charging those cards back up again because that consolidation loan
payment is about the same or maybe just a little bit less of what their minimum payments were.
And they’re still tight. And they’re still tight. They didn’t change their budget, change their
lifestyle. And so the debt creeps back onto the cards. And I see this all the time by the time
people come to me, well, I got this 50 grand in credit card debt. And I also got to stamp 50 grand
in these multiple personal loans that I took out because I thought that would help me get I took
out to pay off my credit cards, right? And then a year, two, three years later, the credit card debt
is back, but the personal loans are still being paid on. And so they just, all they did was kick the
can down the street. And then they can somehow got a lot bigger when it got to the cul-de-sac.
Right. Well, you’ve, you’ve had people that you’ve sent to, that have said, I want to explore
credit counseling and you’ve said, you know, call two or three, not two or three companies and see
what the payment’s going to be. Yeah. Yeah. I’m really big on getting information, getting
information helps us make better decisions. Right. So I’m not a guy that would say, don’t even look
at credit counseling. What I do is I look at my client situation and I say, well, here’s how
a credit counseling program would probably look for you. And we can call a couple of these credit
counselors and I can make a couple of recommendations. And it’s a free call. Call, get the information,
have them pull your credit report. They’ll see what that that you have and they will tell you.
Here’s what we can do in your situation. Here’s what we can get your rates down. And so I have my
client call and then the client calls me back and I say, okay, send me over the quotes and we’ll
review them. And we’ll talk about the numbers and we’ll see if this can potentially work. Yes,
or no? I mean, that’s, that’s the whole reason clients call me is to help them figure out the
right strategy. And we can’t figure out the right strategy if we’re not going to look at any
strategy. So we have to look at them all. By the way, before I forget, I always am negligent
in reminding people how they can contact you. So if you want to talk to Damon about your
particular situation, you should reach him through his website, DamonDay.com, d-a-m-o-n-d-a-y.com.
I think I should change my tagline on the website too. I like to, don’t hate the player, hate the
game. I like it. Reminds me of that picture on your old website, the cowboy, I forget what he
was saying, but you know the one I’m talking about. The cowboy? Yeah, it was, how many versions of
my website are we going back? Oh, this is like, you know, 20 years ago. The cowboy, I had a cowboy
on my website. Yeah, it was like a meme picture. I don’t know. Don’t hate the player, hate the game.
Well, that’s how long ago it was. So the last thing is that when it comes to credit counseling,
that don’t go into it, just because it was curly, the one thing that was curly from with Billy
Crystal and city slickers, city slickers. All right. Thank you, everybody, for coming down memory lane
with us. I appreciate it. So when it comes to credit counseling, one of the reasons why people
have such a terrible success rate with credit counseling is because you’re just making it,
right? You’re just making that payment. And if you’re behind and you go to credit counseling,
most people can’t afford the payment. So like you said, if you’re not behind yet, but you’re
feeling like you might or you want to lower interest rate, those are the best people to enroll
because they still have, you know, money. But the idea of thinking that you’re going to enroll
in any program, I don’t care what it is, where you’re making a promise to repay for five years,
and you’re hoping to make it limping along months to month. God forbid a tire goes out the engine
blows a new water heater is needed or some other catastrophe because it’s not going to work out.
Yeah. Well, and this is why it’s an important exercise. This is why I take my clients through
this process where we learn all the information about all these different strategies and how it
would apply to their situation specifically. So not only so that they can make a good decision,
but no matter what we do is going to involve some kind of sacrifice, whether it’s a credit
score sacrifice, a lifestyle sacrifice, you know, we’re going to have something’s going to have
to give in order to flip your situation around the right way. And so it’s not just about making
the right decision. It’s about over the next few years, why you’re going through whatever strategy
we decide to do, that you are confident that you made the right decision. So you’re not constantly
second guessing. Right. You know, should I have filed bankruptcy? I don’t know. I never even looked
at it. I didn’t talk to the attorney. Maybe I should have tried this. Maybe I should have stuck
with Dave Ramsey a little bit longer or whatever it is. The only way you’re going to feel confident
in the decision is to know for sure you’ve researched everything and eliminated everything else.
