Why Your Debt Repayment Plan Probably Stopped Working
If you built a five-year debt payoff plan two years ago, the math almost certainly doesn’t work anymore. Wholesale inflation just hit 6%, and that hasn’t even reached grocery store shelves yet — the USDA forecasts beef up 6%, sugar up 8%, beverages and fresh vegetables up 5%, all arriving in your cart by June through August 2026.
Meanwhile, the number one reason foreclosures are rising isn’t the mortgage — it’s utility rates and insurance exceeding inflation on top of mortgage payments that were already stretched thin.
“The math doesn’t math anymore. Ripping the bandaid off and getting rid of the debt is so much less extreme than trying to pay it off within the reality that we’re currently living right now.” — Damon Day
Why Making Minimum Payments Is Actually the Riskiest Choice
This is the counterintuitive truth Steve and Damon keep coming back to: continuing to service debt you can’t afford feels like the responsible thing, but it’s quietly draining your savings, your retirement, and your options. Every month of minimum payments at 20% APR is a month you can’t build anything that grows.
Every weekday I read the enforcement actions, filings and fine print the outlets skip, and turn them into the one or two moves that actually improve your position — a rate worth moving for, a fee you can refuse, a deadline to beat before it costs you.
In the latest issue (Sep 15): A number you don’t look at is not an asset
I write Your Money Actually most weekdays — actionable money information you will not find anywhere else, and the small decisions that compound. It is free, I sell nothing, and I take no money from any company I write about.
Steve Rhode: “If a farmer plants his farm and it doesn’t rain and he goes bankrupt as a result, is he a failure for that? It just didn’t rain.”
The Daily Money Brief — Free, at 10 AM
Money you may be owed, scams to dodge, and the fine print decoded — the consumer money news that affects your wallet, every weekday.
Consumer confidence is at a 74-year all-time low. Consumer debt keeps climbing. Even consignment store owners are reporting that their customers — people who already traded down from Target — have stopped shopping entirely. They’re just trying to eat.
The Basket of Options Shrinks Fast: Six months before you hit the wall, you have choices. A week before? Almost none. Damon has seen people lose hundreds of thousands in home equity because they waited too long to act — paralyzed by the fear of doing something different.
Inflation has since accelerated to 4.2% with markets pricing a possible rate hike — see the three moves to make now.
Bankruptcy Isn’t a Failure — It’s a Math Problem With a Legal Solution
Both Steve and Damon filed bankruptcy themselves — Steve in 1990, Damon in 2011. Steve still has the check he wrote for his bankruptcy filing framed in his hallway, right next to the check for their first airplane. That filing was the turning point, not the low point.
Damon Day: “I had $400,000 discharged and my business really took off after that. It made me a better consultant because I’d gone through it myself.”
The Four Fears — and the Reality
- “We’ll lose everything.” Not true — retirement accounts, exemptions, and essential property are protected in bankruptcy.
- “Our credit will be destroyed forever.” Data shows your score will likely be better than it is right now within 18-24 months.
- “Everyone will know.” Bankruptcies aren’t published in newspapers anymore. It’s a court record, not a headline.
- “It means we failed.” Debt is what’s left over when the math is broken — and inflation broke the math for millions of people.
How to Talk to Your Spouse About Bankruptcy
Steve learned this lesson firsthand when he had to tell Pam. The key: come with a plan, not just a problem. Share the math. Address the fears. And when emotions rise — and they will — give your spouse room to grieve the life they thought they had before redirecting to the life that’s ahead.
Damon reports that when spouses actually get on the phone together, the conversations go “surprisingly well.” The ones who were left in the dark often become the most motivated to take charge once they understand the situation.
Need Help With That Conversation? Damon Day offers free consultations and regularly helps couples navigate these conversations together. He doesn’t judge — and neither does Steve.
If You’re on Social Security and Paying a Debt Settlement Company — Stop and Read This
An 87-year-old man recently told Steve’s Ask Steve AI that he’d been paying a debt settlement company for two years and was having trouble affording groceries. This is exactly the kind of situation that makes Steve and Damon furious.
If you’re on a fixed income with no assets, you may be judgment proof — meaning creditors can’t collect from you regardless. Sending $400-600 a month to a debt settlement company when you could be using that money to live is, in Damon’s words, something that “pisses me off.”
For Seniors in Debt: Before paying any debt settlement or credit counseling company, check if you’re judgment proof. The nonprofit HELPS (H-E-L-P-S) specifically assists senior citizens — often for free or a few dollars a month — by notifying creditors that you’re judgment proof. Neither Steve nor Damon gets paid if you file bankruptcy. They have no dog in this hunt.
