Speaker 1: Welcome to How to Money. I'm Joel and Dine Matt,
Speaker 1: and today we're discussing the truth about deck consolidation. Yeah,
Speaker 1: joll for folks who have debts, especially consumer debt, that
Speaker 1: consolidation is something to consider. We've gotten a bunch of
Speaker 1: emails recently of folks asking if that's something that they
Speaker 1: should consider. So I'm glad that we can answer some
Speaker 1: some listener questions. At least do a listener Request Request
Speaker 1: hotline to set that up. Yeah. Yeah, dec consolidation is
Speaker 1: kind of one of those tricky subjects. There's a lot
Speaker 1: to consider before you consolidate any of your existing consumer debt.
Speaker 1: But it is also something that especially for people paying
Speaker 1: high interest rates on their debt, it's something that they
Speaker 1: des probably want to figure out. So yeah, I think
Speaker 1: it's gonna be a good up quickly before we get
Speaker 1: to that, Matt, what you got for us? I wanted
Speaker 1: to mention I just this past weekend sprayed for pests
Speaker 1: at my house and so if people aren't aware doing
Speaker 1: your own pest control, We've written about that on the
Speaker 1: website and it is something that can save you hundreds
Speaker 1: of dollars a year, and it's actually really doesn't take
Speaker 1: that much effort to do it. So I just want
Speaker 1: to say, man, I got out my gloves, makes my solution.
Speaker 1: Did the spraying around the exterior of the house. And
Speaker 1: I do this at my rental properties to just to
Speaker 1: save me, like literally over a thousand dollars a year
Speaker 1: when we're talking about all the houses together, and a
Speaker 1: quarterly spray really doesn't take much time out of my day.
Speaker 1: Just swung by my way after work to do a
Speaker 1: rental property the other day too. So yeah, it's pretty simple.
Speaker 1: You mentioning that just rubbed in my face because I
Speaker 1: haven't yet. Gotta get with it, man, it's really not
Speaker 1: that hard. Yeah, what's this warming up here in the south?
Speaker 1: Termites is something you have to keep an eye out
Speaker 1: for as well, And so that's how star pro. Is
Speaker 1: that what you used? Yeah, yeah, that's that's that's what
Speaker 1: I have as well. But that's really great for keeping
Speaker 1: termites down as well. Yeah, and for anyone who is
Speaker 1: interested in potentially saving a few hundred dollars a year
Speaker 1: and doing their own pest control. Just a quick word
Speaker 1: of the wise. You don't want to go to home
Speaker 1: depot or lows and pick up the stuff there. There
Speaker 1: are websites that sell the stuff that the pros use,
Speaker 1: and Amazon even sells some of the stuff that the
Speaker 1: pros used too. We linked to that stuff in the
Speaker 1: article we wrote on how to money dot com, so
Speaker 1: you can totally check it out. It's just one of
Speaker 1: my favorite money saving tips, especially this time of year
Speaker 1: when the bugs are out full force. Yeah, one of
Speaker 1: those Joel originals. All right, Joel, let's introduce our beer
Speaker 1: for this episode, and to remind our listeners why you
Speaker 1: and I have a craft beer on the show every
Speaker 1: single week, And it's because we like beer. We love
Speaker 1: craft beer, and it's an example of a way that
Speaker 1: we are balancing our lives by living a little bit
Speaker 1: of life now while at the same time saving for
Speaker 1: our futures and being smart with our money. It's it's
Speaker 1: not all about depriving the here and now for some
Speaker 1: lofty goal of being financially independent at some point. We
Speaker 1: also like to take some small little winds and pleasures
Speaker 1: right now, and one of those for you and me
Speaker 1: is delicious craft beer. And I feel like we literally
Speaker 1: just kind of outlined a way in which we save
Speaker 1: money in one possibly for some considered to be an
Speaker 1: extreme way by doing your own pest control. And yet
Speaker 1: we will spend money on fairly expensive craft beer from
Speaker 1: time to time, but this one, unfortunately, Matt, we didn't
Speaker 1: have to spend any money on. And why is that?
Speaker 1: That's right? Man? This beer was sent in from a listener, Naomi,
Speaker 1: and she mentioned that her and her husband they kind
Speaker 1: of went off for the weekend, I think, to Wilmington,
Speaker 1: North Carolina. There's an awesome beach there. Have you ever
Speaker 1: been up there? I haven't. No, I've been there once.