And by making the decision through process of elimination, you can move forward confidently
knowing it’s the right strategy and actually make it much more likely you’ll be successful
because you’re not constantly second guessing whether you did the right thing. So segueing into
debt settlement now, if credit counseling is not going to work for you. So Steve made a comment
about, you know, with credit counseling, you know, you stop all your payments and you give one
payment to the credit counseling company and they divvy up to your creditors. Now this is the way
a lot of debt settlement companies are going to try to sell you a debt settlement program.
I think we can also lump in like the debt validation people to because they have the same
approach to what you’re going to say. Devalesion people are just scam. I lump them into the scam
category. So there’s that. But yeah, so here’s what the debt settlement companies will try to do.
They’ll essentially try to sell because they know they’re competing.
Because maybe you’re probably talking to a credit counseling company. So the debt settlement
people are going to try to compete against credit counseling. The same way credit counseling
tries to compete against that settlement. It’s about getting your business. It’s not about
helping you figure out what to do. So settlement is going to try to sell themselves as a
a debt reduction program or a debt consolidation program with lower monthly payments
than you’re going to get from credit counseling. And they can do that because with debt settlement,
there’s no such thing as a program, even though they tell you that there is. And the payments are
just made up numbers. Yeah, they’re just arbitrary. They always like them. Back when they say,
your payment’s going to be 600. I can’t afford that. Hold on a second. Your payment’s going to be 400.
Because unlike credit counseling, we explain with credit counseling, the creditors agree to the
deal upfront. They’re getting paid upfront. In fact, the credit, the creditors essentially run
the credit counseling companies for the most right. But with that settlement, it doesn’t work like
that. The creditors are not getting paid any money anytime soon. The money is just going to
essentially be collected by the debt relief company and held on to until a deal is maybe made down
the road. So they can make up whatever payment they think sounds good to you. But it’s not a real
payment. If you’re going to pay me $600 and I’m just going to hold on to it in every month,
you give me $600. I have the power to say, okay, if that’s hard, how about 500? How about 400?
Right. I don’t have to ask the creditor if they’re okay with that because again, there’s no
program. But this is a very easy sales pitch. And this is why a lot of people sign up into these
programs because as a salesperson, I can come to you. It’s the easiest thing in the world to sell.
Right. I say, oh, here’s your situation. Oh, man, you’re paying like $2,000 a month. You can’t
afford it. I understand, well, hey, we’ve got a great program. We’re a rated with this with that.
We’ve been around. And you’re the victim. Yeah. You know, we’ve been around for 15 years.
Here’s what I can do for you. If you enroll in our program, I could take that 2,000 in payments and
I can knock it down to $1,400. And then you’ll pay no interest. Yeah. And then 75,000 that you all
right now, you know, we got really good relationships with the banks lie. And what we can do is we can
probably knock that down to $45 or $50,000. And you’re just going to give us $1400 a month. And we
should be done and ride around 48 months, maybe 36 months. And it’s going to be great. Now, if I’m a
consumer and I’m going, wait a minute, this sounds awesome. I’m struggling to pay $2,000 a month.
Maxed out on my cards. This guy is telling me that I can enroll in their program and only pay 1,400
and they’re going to work with the banks. And then I’m only going to have to pay back 50 grand instead
of 70 grand plus interest. Where’s the debt? Why wouldn’t you sign up like immediately? He’s going to
save you $600 a month and get you out of debt in three or four years. And you’re going to save 20,000
plus interest. So on the surface, nobody would say no to that. If that’s really all it was, like if
your bank legit went to you and said, all right, you owe us 70 grand, we’re just going to knock it off
the top. You can just pay us back 50 and we’re going to break that up into low monthly payments for
four years. Nobody’s going to say no to that if it was their bank actually offering that. But they
don’t tell you a lot of the downside with settlement. And I always describe not not saying settlements
a bad option. It’s a good option in the right circumstances. It’s a horrible option in the wrong
circumstances. And it’s a horrible option for every creditor, right? It’s not a one size. Yeah, exactly.