The Bottom Line: Inflation is not slowing down. Your budget from two years ago is already broken. The status quo — making unaffordable payments while draining savings and retirement — is the most expensive, most stressful choice available. Whether it’s bankruptcy, settlement, or another strategy, doing something now while you still have options is always better than waiting until the only option is an emergency. Cash in the bank protects you. A credit limit on a card the bank can reduce with a letter does not.
If you’re carrying credit card balances on top of the inflation squeeze, the NY Fed just confirmed how widespread the damage is — The Credit Card Number That Should Scare You Isn’t the Balance. It’s the Late Payments..
Dealing With Debt? Understanding your options is the first step. See how all your debt relief options compare — including ones most sites won’t tell you about. The Find Your Path quiz gives a recommendation based on your actual numbers, and the Scam-O-Meter checks any company’s complaint history before you sign. Federal Reserve research shows bankruptcy filers recover faster than those who don’t file.
Free Tool — Judgment Proof Checker: Think creditors can take everything? Many people in financial hardship are legally protected. The free Judgment Proof Checker shows whether collectors can actually collect anything from you in your state. Check My Status →
Key Takeaways
- Wholesale inflation hit 6% and hasn't reached retail yet — USDA forecasts beef up 6%, sugar 8%, beverages and vegetables 5% by summer 2026.
- If you built a debt payoff plan two years ago, inflation has almost certainly made it obsolete — the budget you created is already broken.
- Continuing to make unaffordable minimum payments is actually riskier than filing bankruptcy — you're draining savings and retirement for a credit score that isn't helping you.
- Both Steve (1990) and Damon (2011) filed bankruptcy themselves — Steve frames his bankruptcy check in his hallway alongside the check for his first airplane.
- Credit scores typically recover within 18-24 months after bankruptcy because banks want to lend you money again — that's how they make money.
- Six months before you hit the wall, you have options. A week before, you have almost none. Waiting costs equity, choices, and control.
- Seniors on Social Security who are judgment proof should never be paying debt settlement companies — the nonprofit HELPS at helpsishere.org can help for free or nearly free.
Free Tool — Contract Decoder: Have a contract from a debt relief company? The free Contract Decoder analyzes it for red flags, hidden fees, and problematic terms — before you sign anything. Decode My Contract →
Full Transcript
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Episode Introduction
Steve Rhode: [Introducing Damon Day, the new Get Out of Debt Guy] Clicky, Damon Day, the new Get Out of Debt guy. Say hello, Damon.
Damon Day: Clicky? That’s one I haven’t heard.
Steve Rhode: Well, normally you’re clicking in the back. It’s all edited out of the podcast. At least today we’re in our offices with our mics. It’s a semi-professional setting versus last week where we were in a Sonic drive-through eating breakfast burritos on an iPhone, doing our podcast in North Carolina.
Damon Day: My favorite part was not just the poor audio quality, but the fact that you and I took turns talking because we were eating.
Steve Rhode: We’ve got some stories picked out. I write the stories, Damon picks them out. The number one thing I want people to understand is don’t feel guilty about your financial situation and don’t judge others about theirs. In one of my other lives, I’m an Amazon seller. What I noticed right now is suppliers purchased goods they’re trying to resell at a time when the economy was doing much better. They’re stuck asking for prices the market can’t afford. It’s the same thing for people — you made decisions when you bought a house or a car that can no longer be supported by what the economy is today. You absolutely should not feel guilty about that. That is not a moral failure. I’ve always used the example — if a farmer plants his farm and it doesn’t rain and he goes bankrupt as a result, is he a failure for that? It just didn’t rain.
The Emotional Reality of Debt
Damon Day: For us, there’s not a lot of emotion in it. We see what’s going on. But for a lot of people listening, they haven’t been thinking about this for months and years. There’s a lot of emotion involved. I have conversations on the daily about settling debts or bankruptcy, and people are like, “Well, what about my credit score?” And I’m like — somebody at $100,000 in debt, can’t keep up, thousands of dollars going out the door, no retirement, no savings, but they’re worried about the credit score. Who cares?
We’re at a point now where most people with this economy — it’s not just going to get better. You’re not going to wake up tomorrow and prices drop 50%. This is the new normal at best. The inflation is going to slow down, but it’s not going to go down. So we have to rethink the old way of doing things. The Dave Ramsey budget-your-way-out-of-this — that doesn’t work anymore.
Filing a bankruptcy or settling your debt is less drastic than continuing to make payments, continuing to drain your savings, continuing to drain your retirement while servicing $50,000, $60,000, $100,000 in debt you can’t afford. Think about people who two years ago decided to do the snowball thing. Now gas prices are up, tariff prices went up, cost of everything’s gone up. If they were just making it before, that was two years wasted.
Financial Internet Time
Steve Rhode: People need to live in internet time. When I first started with internet technology back in 1994, there was the pace of reality, then internet time compressed everything. That’s where we are now — financial internet time. You can’t think about how decisions impact you five years out. You need to think about six months. What can I do now that changes this situation in six months?
