transcript

Speaker 1:
[00:00] Today's episode is sponsored by Quince.

Speaker 2:
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Speaker 2:
[01:34] Today's episode is sponsored by Spectrum Business.

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[01:37] Picture this. You're running a business and the internet drops during business hours. Your to-do list instantly becomes, one, panic, two, stare at the router like you're negotiating with it, and three, start offering customers a brief moment of mindfulness while the checkout screen loads. For business owners, being connected isn't a perk. It's how you take payments, talk to clients, and keep things moving.

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Speaker 1:
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Speaker 1:
[02:51] Restrictions apply, services not available in all areas. The post office is running out of money and that could cost you.

Speaker 2:
[02:58] We're talking higher prices, slower service and ripple effects that go well beyond your mailbox.

Speaker 1:
[03:03] Today we'll discuss what the USPS cash crisis actually means for your wallet. Plus a listener question about debt relief. What works, what doesn't, and why one popular program might make your situation much worse. Welcome to NerdWallet's Smart Money Podcast where you send us your money questions and we answer them with the help of our genius nerds. I'm Sean Pyles.

Speaker 2:
[03:24] And I'm Elizabeth Ayoola. Later in this episode, we'll answer listener's question about debt settlement. But first, our weekly Money News Roundup where we break down the latest in the world of finance so that we can help you be smarter with your money.

Speaker 1:
[03:38] Our news colleague, Anna Hilhasky, is here to talk about the US Postal Service and why its impending cash crisis could spell trouble for Americans. Hey, Anna, always here with the positive uplifting stories, huh?

Speaker 3:
[03:49] Yeah, you know me. I really always think of the Postal Service as this constant machine that's chugging along in the background of daily life. And there's never really been a question in my mind that it wouldn't be here to deliver the mail.

Speaker 1:
[04:01] Yeah, I mean, they say come sleet or rain or shine. It's going to be there, right?

Speaker 3:
[04:06] Yeah, exactly. But it turns out that it's hit a pivotal moment in its very existence. Here to talk about what the Postal Service running out of money means for you. I'm joined by Elena Patel, co-director of the Urban-Brookings Tax Policy Center. Elena, welcome to Smart Money.

Speaker 4:
[04:20] Hi, thanks for having me.

Speaker 3:
[04:21] When people hear the Postal Service is running out of money, it sounds like a bankruptcy story. Is that actually the right way to think about it?

Speaker 4:
[04:28] It's not really because of what the Postal Service is. It's not a private business and it's backed up by the federal government. But what is happening is they're running out of cash, and that matters for postal operations.

Speaker 3:
[04:39] Can you walk us through how the Postal Service ended up at this critical juncture? Is it a structural issue?

Speaker 4:
[04:44] Yeah, I can. It's been a slow moving disaster, I would think, since 2008. The Postal Service, for a long time, relied on the profit that it made from delivering letter mail to fund its public service obligation, or what's called its universal service obligation, which is its mission to deliver mail to everybody in the United States, no matter where you live, at affordable prices. So they were able to maintain that operations without any money from taxpayers because they made money on letters, and they made money on letters because nobody else, or their company is legally allowed to deliver letters, only the Postal Service can. What happened in 2006, 7, 8, is the real rise of digital communication and e-commerce, which disrupted that business model. Since then, the Postal Service has been trying to stay afloat, while its main profit source or revenue source from letter mail has been eroding. The loss of letter mail volume is really catastrophic in terms of the Postal Service's business model.

Speaker 3:
[05:45] Is it a problem at its core that the USPS is being asked to function like a public service, but operate like a private business?

Speaker 4:
[05:52] Yeah, I think it's just a fundamental disconnect. I like to describe it as there is no free lunch. Economists love to say that. But for a long time, the American taxpayer really did get a free lunch in that we didn't have to fund the Postal Service. It could fund itself through this protected business model, which is nobody else can deliver letters. And so we got the benefit of this public service without having to pay for it. And that's where the disconnect is. There's nothing about the Postal Service's mission that has changed or really gotten any easier in the last 15 years. It's getting harder. People are living further away. There are more of us, more mailboxes to get to, and more packages to deliver. But they're not getting any taxpayer funding for that public mission that they really operate with.