Speaker 1: It's actually really nice. But her and her husband they
Speaker 1: discussed their values and how they relate to financial goals
Speaker 1: per one of our earlier episodes, and she said that
Speaker 1: the conversation and the beer was amazing and she wanted
Speaker 1: to thank us, and she picked us up one of
Speaker 1: these beers from Wilmington's brewing company, which is called Secret
Speaker 1: Lovers the sequel, which is pretty awesome. And this is
Speaker 1: a collaboration beer with New Anthem Brewing, which is also
Speaker 1: right there in Wilmington as well. Yeah, and this one's
Speaker 1: right up our alley. It's in New England style double
Speaker 1: I p A. We'll let you know what we think
Speaker 1: of this beer. At the end of the show, big
Speaker 1: thanks to Naomi for sending this out. It's inspiring to
Speaker 1: to hear kind of the story behind why she's in
Speaker 1: this beer. That's just that's kind of fun. Yeah, we
Speaker 1: don't talk about that often, but that's a huge rewarding
Speaker 1: aspect of of what we do, being able to talk
Speaker 1: on the silly podcast and talking about money but actually
Speaker 1: having an impact on individuals lives, helping relationships. I would
Speaker 1: have never thought that, in some sort of weird way,
Speaker 1: that were these financial counselors and helping couples talk through
Speaker 1: their money. But in a way I feel like that
Speaker 1: you and I are kind of doing that. Yeah, it's
Speaker 1: weird to think about, right, because we started this podcast
Speaker 1: just two buddies drinking beers talking about money. Um, and
Speaker 1: you have the response. Our listeners are the best. All right, Matt,
Speaker 1: Let's get onto the topic at hand, the truth about
Speaker 1: debt consolidation. So let's quickly touch on the problems involved
Speaker 1: with debt consolidation. People fall prey to the lofty promises
Speaker 1: Matt of debt consolidation companies. A quick fix always sounds
Speaker 1: so nice, But just like unloading your timeshare with an
Speaker 1: upfront fee is going to leave you with thousands less
Speaker 1: than the bank account and still with a timeshare on
Speaker 1: your hands. Signing up with a debt consolidation or debt
Speaker 1: settlement company could cost you money points on your credit score,
Speaker 1: and in the end could potentially not move the needle
Speaker 1: at all. There are ways where you can consolidate your
Speaker 1: debt and it's actually gonna be helpful to you. Will
Speaker 1: kind of go over some of those ways, but there
Speaker 1: are a lot of potential pitfalls, and we have to
Speaker 1: talk about those. For people that do have debt and
Speaker 1: want to figure out a way to kind of lower
Speaker 1: their payments and lower their interest rate. First, let's go
Speaker 1: ahead and to find debt consolidation, and that is combining
Speaker 1: lots of individual unsecured debts that you have into a
Speaker 1: single monthly bill, right into a single monthly payment. What's
Speaker 1: really important to keep in mind is that this doesn't
Speaker 1: actually get rid of any debt. It just restructures that
Speaker 1: you're just changing the shape of it. Essentially, if you're
Speaker 1: going through a company, what you're doing is you're paying
Speaker 1: for the convenience and that focus, and you know that
Speaker 1: actually might be a good thing. If you have lots
Speaker 1: of high interest debts, in particularly if you have lots
Speaker 1: of credit card debts. If you're looking at over like
Speaker 1: six is the average credit card interest rate that folks
Speaker 1: are carrying these days. So if you know you've got
Speaker 1: sixteen percent or higher, it might be worth it to consolidate. However,
Speaker 1: you still need to be careful. There's a lot of
Speaker 1: considerations and I'm excited to talk about this today and
Speaker 1: debt consolidation, Matt is not to be confused with debt settlement,
Speaker 1: which is is much much worse for people. We do
Speaker 1: have to mention that before we kind of move on
Speaker 1: and talk about the particulars of debt consolidation and whether
Speaker 1: it works for your situation. In the case of debt
Speaker 1: settlement companies, well you'll hear them often advertising on TV
Speaker 1: and radio that that's like a popular place for for
Speaker 1: them to hang out. Probably a lot of daytime television
Speaker 1: shows too often, sometimes the worst advertisers that prey on
Speaker 1: people advertises during those times of the day. And debt
Speaker 1: settlement companies in particular tell customers not to pay their
Speaker 1: debts anymore, that they don't have to pay their credit
Speaker 1: card company, they don't have to pay that personal loan
Speaker 1: back and that this debt settlement company is going to
Speaker 1: essentially handle everything for you and you're gonna be fine.
Speaker 1: And you know what else they tell you On top
Speaker 1: of that, They say you need to pay an upfront fee,
Speaker 1: sometimes thousands of dollars. And while you're paying them, oftentimes
Speaker 1: the only money that's left in your bank account as
Speaker 1: they tell you they're negotiating your debts down, you're also
Speaker 1: not paying the companies that have lent you money, which
Speaker 1: is leading to a ruin of your credit score. And then,
Speaker 1: on top of that, the debt settlement companies almost never
Speaker 1: make good on their promise to actually negotiate your debts
Speaker 1: with your lenders, and so your credit score gets ruined.
Speaker 1: In most cases, it drops by a hundred and forty
Speaker 1: two a hundred and sixty points. And at the end
Speaker 1: of that terrible saga, you're out thousands of dollars and
Speaker 1: you're in arrears with your debtors. So be very very
Speaker 1: careful before you jump in bed with a debt settlement company,
Speaker 1: because often they're gonna leave you in a much much
Speaker 1: worse financial and credit situation than you were in to
Speaker 1: start with. And John, you mentioned fees up front. That's
Speaker 1: a huge red flag of a company that isn't direct
Speaker 1: violation of the FTC. So if they take any fees,
Speaker 1: any money before they actually settle or they get your
Speaker 1: payments lowered, they're breaking the law. Like that's completely illegal. Again,
Speaker 1: that should be a huge red flag. You also mentioned
Speaker 1: them actually not negotiating on on on your behalf. Well,
Speaker 1: I don't want to defend debt settlement companies, but the
Speaker 1: fact is they actually might be trying to. But the creditors,
Speaker 1: whoever you have debts with, they just don't have any
Speaker 1: obligation to actually say yes and work with the settlement companies.