Damon Day: We’re not in internet time, bro. We’re in AI time.
Steve Rhode: I’ve been doing a lot of AI coding. Yesterday I was curious — all the code I’ve written in the last three months is 131,000 lines. I could never have done that by myself.
The Consignment Store Signal
Damon Day: I was talking to somebody who owns a consignment store. He said his customers have really changed over the last couple of years. More middle-class people were coming in. People who would traditionally go to Target are now saying they can’t afford that. But even lately, those people aren’t coming in. Things are getting so tight his sales are down. When the consignment store sales are down, you know things are really tight. People are just trying to eat.
Wholesale Inflation at 6%
Steve Rhode: Wholesale inflation just hit 6%. People get numb to this stuff. Consumer debt continues to rise, yet consumer confidence is at a 74-year all-time low. People feel pessimistic but the majority continues to spend.
Damon Day: A lot of it is depression. People self-soothe with purchasing, clicking on Amazon, and they have room on the cards. But eventually that runs out. This wholesale price hasn’t been baked into what you’re seeing at the grocery store today. It’s not going to hit you for 90 days. Prices are still going up.
We need to come up with a plan. Continuing to just service the debt, throw groceries on credit cards, pull money from retirement — that is not going to work. If the stock market’s at all-time highs but you don’t have any money in the market, that’s not good for you. Your wages are not keeping up with inflation. Something’s got to give. If you’re paying $2,000 a month for unsecured debt, that’s a big chunk of money we could free up.
Steve Rhode: According to USDA forecasts, we should be expecting beef to go up 6%, sugar 8%, beverages 5%, fresh vegetables 5%. This stuff hits your wallet beginning June, July, August.
Foreclosures and the Real Cause
Steve Rhode: The number one reason people are filing foreclosure at higher rates is not because of the mortgage. You planned that mortgage five or ten years ago. That’s not why people are losing their homes. The reason is utility rates and insurance have exceeded inflation.
Damon Day: Even if you’re not feeling the pressure, there’s very little downside to cutting the fat, getting rid of the debt, getting rid of the money that just evaporates every month servicing debt. Continuing to make the payments on debt you can’t afford when your budget is broken is the riskier strategy. It’s a scarier path than filing for bankruptcy.
I think bankruptcy just needs a rebranding. We should call it strategic deleveraging like the smart companies do.
Steve Rhode: I just call it Fresh Start. Everybody would line up for the Fresh Start program. Nobody wants to line up for bankruptcy. Same thing, different name.
The Basket of Options
Steve Rhode: Six months before you hit the wall, you’ve got all sorts of options. You get down to the week before — you have no options. People call me: “My house is getting foreclosed on.” When? “Tomorrow.” What can you do? I’ve seen people going into foreclosure with a couple hundred thousand dollars in equity. The paralysis of the fear of doing something different. They just lost $200,000 in equity because they didn’t make the hard choice six months before.
Damon Day: All the things you were afraid of happening are now going to happen anyway, but quickly. Versus if you’re proactive — you see the writing on the wall, you get counsel, you look at all the options, you put the house up for sale, get the equity out. Now you have time, cash, and choices. Being in paralysis where you don’t know what to do so you don’t do anything — that always makes it worse.
Steve Rhode: Back in the late 1980s, in my real estate days, banks would talk to me about foreclosed homes. I would go in and find wedding pictures, kids’ toys, trophies. People just walked away and left their lives because they came against a final decision and never could decide.
How to Talk to Your Spouse About Bankruptcy
Steve Rhode: This is a personal one for me. When I went bankrupt, Pam kids me about how I broke the news. Downstairs in the hallway to the kitchen, there’s a large picture frame. Years ago when we were dead broke, I needed to make her a Christmas gift. So I went through ten years of our checks and pulled out every significant event. One of those checks is the one we wrote for bankruptcy. I walk by it every day. At the time I felt terrible, but it was the best thing I ever did.
Damon Day: People listening right now — there are some thinking “my wife or husband has no idea how bad this is.” Steve has a constant reminder on his wall. It was not a traumatic event that altered the course of his life in a bad way. He gave it to Pam for Christmas alongside the check for when they bought their first airplane.
Steve Rhode: My greatest failure was my greatest strength. I am so thankful I filed bankruptcy in 1990.
Damon Day: When I went through mine, Steve was my counselor. For a year or two I was like, “Steve, I can’t file bankruptcy. I’m a financial consultant. How’s that going to look?” But then when I filed — $400,000 discharged — and my business really took off after that. It made me such a better consultant. I was able to share my story. It turned out to be a huge positive, not a negative.
Steve’s Washington Post Story
Steve Rhode: When I went through mine, my bankruptcy got outed by the Washington Post. A reporter casually asked, “Have you ever filed bankruptcy?” and I said no. Then I had to call her back and tell her I lied. I thank her for that now — I no longer had to keep that secret. I had a staff of about 70 at the time and emailed them about my bankruptcy. The blowback was nothing but positive.