Speaker 3:
[06:34] I do have to say, and I'm sure I'm not alone in this, that I'm not using the Postal Service nearly as much as I did 15, 20 years ago. I'm paying my bills online. I'm texting. I'm emailing. I'm sending mailing letters. It feels like there are a lot of alternatives that have replaced it. So what essential role does the Postal Service still play today?

Speaker 4:
[06:52] Yeah. So the Postal Service, when it was established with our first Postmaster General, Ben Franklin, really was established with the mission to bind the needs of the nation, the communication needs of the nation. And that makes it infrastructure just like roads and bridges and highway. And I think in denser areas, a lot of us sort of have the luxury of saying, I don't use the Postal Service besides sending my Christmas cards out. I don't get my mail anymore. I don't pay attention to catalogs. And I get my packages delivered to my door by Amazon. But that really is a core dense urban area characteristic of the United States. That is not the case when you get outside of city centers. Outside of city centers, it's only 80% of the population that has access to broadband. There are people with mobility issues. Post offices are further away. There are not UPS and FedEx retail outposts like there are in cities. And so once you get outside of the core urban area, the Postal Service is the only provider. And also the Postal Service provides the backbone of the private e-commerce industry by doing last mile delivery for UPS, FedEx and Amazon. So in these rural places where banks are closing and pharmacies are closing and Walmarts aren't there anymore and people are sort of living and surviving through e-commerce, that's all supported by the Postal Service.

Speaker 3:
[08:08] So if the USPS is facing a liquidity crunch, what does it actually look like in practice? Are we already seeing things like service cuts, job reductions or post office closures?

Speaker 4:
[08:18] So the Postal Service has a real cash crunch. They also can take extraordinary measures. To be honest with you, just like the US federal government does every time we say, we're about to hit our borrowing limit and so we're maybe strategically paying bills in a way that we wouldn't pay when normal cash is flowing. That's true for the Postal Service too. They operate with very thin margins and some of their expenses, which are labor heavy, are things like funding retiree obligations. Those are important business practices and accounting practices, but they don't affect the day-to-day operations. So the Postal Service right now is doing what it has done in the past, which is saying, for now, we're not making these payments to the federal FERS system, which is the Federal Employee Retirement System. So they're conserving cash because their day-to-day operations, they're an $80 billion a year operation. They need to keep the cash to basically keep the lights on. They do have some flexibility to do that, hopefully, while they wait for Congress to decide what Congress is going to do.

Speaker 3:
[09:18] I'm hoping you can talk a little bit about the role that the Postal Service plays in the broader economy and what the ripple effects might be if it can't operate at the level that it once did.

Speaker 4:
[09:28] Yeah, I think a lot of people don't necessarily appreciate how much the Postal Service is the backbone of our commerce-driven economy. Again, UPS and FedEx and Amazon in a world where people are shopping more and more online and receiving more of their goods to their door, they have delivery operations in rural areas that are quite efficient. In Washington DC, if the Postal Service said, I'm not delivering packages anymore, I might not notice it. But in rural areas, even something that you order from Amazon, that last mile, the last connection to your house, is being supported by the Postal Service. So it's a public good for consumers, but also for US businesses in that sellers and parcel delivery groups, they all rely on the Postal Service to keep their operations flowing across the whole United States.

Speaker 3:
[10:14] I was thinking about another role that the USPS plays, and that's delivering mail and ballots during election periods. Recently, President Trump signed an order restricting the USPS from delivering absentee ballots to anyone not on a nationwide list of verified voters. How could this and other efforts to limit vote by mail reshape the operations of the USPS?

Speaker 4:
[10:34] It's a really good question. That executive order, I should note, is being challenged. It's not obvious that what the president has asked the Postal Service to do, they have the authority to do. I also think it's really good to clarify what the Postal Service's role is in helping us administer our elections, which is it's a tool for state election officials to be able to administer their state elections in the way that they deem fit. So some states have very high reliance on mail-in voting, and other states don't, and that's a state-by-state choice that is fundamental to who we are in the United States. What does the Postal Service do? It collects all of the mail from drop boxes, including election mail, it sorts it, and it delivers the mail to where it's supposed to go, which in the case of ballots is to state election administrators. To ask the Postal Service to adjust that, to do some in-between processing to choose what to deliver and what not to deliver, based on a national list really goes against the principles of these state administered elections. State election officials can maintain their own verified eligible voter lists, and do exactly what they need to do with ballots once they've been delivered. But the Postal Service has not ever been and should not ever be a partisan player in this. All they're doing is the role of processing mail to make sure that it gets to where it needs to go, and that's a really important role in the case of election mail. Because some states very heavily rely on the Postal Service to make sure ballots get to where they need to go, both delivering to voters and then collecting them from voters and delivering them to election administrators.