Yeah, exactly. So you don’t, and that’s the other thing. You don’t have to, you know, put all your
cards, you know, and I don’t want to call it a debt settlement program because they’re, again,
let me reiterate, there is no debt settlement program. There’s no program. Debt settlement is like
jumping out of an airplane. Now you have a parachute, but you never know 100 percent certainly
it’s going to freaking open, right? But that’s what that said. There is a risk. You are jumping out
of a damn airplane. Yeah, it’s no program. You’re not, you know, credit counseling’s like you’re in
the airplane, but it’s going to land. You know, we were fine. Me. Yeah. For the most part, well,
you might fall out of it on the way down, but right. There you go. If you can hold on,
and it’ll land eventually if you can stick with it, but debt settlement, you’re going into it
knowing you’re jumping out of the airplane. So, so there are certain risks and certain things you
have to be aware of absolutely and you can’t go into a debt settlement program thinking it’s a
program and it’s going to lower my payment, which there is no payment, and I’m going to pay less.
It could work out like that, but you could also splat on the pavement too. If you jump out without
knowing what you’re doing, and who’s packing the consumer and who packed your parachute, by the way,
you should know who’s packing that parachute. If you’re the consumer and you’re panicked and you’re
listening to this, okay, I’m going to pay back less than I owe. I’m not going to pay any,
I’m doing air quotes again, interest, and my debt’s going to be gone in four years.
The one thing that that debt settlement program person didn’t tell you or the credit counseling
person or the Dave Ramsey person is Bob alternatively. Instead of spending $45,000 on our program
taking four years, what if you just spent $2,500 on filing bankruptcy and your debt was gone in
a hundred days? Nobody’s telling people that. And again, that’s why it’s important to look at
everything. So, with settlement, and I almost never recommend a settlement company. They’re
other ways to do. I don’t like the way these companies operate. It’s for a lot of reasons I’m
not going to get into on this podcast, but you don’t have to enroll with a settlement company if
you think you’re in a situation where you could really benefit from negotiating your debt and
just kind of getting a reset. But there are some pitfalls that you definitely have to fall behind.
There’s chances of lawsuits. You need to be aware of that. Some creditors are more.
It’s going to hurt your credit. It’s absolutely going to hurt your credit for a couple of years.
So, again, you have to weigh all the pros and cons. And then Steve made a nice segue
also now into bankruptcy. Because the way I like to evaluate bankruptcy for clients is
A, you start with the financial. How much money is it going to save me over a Dave Ramsey,
or a credit counseling, or a debt settlement? Overall, how much money will I save? Number one,
number two is how would a bankruptcy impact me both personally and professionally potentially?
Is there going to be any potential impact? What about my house? Do I, you know, am I
precluded from filing a chapter seven? If I wanted to file a chapter seven, could I qualify for it?
Yes or no? Maybe I make too much money. That might be a non-starter. So, we have to look at all of
these things. If I don’t qualify for a chapter seven, what does a chapter 13 look like?