Damon Day: Your credit will probably be better than it is right now within 18 to 24 months. Why? Because the banks want to loan you more money. That’s how they make money.
Advice for Talking to Your Spouse
Steve Rhode: You have to come up with a plan, address the fears, share the problem, sit down and do the math together. Things will get frosty for a moment, but it’s always better to come with a plan.
Damon Day: When spouses actually get on the phone, the conversations go surprisingly well. Oftentimes they rally. “Okay, it is what it is. How are we going to fix it?” It’s such a relief for the other spouse.
Steve Rhode: When your spouse’s emotional level rises and they cry, they’re mourning the life they thought they had. Don’t defend your decision. Give them a moment to breathe.
Damon Day: What people need help envisioning is the life they’re going to have once this is taken care of. The life you’re soon going to have is so much better than the life you’re worried about losing. You free up all the cash. You can actually breathe again. Who cares about a credit score? You’re already in the muck. Nobody’s loaning you more money. Cash in the bank is much better than credit. Credit can be taken away with a letter.
The Four Fears of Bankruptcy
Steve Rhode: The top four fears: First, “We’ll lose everything.” Not true — there are lots of protections and exemptions. Second, “Our credit will be destroyed forever.” The data says people who file do better financially faster. Third, “Everyone will know.” It’s not published in the papers anymore. And the number one fear — people think it means they failed. It doesn’t. Debt is what’s left over when the math is broken.
Seniors, Social Security, and Debt Settlement Companies
Damon Day: If you’re on social security, retired, fixed income, and you’re getting pitched debt settlement — that pisses me off.
Steve Rhode: I had an 87-year-old guy come to Ask Steve who’d been paying a debt settlement company for two years and was having problems paying for groceries.
Damon Day: If you’re 87 on social security with no assets, you’re probably judgment proof. You should not be sending $400-600 a month to a debt settlement company when you could be using that to eat or enjoy the time you have left. There’s a great organization called HELPS, H-E-L-P-S.
Steve Rhode: The website is helpsishere.org. It’s for senior citizens in debt. It could be free or a couple bucks a month. They help protect you from creditors.
Damon Day: No debt settlement salesperson has ever said “hey, you really don’t need to be hiring us.” Not because they’re bad people — they’re just salespeople. They might have been selling ADT alarm systems last month and now they’re selling debt management after watching a couple of training videos. And you’re relying on them for your finances for the rest of your life. So get good advice before you jump into anything.
Closing
Steve Rhode: Be sure you’ve subscribed or followed wherever you’re listening right now.
Damon Day: If you have any questions or concerns, contact Damon. He doesn’t judge. I don’t judge. And you’ll get some good, honest advice that you can make smart decisions on and move forward.
Steve Rhode: Until next week, Damon, I will see ya.
Damon Day: Toot toot. Peace.
Frequently Asked Questions
Why do debt repayment plans fail during inflation?
When inflation rises faster than wages, the budget you built becomes obsolete. A five-year snowball plan created two years ago assumed stable prices — with wholesale inflation at 6% and food, utilities, and insurance all rising faster than income, that budget no longer works. Most people can't cut enough to keep up.
Is filing bankruptcy really less risky than making minimum payments?
In many cases, yes. Making minimum payments at 20% APR while draining savings and retirement gives the illusion of progress but actually deepens the hole. Bankruptcy can discharge unsecured debt quickly, protect retirement accounts, and free up cash flow. The credit hit is temporary — scores typically recover within 18 to 24 months.
How do I talk to my spouse about bankruptcy?
Come with a plan, not just a problem. Share the math together — actual numbers, not emotions. Expect some frost and give your spouse time to process. They may be mourning the life they thought they had. Having a neutral third party like a financial consultant on the call often helps, and many spouses become the most motivated to act once they understand the full picture.
Will I lose everything if I file bankruptcy?
No. Retirement accounts are protected. Your state has exemptions for essential property, and in many cases your home equity is protected too. The common fears — losing everything, credit destroyed forever, everyone finding out, being a failure — are largely myths that don't match the reality of how bankruptcy actually works.
What should seniors on Social Security do about debt?
If you're on a fixed income with no significant assets, you may be judgment proof — meaning creditors legally cannot collect from you. Paying $400-600 per month to a debt settlement company in that situation is money you should be using to live. The nonprofit HELPS (helpsishere.org) assists seniors in this situation for free or nearly free.
How fast does credit recover after bankruptcy?
Most people see their credit score return to where it was — or better — within 18 to 24 months. Banks want to lend again because that's how they make money. A bankruptcy on your record does not mean 10 years of no credit. In practice, recovery is much faster than people fear.