Speaker 3:
[12:05] What other options does the USPS have for avoiding running out of money?

Speaker 4:
[12:10] So I think, as we talked about earlier, fundamentally something is going to have to change with Congress and that the Postal Service needs to be compensated for the cost of providing the public service that it does, which again is delivering mail to everybody no matter where you live at affordable prices. To the extent their business model can't support that without asking for taxpayer funds, they're going to need appropriations. But I think there's a long road between me saying that and Congress getting to that, because postal reform, I think, is a very bipartisan issue. A lot of people in Congress really actually support the Postal Service. They support their post offices and their local districts, but getting money out of Congress is a complicated issue. What can the Postal Service do in the meantime? This is where I think the urgency comes from. They have handcuffs on them, so to speak, and their ability to respond to the looming cash crunch. Unlike FedEx or UPS or Amazon, they can't borrow money except from the federal government. They have a borrowing cap that is $15 billion, which has been the exact same nominal borrowing cap, $15 billion since 1991. $15 billion can sound like a lot of money, but again, it's an $80 billion a year operation, and they are effectively at their borrowing cap. That's why they're taking these extraordinary measures like just not paying into the federal retirement system right now and accruing that liability on their books to try to maintain cash. So a sort of quick fix from Congress could be to revisit this law from 1990 and at a minimum give the postal service a little bit more borrowing breathing room, which they need to undertake very intensive capital investments that they're trying to do right now to improve the efficiency of the postal service and they simply don't have the cash. So that's the easiest thing on the table, I think, and that is from what I've seen in hearings and from what I've been reading, the kind of quick band-aid. For now, let us borrow more while you all in Congress work with us to find a sustainable business model.

Speaker 3:
[14:04] From the consumer perspective, could prices go up? I mean, could we see modest increases? Do we see some kind of other fundamental change to how people are using the mail?

Speaker 4:
[14:13] So there are a lot of margins of what's called the universal service obligation that could be adjusted. I just think that we should be cautious in tinkering with any of those margins. One of them is price. The Postal Service has asked the Postal Regulatory Commission, which is the regulator that oversees the postal service, to raise prices. Raising prices can make sense, but raising prices starts to cut into this core of the universal service obligation, which is affordability. Again, I think people sometimes have in their brain, I don't care if I have to pay 89 cents to mail my Christmas card, like raise the price a little bit, but it's much more than Christmas cards that are moving through the mail. If you raise the price, you make administering elections more expensive for every state. You make delivering drugs via mail more expensive for insurers, and those costs might be passed on to people who are covered by policies. You make filing your taxes more expensive. It ripples through the system in a lot of ways. Business input costs become more expensive. And so it's a margin that's an important margin to consider, but I think people need to get away from, my Christmas card is a little bit more expensive to mail and realize that this is an input cost for a lot of what goes on in our economy.

Speaker 3:
[15:21] As this unfolds, how else might show up for the average household?

Speaker 4:
[15:25] The Postal Service right now is in the middle of what's called Delivering for America, which is their strategic plan to try to optimize the entire network to gain some more efficiency out of it. There's a stereotype about the Postal Service as not being very efficient, but it's actually not true. It's an incredibly large, complex organization. Squeezing efficiency out is a good thing. It probably is not the margin by which the business model is saved. But the point of that is that the Delivering for America campaign is expensive and requires investment funds. While they are undertaking what is a consolidation of their processing networks, something that I think people have felt, and there's been a lot written about it, and it's important to do so, is the service degradation while they're consolidating and shifting and moving operations across buildings. In rural areas, for example, mail can take a little longer to get to where it needs to go right now. In some places like Atlanta, they were infamous in that they lifted up a new facility, but the transition was very bumpy for people in that they weren't getting their mail except with incredible delay. The Postal Service worries about that a lot. They see a lot of that as temporary as the network restructures. But the truth is that there have been lingering delays for packages and letter mail delivery outside of these dense areas for quite a long time as they're undertaking this process. I think that's where consumers probably feel it the most, is that things might feel slower than usual and a little bit more inefficient than usual, and some of that is simply an artifact of they're trying to allow the system to keep moving while also turning locations on and off as they consolidate their network and their transportation routes.