Speaker 1: They may have very well made that phone call and
Speaker 1: are talking to them, but whoever you actually debts do,
Speaker 1: they're just not willing to work with that specific settlement company.
Speaker 1: And so that's something to keep in mind. Even though
Speaker 1: that a settlement company might say, oh, yes, we can
Speaker 1: do this or we will do this, your creditor has
Speaker 1: zero obligation to work with that company. Yeah, and those
Speaker 1: potentially thousands of dollars that you spent upfront to hire
Speaker 1: this debt settlement company to do the dirty work for you, well,
Speaker 1: oftentimes that would be better off sitting in your savings
Speaker 1: account as an emergency fund or paid in lump sum
Speaker 1: towards your highest interest rate debt to kind of get
Speaker 1: you started working on that road towards paying down your debts.
Speaker 1: That's right, Okay, So think about this. If your debt
Speaker 1: isn't more than half of your income right now, and
Speaker 1: you've got a pretty good credit score, and this is
Speaker 1: almost the most important thing I think, Joel, if you
Speaker 1: have a plan to not take on any more consumer debt, well,
Speaker 1: you know, debt consolidation might actually be a good option
Speaker 1: for you. And so after the break, we're gonna talk
Speaker 1: about ways and not just through a consolidation company, but
Speaker 1: just different methods that you can consolidate your debt and
Speaker 1: also some other pitfalls to keep an eye off for. Alright, man,
Speaker 1: we're back, and before we get into the specifics of
Speaker 1: debt insolidation, let's talk about the specifics of who is
Speaker 1: going to be a good candidate to consider deconsolidation. And
Speaker 1: like you mentioned going into the break, if your debt
Speaker 1: is less than half of your income, that's gonna be
Speaker 1: one big reason that you should consider deconsolidation as an option.
Speaker 1: And also you're gonna need a pretty good credit score.
Speaker 1: You're also gonna need to be committed to not taking
Speaker 1: out any more debt, and in particular, that credit score
Speaker 1: is going to be key, because deconsolidation isn't gonna be
Speaker 1: helpful for you if you have a really low credit score,
Speaker 1: because that is going to prevent you from getting the
Speaker 1: lowest advertised rates. If you have a great credit score
Speaker 1: and a lot of debt, there's a good chance that
Speaker 1: you could qualify for a much lower rate than what
Speaker 1: you're paying on, let's say, your credit cards. But if
Speaker 1: you have a really low credit score, there's just not
Speaker 1: much of a chance that you're gonna be able to
Speaker 1: lower your rate by any meaningful amounts, and lenders might
Speaker 1: not be willing to work with you at all. Yeah, Basically,
Speaker 1: if you have a crappy credit score, like those rates
Speaker 1: that you see advertise, they're going to be too good
Speaker 1: to be true. And there's something else to consider if
Speaker 1: you're looking at debt consolidation companies is that extending your
Speaker 1: payment terms might mean some more financial breathing room, but
Speaker 1: it can also mean higher rates and obviously longer time
Speaker 1: in actual debt. And even if you get a lower rate,
Speaker 1: it can mean paying more in interest overall because you've
Speaker 1: extended how long you're paying towards that loan. Yeah, it's
Speaker 1: like if you have a thirty year mortgage matt at
Speaker 1: four and a half percent, and you're ten years into
Speaker 1: that mortgage. But if there's a screaming deal for a
Speaker 1: mortgage rate at four point to five, well, if you
Speaker 1: refinance into that, guess what you're back paying for ten
Speaker 1: years longer, and overall you're gonna pay a heck of
Speaker 1: a lot more in interest because of that refinance than
Speaker 1: you would have otherwise. That lower rate seems like a
Speaker 1: good idea, but it's not because of all the fees
Speaker 1: and extra interest you're gonna pay because of the extended
Speaker 1: load terms. Ye basically you're hitting that reset button and
Speaker 1: you're starting all over. And the typical debt consolidation loan
Speaker 1: is about five years. And honestly, if you think you
Speaker 1: could pay down some credit card debt maybe in like
Speaker 1: eighteen months, eighteen months of hard work where you're buckling
Speaker 1: down and really getting after it, just think about how
Speaker 1: much longer paying another three and a half years on
Speaker 1: top of that is. And this is typically for consumer debt.
Speaker 1: These are purchases that that you made of stuff that
Speaker 1: you may not even have anymore. Like it's it's something
Speaker 1: that you may have thrown away and you're still paying
Speaker 1: on it five years later. Yeah, that's just terrible. So
Speaker 1: let's talk about credit cards in particular. If you have
Speaker 1: less money to get solidate less outstanding debt in a
Speaker 1: decent credit scored at the same time, it might be
Speaker 1: best to shop around for better credit card offers. If
Speaker 1: you're looking at paying off let's say that last three
Speaker 1: thousand dollars in credit card debt, Well, bouncing to a
Speaker 1: zero percent interest rate intro offer isn't a bad idea.
Speaker 1: You'll want to know the promo period, like how long
Speaker 1: that zero percent interest rate lasts, and if there are
Speaker 1: any transfer fees associated. Oftentimes there's a three percent fee.