Is that something I even want to consider? Oftentimes, the answer is hell no. And then sometimes
a chapter 13 is actually not a bad solution. Because a chapter 13 is a repayment type of strategy,
kind of like a credit counseling program. You’re just inside of a bankruptcy when you do it. And
the creditors have to agree to whatever the trustee comes up with. Well, it gives you the legal
protections that know what their program does. Yeah. So, sometimes it could be a good strategy,
sometimes it could be a not-so-good strategy. But again, the only way to know it’s right for you is
you have to look at everything and don’t, in my opinion, don’t automatically dismiss a strategy
just because you think you may know how it works. As Steve mentioned before, I’ve had lots of
clients over the years that we’ll be on the first call and they’re like, well, I just don’t want
to file bankruptcy. Okay, no problem. Let’s look at everything. And then by the time that we’re
done going through it, maybe meet with the bankruptcy attorney, they go, you know, I didn’t realize
it. But actually, bankruptcy seems like pretty good deal. And again, I’m not saying bankruptcy is
always a good deal. Sometimes it is a good deal. But you always have to evaluate it back to,
let’s say you find out you can qualify for a seven, you’ll be able to keep your house if you have.
One, if you don’t even own a house, it’s not going to be that big a deal. And let’s say you keep
your car. So, you know, it’s not one of these things where people are going to come into your house
and start taking the TVs off the wall and, oh, this couch was, you know, still finance. So we’re
taking that. It’s not like that. So let’s say we find out that you could keep all of your stuff.
And in your specific situation, we find out it’s going to cost you $2,200 to file a bankruptcy.
And then we look at, well, how much debt do you have? You have $100,000 in debt. How much is that
going to cost you to Dave Ramsey your way out of that thing? If you could even do it best case
scenario, it might cost you $120,000. So then you start, that’s how you evaluate.
And what’s the future? What’s your future loss by you taking the next five years or whatever,
trying to repay this back instead of protecting yourself in the future for your retirement?
Well, you might not even have to go that far. You might stop at, okay. The, you know,
Dave Ramsey is going to cost me $120,000 more than the bankruptcy. So first question.
Is there anything about the bankruptcy that I learned that would cause me to say that is so
bad for me personally that I would spend an extra $120,000 to avoid it, right? And of course,
this is even before we talk about what’s that $120,000 actually works you in retirement
if you filed the bankruptcy. Because then to Steve’s point, that 120 could be a million dollars.
Right. Everybody has a number. Everybody has a number where, okay, that is not so bad that I would
pay $500,000 for it or I would pay two, but they also have a number the other way. Like,
that is so bad that I would not want to do that if all I was going to save was $20,000 or whatever it
is. But that’s, that’s a good way to evaluate this stuff is to look at what would I save and what’s
the hassle and is the hassle a low enough to where the money I would save makes me want to do that
if that makes sense. Yeah. And everybody’s different. There’s no right or wrong answer.
On that note, let’s wrap it up here. Seems like this podcast went way longer.
Oh yeah, we’re 45 minutes. But right now, somebody’s commuted to work them back.
But it’s good stuff. It’s good stuff. Oh, it’s great stuff. If you’re getting phone call,
and if the debt relief organization is calling you more often than your creditors, just don’t
bother calling them back. It’s a sales guy. Yeah. And if somebody is reaching out to you
and trying to sell you a debt program, the key word is they’re trying to sell you
their product. They’re trying to sell you something, not that it’s right for you. So if you want,
you know, to talk to somebody, talk to Damon, right? He’s the best damn debt coach in the country.
And talk through your situation. Yeah, don’t let them sell you. Just so you guys just
Steve, you sell them on me. And then, and then, no, but I mean, everybody’s selling something.
Right? Let’s just be real about it. The difference is what am I selling with my coaching? Well,
exactly what we talked about. You can have somebody that’s in your corner that can walk you
through the stuff and say, Hey, I’ve been going through this stuff for 25 years. Let’s sit down.
Let’s go over your situation individually. And let’s figure out the best strategy
to get you out of this mess. And then from there, we can decide, well, do we need to start talking
to any of these companies or not? Most of the time, the answer is no. But for information purposes,
a lot of times I will say, Hey, I think you should call this company or I think you should call
this attorney. And here’s what your questions should be. And here’s what we’re looking at.
Go get that information. Report back to me. And we’ll discuss it.
Good stuff. I’m glad we got to talk all this through. And Damon, until next time, I will see you.
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