Speaker 3:
[17:04] In the coming days, is there anything that consumers should be paying attention to?

Speaker 4:
[17:08] The thing I tried to make sure everybody is aware of was a change in the way the postmarking process has been described, which can have downstream ramifications for consumers, which is, I think people think of a postmark as I dropped my mail in the blue box and that's the date that's going to be stamped on my letter. Why does that matter? That's the official date for when taxes are filed or when you're trying to meet an appeal deadline or pay a bill on time or apply to college. You have to do those things by certain dates and that's the date on your mail piece. Because of the consolidation we just talked about, there's now likely to be at least a one-day delay between when mail is put in the blue box and when it actually gets its dates stamped. I think consumers need to know that so they can adjust at a minimum their mailing behavior for ballots, for example, give yourself a little bit more time, the postal service is at least a week so you can be sure it's dated on time. On the other hand, you can always go to a retail counter to see a post clerk and ask them to hand, it's called hand canceling your mail or put the postmark on it right here, right now in front of me and so for people who have time-sensitive mail, if you can mail it during retail hours and it's time-sensitive, you should go get it hand canceled to make sure that the date is correct.

Speaker 3:
[18:18] Elena Patel, co-director of the Urban-Brookings Tax Policy Center. Appreciate you taking the time to unpack this with us.

Speaker 4:
[18:25] Yeah, thanks for having me. I really appreciate it.

Speaker 2:
[18:27] Thank you, Ana. I have a greater appreciation for the USPS now, and I think I also understand why my mom's voters card took so long to come in the mail recently. Makes a lot of sense. Up next, we answer a listener's question about debt relief options. But before we get into that, we want you to send us your money questions. Maybe you are struggling with budgeting right now. Perhaps you're trying to figure out how to get in the stock market, but have some fears that you need to overcome. Whatever your money questions are, please send them to us. Leave us a voicemail or text us on the Nerd Hotline at 901-730-6373. That's 901-730-NERD. You can email us at podcast.nerdwallet.com, or leave us a comment on Spotify. We do check those. Or you can check us out on YouTube. We're on there too. Leave us a comment. Follow, like, subscribe.

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Speaker 1:
[21:17] We're back at answering your money questions to help you make smarter financial decisions. This episode's question comes from Edith, who sent us a text message. I have a question regarding a program called National Debt Relief. I have several credit cards that I used while in college, and after I purchased my first home, I used credit cards to pay for my roof after a hurricane. Needless to say, I am $18,000 in credit card debt. I heard of a program called National Debt Relief. The way they work is they negotiate a payoff amount with my creditors. I pay them $378 per month that they will use to pay off the negotiating amount along with their fees, which is included. This is the first time I use the program, and since I'm not paying my credit cards, I'm getting phone calls from the credit card companies. My question is, can you give me some information about the program? I called them and they are always willing to help. I just want to know if other people have used this program and what the success rate is. Thank you for all your help, Edith.

Speaker 2:
[22:11] Wow, it sounds like Edith might be in a situation where Edith is being taken advantage of, and I don't like that. Now, fun fact, everyone. Before Sean, who is now a CFP, was the Smart Money host, he used to write about debt at NerdWallet. So he's an expert on debt, aren't you, Sean?

Speaker 1:
[22:28] I know a lot about debt and debt settlement and national debt relief, and I'm a little worried for Edith, I'll say.

Speaker 2:
[22:34] Yeah, so you're gonna be the expert today. I'll chime in, but I'm gonna grow you, okay? So you'll be the expert.

Speaker 1:
[22:39] Bring it on.

Speaker 2:
[22:40] So first of all, Sean, tell us what is debt settlement?

Speaker 1:
[22:43] Debt settlement is typically a program through a company like National Debt Relief where you stop making payments on your credit cards. Like Edith said, you divert payments to the debt relief company, and you're then essentially in a game of chicken with your creditors, where National Debt Relief or any other company that's in this realm is gonna call them on your behalf and say, hey, your customer, Edith, or whomever is working with us now, and if you want to get any money from them, then you better settle with us. Meanwhile, you, the consumer, Edith, whomever is vulnerable to lawsuits, you're still getting calls from your creditors. Like Edith said, your credit score is tanking. You're likely racking up late fees all the while. It's a really, really risky program, and the success rate can be pretty low, which we can get into.