Speaker 1: Sometimes there's as much as a five percent fee if
Speaker 1: you transfer a balance over to a zero percent card,
Speaker 1: So know that ahead of time. Also know that it's
Speaker 1: going to take discipline. After you've gone through the effort
Speaker 1: to transfer to a zero percent interest rate card, you're
Speaker 1: gonna want to make sure you have the discipline to
Speaker 1: tackle that debt within the time A lotted before that
Speaker 1: promo rate runs out edel and not just rolling over
Speaker 1: credit card debt to other credit card debt. But if
Speaker 1: you have a plan and you you just mentioned discipline,
Speaker 1: If you have a plan and you know that you
Speaker 1: can pay down within eighteen months or whatever that introductory
Speaker 1: period is where you have zero percent, you can roll
Speaker 1: over other debts into a single credit card. Again, if
Speaker 1: you have a plan, if you know that, you're just
Speaker 1: buying yourself some time, and eventually this is gonna reset
Speaker 1: and it's gonna blow up in your face. Yeah, and
Speaker 1: that rate's gonna jack back up to well, honestly, there's
Speaker 1: just not much point in doing that. You're just basically
Speaker 1: shuffling your debt around and it's with these guys for
Speaker 1: a little bit and then it's over here, and sure
Speaker 1: you might save a buck here and there, but your
Speaker 1: credit is gonna suffer. And honestly, when you're kind of
Speaker 1: playing that shuffle game and you're moving your money around,
Speaker 1: it's hard to keep track of what is with who,
Speaker 1: and what fees have been paid and what annual fee
Speaker 1: is about to hit. You're complicating your life. I'm getting
Speaker 1: stressed even thinking about it. And that without a plan,
Speaker 1: you're not gonna get very far with this approach at all. Yeah,
Speaker 1: we're talking about discipline, you don't that makes me think
Speaker 1: of makes me think of a fellow podcaster, Jacko that
Speaker 1: podcast here listening one. What's his last name, Jocko Willink. Yeah,
Speaker 1: So that guy man, he's a he's a baller. And
Speaker 1: if you need any motivation to get disciplined, check out
Speaker 1: Jackos podcast or Yeah. I just know that he was
Speaker 1: in armed forces and he's jacked. And I made a
Speaker 1: joke one time about bidding him in arm wrestling, So
Speaker 1: I think his arms are bigger than our bodies. That
Speaker 1: guy's massive. But another important point Matt on that subject
Speaker 1: is that if you do consolidate your credit card debt
Speaker 1: into a lower monthly payment like a zero percent interest
Speaker 1: transfer card, you need to cut up those old cards.
Speaker 1: The biggest downfall, the biggest pitfall when you're transferring your
Speaker 1: debt from one credit card to another, is that you
Speaker 1: go back to that old credit card and you end
Speaker 1: up running up more debt. And a zero percent interest
Speaker 1: rate helps you not at all. If if you have
Speaker 1: no discipline and you're running up the other credit card
Speaker 1: at the same time, you're just compounding the amount of
Speaker 1: debt you have, and eventually that zero percent is gonna
Speaker 1: wear off, and you've got two credit cards and at
Speaker 1: that point your struggles are multiplying. Yeah, and going back
Speaker 1: to the whole credit score thing. If you're taking additional
Speaker 1: debt and rolling it onto a credit card, well that
Speaker 1: can work out, like we said, if you actually have
Speaker 1: the plan to pay that off within that period. But
Speaker 1: you need to keep an eye on your utilization rate
Speaker 1: because when you've got a single card loaded up like that,
Speaker 1: that takes that rate through the roof, not through the roof,
Speaker 1: I guess, but almost to the ceiling. And again that's
Speaker 1: that's a terrible thing for your credit score. And if
Speaker 1: you had a good credit score when you made the transfer,
Speaker 1: well you might not pretty quick, depending on what that
Speaker 1: credit limit is and what your balance is. All right, Joe,
Speaker 1: So so far we've talked about a debt consolidation company,
Speaker 1: and that's sort of like an all in one. You know,
Speaker 1: you talked at the beginning about hitting an easy button.
Speaker 1: It's an easy solution, and then we talked about credit cards.
Speaker 1: What we started talking about there was more of a
Speaker 1: manual way to consolidate your debt, and I say manually,
Speaker 1: because you're doing the work yourself. You're the one that's
Speaker 1: kind of doing the legwork. You're figuring out where the
Speaker 1: best rates are, you're making the decisions to pay off
Speaker 1: old debt, high interest rate debt, and you're taking advantage
Speaker 1: of new low offers while at the same time having
Speaker 1: a plan. Right, And another way that you could potentially
Speaker 1: manually consolidate your debt on your own is to roll
Speaker 1: some of that unsecured debt into a secure debt. That
Speaker 1: is an option. However, you have to be very very careful.
Speaker 1: You're gonna considering you that, all right, dumb it down
Speaker 1: for people Matt who don't know the difference between an
Speaker 1: unsecured and of secured debt and why is that important.
Speaker 1: Age also unsecured debt that is a debt obligation that
Speaker 1: you have that is not tied to an asset or collateral. So,
Speaker 1: for instance, if you have a car loan, or if
Speaker 1: you have a mortgage that is secured debt, credit card
Speaker 1: debt or consumer debt or personal loan, those are unsecured
Speaker 1: forms of debt. They're not coming for those fifty pairs.
Speaker 1: As any optical glasses that you bought right, I love Mazennis. However,
Speaker 1: with a secure debt that is again tied to collateral,
Speaker 1: and so that might sound like a terrible thing because
Speaker 1: you think, oh, man, if I don't pay my mortgage,
Speaker 1: they can come after my house. That is very true. However,
Speaker 1: at the same time, because you have collateral involved, you
Speaker 1: can get a much lower rate, which is why secured
Speaker 1: debt will look a lot more attractive when you're looking
Speaker 1: at the interest rate only. However, that is not the
Speaker 1: only thing you want to take into account if you're
Speaker 1: considering a secure debt for some debt consolidation. I know
Speaker 1: probably a lot of people at this point in the
Speaker 1: episode of thought, well, why wouldn't I just take out
Speaker 1: a home equity line of credit or even refinance my
Speaker 1: mortgage if you're a homeowner in order to get a
Speaker 1: lower interest rate overall in your debt four or five.
Speaker 1: That's way better than exactly It makes a whole lot
Speaker 1: of sense, right, But the whole point behind unsecured versus
Speaker 1: secured debt is one that you need to consider carefully
Speaker 1: because with a refinance, not only are you paying a
Speaker 1: lot of fees in order to make that happen, but
Speaker 1: at the same time, you're taking a debt that doesn't
Speaker 1: have any collateral behind it and rolling that debt into
Speaker 1: an asset that you have, and if you defaulted on
Speaker 1: that loan, that's going to cost you your house. That's
Speaker 1: the reason why an interest rate on a car loan
Speaker 1: or a home loan is so much less because those
Speaker 1: companies know they have less at risk because there is
Speaker 1: an actual tangible asset involved. At the end of the day, Yeah,
Speaker 1: they know we can come get your stuff exactly, which
Speaker 1: we're joking about. But that's the terrible thing, exactly. It
Speaker 1: happens all the time. And there are a lot of
Speaker 1: people who think, I'm just gonna roll this credit card
Speaker 1: debt into my home loan or a helock or home
Speaker 1: ECHI line of credit score that lower interest rate, but
Speaker 1: then they have trouble paying that as well, and it
Speaker 1: leads to even bigger issues with the potential foreclosure. And
Speaker 1: so you need to be really careful before rolling in
Speaker 1: on secured debt and to a secured asset like your
Speaker 1: house that could cause bigger problems than you're in right now. Miguel.
Speaker 1: And another option that sometimes folks consider when it comes
Speaker 1: to consolidating debt is tapping into the retirement accounts to
Speaker 1: pay off debt. And you know what we think about that. Yeah,
Speaker 1: this is almost always a terrible idea because you're stealing
Speaker 1: from your future self. These are your retirement accounts. This
Speaker 1: is money that you've set aside for you when you're older,
Speaker 1: when you're kicking back and you don't wanta have to
Speaker 1: work anymore. You're stealing literally from your future self to
Speaker 1: fund lifestyle and consumption right now while you're younger. It's
Speaker 1: just a terrible idea. And not only that, but there's
Speaker 1: also tax implications and penalties as well that will eat
Speaker 1: you alive if you're withdrawing those funds from a retirement
Speaker 1: account like a four O one K or an IRA. So, Matt,
Speaker 1: let's say you've got a traditional IRA with like forts
Speaker 1: in it, and you've got twenty dollars worth of credit
Speaker 1: card debt. Let's just say it's at an interest rate
Speaker 1: of well, you might think it's pretty high. It's pretty high.
Speaker 1: It makes a heck of a lot of sense for
Speaker 1: me to take out twenty dollars from that I R
Speaker 1: A in order to pay it on that debt. Well,
Speaker 1: what you don't realize is that you're going to pay
Speaker 1: a lot in taxes and penalties just for taking that
Speaker 1: money out. So when you're filing your taxes at the
Speaker 1: beginning of next year, you're in for a rude awakening.
Speaker 1: Often the taxes and penalties can be close to of
Speaker 1: what you took out. So you took out twenty dollars
Speaker 1: to pay that debt off, but depending on what tax
Speaker 1: procket you're in, that combined with the penalty that you'll pay,
Speaker 1: could be a major chunk of that, putting you in
Speaker 1: another bind come tax time when you don't have that
Speaker 1: cash on hand. So that is why taking money out
Speaker 1: of your retirement accounts, not only is it a major
Speaker 1: hit to your future retirement plans, it also hurts you
Speaker 1: in the near term at the same time. So Matt,
Speaker 1: let's get into some alternatives for debt consolidation and also
Speaker 1: kind of what people with an overwhelming amount of debt
Speaker 1: should consider right after the break. All right, Joe, So
Speaker 1: we've talked through a few methods, right, like some manual
Speaker 1: methods where you can consolidate your own debt. At the
Speaker 1: beginning we talked about consolidation companies. It made me think
Speaker 1: of maybe an analogy a little metaphor and see if
Speaker 1: it works out for you. Imagine if you're sitting on
Speaker 1: the couch, you've got a bunch of trash. Let's pretend
Speaker 1: you're a slob. What okay, pretend you're in college. You've
Speaker 1: painted a robust picture. You're in college, and your trash.
Speaker 1: Instead of taking it to the trash can like a
Speaker 1: normal human being, you're taking it and you're throwing it
Speaker 1: behind the couch. And after a while that gets disgusting
Speaker 1: and you get overwhelmed and you're like, oh, there's trash everywhere.
Speaker 1: You know. What I need is a special couch trash
Speaker 1: can right next to the couch so I can put
Speaker 1: all this trash straight into it and not have to
Speaker 1: walk to the actual trash can. In my house, it's
Speaker 1: like organizing your stuff but shoving it all in the
Speaker 1: closet and then when you open the door, it just
Speaker 1: all comes crashing exactly. Well, the fact is that extra
Speaker 1: special trash can that you just bought to put next
Speaker 1: to your couch it costs you money, and on top
Speaker 1: of that, it doesn't actually eliminate the trash. It's still there,
Speaker 1: like you still have to go through the work of
Speaker 1: getting up and at some point you have to empty
Speaker 1: that trash can, put your pants on, and walk it
Speaker 1: out to the You still have to own it. And
Speaker 1: that's sort of the way I viewed debt consolidation a
Speaker 1: little bit. All it does is it takes it, It
Speaker 1: reshapes it, it restructures it. But it doesn't actually eliminate
Speaker 1: it. It It doesn't really get rid of that debt. It
Speaker 1: just makes it so that you don't see it. It's
Speaker 1: behind the closet door, it's in the trash can. All
Speaker 1: that trash isn't overwhelming you. It's not spread all around
Speaker 1: the living room anymore. But you still eventually have to
Speaker 1: pick that trash up and put it in the trash
Speaker 1: can and take it out the door and deconsoalivation is
Speaker 1: taking you into that nice, neater, tidy or lower monthly
Speaker 1: payment potentially, but it's also costing you more money in
Speaker 1: the long run because you're paying for a lot more
Speaker 1: years usually. Exactly, yeah, exactly. So did you like that?
Speaker 1: I like that? I love it. It's beautiful, man. That
Speaker 1: that's a paints a vivid picture I think for everyone. Yeah,
Speaker 1: the whole college scene with you throwing kind of trash
Speaker 1: pizza boxes, maybe of your of your shoulder while watching TV.
Speaker 1: Probably more pizza boxes than a day appeals much to
Speaker 1: my shame. All Right, so let's get into the kind
Speaker 1: of what you should do if you find yourself in
Speaker 1: a situation where you're looking to consolidate your debts. And
Speaker 1: one thing that I think is really important to mention
Speaker 1: for many folks, it could be smart to at least
Speaker 1: reach out to to your lenders. It's in their best
Speaker 1: interest to work with you. They don't want you to
Speaker 1: default on the dead a credit card company or your
Speaker 1: credit union, let's say you have a car loan with them,
Speaker 1: they might consider spreading out your payments over a longer
Speaker 1: period of time, or lowering your fees without you having
Speaker 1: to pay additional money in order to do so. There
Speaker 1: is a chance that your credit score will go down
Speaker 1: if you reach out to your lender to work out
Speaker 1: an alternative payoff plan, but it might still be the
Speaker 1: best option for you, Eduel. Something else to consider when
Speaker 1: you're reaching out to those lenders is a few weeks ago,
Speaker 1: we released an episode on getting great customer service. When
Speaker 1: you're talking to your lenders. It's a lot like that
Speaker 1: you're gonna use these same interpersonal tips, except keep in
Speaker 1: mind that you've got a lot more on the line.
Speaker 1: There's a lot more money on the line, So you
Speaker 1: want to make sure that you're being incredibly polite and
Speaker 1: kind a customer service representative or in this case, a lender,
Speaker 1: they're not gonna want to help you. They're not going
Speaker 1: to want to cut an alternate payment plan or method
Speaker 1: with you. If you sound entitled or if you're a jerk,
Speaker 1: be nice, but also make sure that you're keeping detailed
Speaker 1: No chances are you gonna be talking to all different
Speaker 1: sorts of folks, and some folks might be willing to
Speaker 1: help you, or you might end up making a call
Speaker 1: the next day and you might get pushed through to
Speaker 1: a different call center where there happens to be somebody
Speaker 1: there that's just really nice, or maybe they have the
Speaker 1: authority to make a call like that. You just want
Speaker 1: to make sure that you're making it as easy as
Speaker 1: possible for that lender to work with you. Yeah, you
Speaker 1: could also instead of reaching out to your lender for
Speaker 1: a debt restructuring, which is going to be better for
Speaker 1: you in the long run, there's gonna be less of
Speaker 1: an effect on your credit score. Your lender has more
Speaker 1: of an interest in working with you. If you're asking
Speaker 1: for debt settlement with a particular lender, that means paying
Speaker 1: a lump sum and paying less than the full amount
Speaker 1: that you owe, and lenders are just typically not inclined
Speaker 1: to do that unless unless they just see that as
Speaker 1: their only option in getting some of their money back.
Speaker 1: And if you do opt to try to settle your
Speaker 1: debt with a lender, there are other issues involved too.
Speaker 1: There's gonna be a massive hit to your credit score
Speaker 1: in all likelihood, and at the same time, you are
Speaker 1: going to get a ten form from the I r
Speaker 1: S that forgiven debt is going to look like income
Speaker 1: and you're gonna have to pay tax on that the
Speaker 1: following year. So there are issues when you're talking about
Speaker 1: asking for a debt settlement with your lender. So those
Speaker 1: are the issues that you need to be aware of
Speaker 1: when you're thinking about asking for a debt settlement versus
Speaker 1: a restructuring of that debt, and also with a settlement
Speaker 1: to make sure that whatever it is that they've agreed to,
Speaker 1: that you get that in writing an email that's totally fine,
Speaker 1: snat chat not so good that John's gonna disappear after.
Speaker 1: But then also even if they send it via snail mail, like,
Speaker 1: it doesn't have to be sent in the actual paper mail.
Speaker 1: Just know that an email is just fine as well.
Speaker 1: By the way, we probably just got that thing wrong
Speaker 1: about Snapchat shows you how much we know about new
Speaker 1: media these days, right. I like Instagram stories, man, that's
Speaker 1: what we do. Yeah, we have fun on there all right, Joe.
Speaker 1: So that was reaching out two lenders yourself directly, and
Speaker 1: that takes some mental strength, That takes some energy. You
Speaker 1: might be in a position where you don't have that hope,
Speaker 1: where you may not have that light at the end
Speaker 1: of the tunnel. In those cases, what we would recommend
Speaker 1: is to check out some debt counseling. That can be
Speaker 1: a great option for you. For a lot of folks,
Speaker 1: you feel like that they're just completely underwater. It feels
Speaker 1: like they're drowning in their debt. And the n f
Speaker 1: c C they're a nonprofit that will work with you
Speaker 1: and they can help you to create a debt management
Speaker 1: plan or a d MP. Yes, so, the National Foundation
Speaker 1: for Credit Counseling, also known as the NFCC is the
Speaker 1: best possible option for you to get real debt counseling
Speaker 1: We mentioned early on in the show debt settlement companies
Speaker 1: who oftentimes ask for big upfront fees and offer to
Speaker 1: negotiate with your lenders for you, and how usually that
Speaker 1: doesn't pan out well for you. Well, with the NFCC,
Speaker 1: they actually do have some leeway to negotiate with specific
Speaker 1: lenders on your behalf and lower interest rates and get
Speaker 1: better terms for you. And at the same time, the
Speaker 1: NFCC is so great because these counseling programs are almost
Speaker 1: always free. So if you want more information, you want
Speaker 1: to find an NFCC member agency near you, go to
Speaker 1: NFCC dot org. There's even a phone number for you
Speaker 1: to call it to speak to a budget counselor you know,
Speaker 1: right now. So that's just the one place I would
Speaker 1: turn if I had overwhelming debt. That is literally the
Speaker 1: place I would run to as quick possible. They're kind
Speaker 1: of like a shining beacon of hope in the in
Speaker 1: the dark world of overwhelming debt. But Joel, you know what,
Speaker 1: if you have just a significant amount of debt, You've
Speaker 1: gone to the NFCC, They've worked with you, you've talked
Speaker 1: with them. They might even advise that you know now
Speaker 1: is the time for you to go ahead and file
Speaker 1: for bankruptcy. That might be your only option at this point.
Speaker 1: There's obviously a lot of negative sort of social stigma
Speaker 1: around bankruptcy, but financially speaking, that might really be the
Speaker 1: best option for you. And if you've identified that, you
Speaker 1: know what this is what needs to happen, this is
Speaker 1: what is next. Know that that is a legitimate option,
Speaker 1: like that might be what is necessary for you to
Speaker 1: move forward in your life while learning from the mistakes
Speaker 1: that you've made in the past. Keep in mind, though,
Speaker 1: that if you don't pass the means test, that bankruptcy
Speaker 1: is not an option, and that's basically some number crunching
Speaker 1: that they do to compare the debt that you owe
Speaker 1: versus your income, and I think they take some assets
Speaker 1: into account as well. You had one thing to note
Speaker 1: on bankruptcy. If student loans are one of the major problems,
Speaker 1: the major debts hanging over your head, it's very very
Speaker 1: difficult for student loans to be discharged in bankruptcy. So
Speaker 1: if that's a big factor in your overall debt burden,
Speaker 1: one of the things that's weighing you down, just know
Speaker 1: that that is not one of the things that will
Speaker 1: be forgiven when it comes to bankruptcy in all likelihood. Yeah,
Speaker 1: that's a huge bomber man. And also know that you
Speaker 1: are required to get credit counseling at least six months
Speaker 1: prior to filing for bankruptcy. And there's a link of
Speaker 1: government approved counseling agencies and will link to that in
Speaker 1: our show notes. Most of these are going to be nonprofits.
Speaker 1: But also keep in mind that just because it's a
Speaker 1: nonprofit doesn't mean that they won't charge or that it
Speaker 1: may not be affordable for you. They're just not out
Speaker 1: for profit, say like a debt consolidation company might be. Yeah. Man,
Speaker 1: that's a real serious undertaking that a lot of people
Speaker 1: have had two at different times in their lives. Consider
Speaker 1: I know it affects families in a major way, and
Speaker 1: and just real quickly, to be honest, I've known that
Speaker 1: because it affected me as a kid. It affected our family,
Speaker 1: and so yeah, I just wanted to mention that that
Speaker 1: it's not something we take lightly and I know it's
Speaker 1: a hard thing, and so yeah, I just wanted to
Speaker 1: say that real quick, let's not the labored the point
Speaker 1: on that. Just know that it is an option if
Speaker 1: that's in a worst case scenario, right, But let's get
Speaker 1: back to this beer, Matt. We did drink a beer
Speaker 1: called Secret Lovers the sequel. It's a New England style
Speaker 1: double I p A by It's a collaboration and man,
Speaker 1: this was sent to us by listener Naomi. It was
Speaker 1: a delightful beer. Do do you think we will ever
Speaker 1: get tired of drinking New England Style? I p A.
Speaker 1: It's like, right now, we love that style, but do
Speaker 1: you think it's just a fad two or three, four
Speaker 1: years from now? Do you think we're gonna look back
Speaker 1: and say, man, we were so dumb for how much
Speaker 1: of those beers that we drink? I don't think so.
Speaker 1: I really feel like this is the style that I
Speaker 1: could drink three or four nights a week and not
Speaker 1: get tired of. But you know what, like you said,
Speaker 1: maybe in four years, I'll be like, what a n idiot,
Speaker 1: I'm so tired of those beers. I just love drinking
Speaker 1: this And honestly, this was a quintessential reflection of that style.
Speaker 1: It had that amazing hop nose which just a little
Speaker 1: bit of sweetness. It made it one of those that
Speaker 1: you felt like you could kind of sip in rapid fashion. Yeah. Well,
Speaker 1: at the same time, it just had a ton of
Speaker 1: juiciness going on, which is part of why I definitely
Speaker 1: rapidly drank mine. Amusto. Really a thirsty this, buddy, I
Speaker 1: need to have a water glass over here. I do
Speaker 1: think that that plays into how much I enjoy a beer,
Speaker 1: because if I'm particularly thirsty, I find that I really
Speaker 1: like a beer. But if I'm not that thirsty, you
Speaker 1: think I could do without. I personally enjoy a beer
Speaker 1: like this over an extent of period of time, any
Speaker 1: sort of good beer, which is what we're drinking, you know,
Speaker 1: pretty much all the time. It's only really good beers.
Speaker 1: I love drinking it slowly over the whole night. Drinking
Speaker 1: like eight ounces of beer over a whole evening is
Speaker 1: totally fine with me. I'm not. It's more about the
Speaker 1: quality for me, Like the quantity Righteah, me too, But
Speaker 1: I just wish I had more quantity of this because
Speaker 1: it's delicious it is, and I'm really thirsty. So well,
Speaker 1: I agree. So we'll have to try more from from
Speaker 1: these breweries in North Carolina for sure at some point. Yeah,
Speaker 1: this is my first ever Wilmington's brewing beer, and I
Speaker 1: hope it's not my last. I completely agree with you,
Speaker 1: my friend. All right, let's get to our final thoughts
Speaker 1: on the subject that we tackled today, Matt. The truth
Speaker 1: about debt consolidation. The best consolidation options out there are
Speaker 1: once that simplify your life and lower your costs, and
Speaker 1: that can be hard to chief. The key is to
Speaker 1: avoid taking on new debt or massively prolonging your payback period. Also,
Speaker 1: be very wary of debt settlement companies and anyone that
Speaker 1: tells you to stop paying your debts and to pay
Speaker 1: them an upfront fee. That's a recipe for disaster. And
Speaker 1: also make sure that part of your plan, a huge
Speaker 1: part of your plan, is to address the core issues,
Speaker 1: the root issues of why you have debt in the
Speaker 1: first place, and that you're not just treating the symptoms
Speaker 1: of the payments that you can't afford. Right now, we
Speaker 1: talked about opening a new card and taking advantage of
Speaker 1: a zero present interest rate and just kind of shuffling
Speaker 1: your moving your debt around, and that's literally what you're doing.
Speaker 1: It's it's like rearranging the chairs on the deck of
Speaker 1: the Titanic. But hopefully you're done edited in the same
Speaker 1: direction exactly. But if you because if you don't have
Speaker 1: a plan, like you're sinking. You can make it as
Speaker 1: pretty as you want, and on the surface it might
Speaker 1: look better for a second, but you've got to get
Speaker 1: to the deeper core issues of spending and how you
Speaker 1: viewed debt in the first place. Yeah, you gotta get
Speaker 1: some of that Jocko discipline right at the same time.
Speaker 1: And also, don't forget the NFCC is the best and
Speaker 1: only place that we could tell people to go uh
Speaker 1: a nonp off it that will work with you if
Speaker 1: you're in over your head when it comes to your debt.
Speaker 1: So we'll put a link to the nfcc's website in
Speaker 1: our show notes as well, and you can find those
Speaker 1: show notes for this episode on our website how to
Speaker 1: money dot com. And Joel and I we would love
Speaker 1: to find a five star review from you on Apple Podcasts,
Speaker 1: but only if you really enjoy this episode. You see,
Speaker 1: like Uncle Sam right now, we need you, We need
Speaker 1: you to do this, but for real though, we've had
Speaker 1: a lot of reviews recently and we are incredibly thankful
Speaker 1: for all of our listeners out there. We read those
Speaker 1: and we treat that as feedback, while at the same
Speaker 1: time it's incredibly helpful for getting the word out for
Speaker 1: those who haven't found the show yet, for those who
Speaker 1: don't have their personal finances in order, those reviews help
Speaker 1: us to reach them. And if you do feel like
Speaker 1: that we have some room for improvement, we would also
Speaker 1: love to hear from you. Hit us up on our
Speaker 1: website at how to money dot com slash do Better.
Speaker 1: But that's gonna be it for this episode, Joel, that's
Speaker 1: fry buddy. Until next time, Best Friends Out, Friends Out,
Speaker 1: m m m