Speaker 2:
[23:35] Yeah, it never sounds like a good idea to me for any financial company, institution, to tell me to stop making payments on my debt, right? Because you got those interests, like you said, you have those penalty fees, you could be liable to lawsuits. That all sounds like they're making Edith's situation a lot worse. And it also makes me think, lots of people I went to high school with now are, I don't know if they have qualifications, but they're always touting their debt settlement services on social media and telling people, like, hey, I can help you get rid of your debt and call your creditors for you. And it just makes me wonder how many people like Edith are vulnerable to these kinds of programs. Yeah.

Speaker 1:
[24:13] And I mentioned the success rate, and Edith is wondering about that too. I saw a report from the John Locke Foundation, a think tank, that found that only around 20 percent of people in debt settlement programs, yeah, only around 20 percent had all of their debts settled after 36 months. So you're in this program for three years, and very few people are actually getting all of their debts settled because a lot of people kind of like Edith here, they probably have multiple credit cards, right? So you might get one settled right off the bat and it feels good. That's how the company is kind of keeping you in their system so you don't get discouraged and then as time goes on, you're continuing to make monthly payments to them, and you're often getting less and less as time goes on.

Speaker 2:
[24:50] That sounds very predatory.

Speaker 1:
[24:52] Yeah. And something else I want to flag too, another reason why I don't like debt settlement is that you can end up with a tax bill. So any sort of amount that's settled or forgiven on a debt like this, can be considered income. So you can end up with a surprise bill after all this too, and they might not tell you that.

Speaker 2:
[25:07] This sounds like long-term pain and suffering. Now, it does sound like you're not a fan of debt settlement. I am not a fan of debt settlement either, so tell me why you're not Sean.

Speaker 1:
[25:16] The main one is the real lack of a guarantee that you're going to get out of debt with this program, that you're open to lawsuits. It's just so risky. It can be really expensive, and you're often making your financial situation much worse because you're getting deeper in debt because not just fees are accruing, but your interest is also accruing on your credit card balances.

Speaker 2:
[25:36] Well, okay, so debt settlement, we're not a fan of on Smart Money. There are so many different options in terms of ways that Edith could pay down their debt outside of debt settlement or anyone out there who is trying to pay down debt. One of them that I'm actually a big fan of is the debt avalanche method and the snowball method. Maybe talk through those two.

Speaker 1:
[25:55] Yeah, so debt avalanche and debt snowball, people love their snow metaphors in the debt payout space for some reason. They're sort of two sides of the same coin. So with debt snowball, you pay your smallest debts off first. Once you pay that off, you roll that into your next biggest debt and so on. And you begin accumulating momentum like a snowball rolling down a hill. And then avalanche is when you focus on your debt with the highest interest rate first, and you begin to wipe out your most expensive debts first. Both are great. Some people say that avalanche is better because you can save more in interest. I think a lot of folks might be better with snowball because just the emotional hit of getting your debts paid off can feel really good and keep you going over the long term because paying off debt can take a long time to do.

Speaker 2:
[26:33] That's such a good point that you bring up because even though you probably would, well, very likely will save more money doing the avalanche method, it's about the consistency here, right? You want to consistently pay off that debt. It could take years. And even though you might pay a bit more with snowballing, at least you're more likely to stick with it, especially if you're getting that hit, like you said, from paying off debt after debt.

Speaker 1:
[26:51] And something I want people to keep in mind as they're considering different options is what's going to get them out of debt fastest and cheapest. So I poked around with a debt payoff calculator using the information that we have from Edith, which isn't everything. We don't know the APR on their debts. So looking at this, using a debt payoff calculator, seeing how long it would take them to pay off their debts if they are making a payment of $378 a month with an APR of around 20%, which is about the average right now for a credit card. If they just make that monthly payment, they're going to be paying off their debt with a DIY route, over eight years.

Speaker 2:
[27:25] What?

Speaker 1:
[27:26] It's a long time. It's a lot of interest. I looked at NerdWallet's 2025 Household Debt Study, too, and it really speaks to how expensive paying off debt just this way can be for some people. The report says that Americans only making minimum required payments on the average amount of credit card debt would accrue nearly $18,500 in interest charges by the time the balance is paid off.

Speaker 2:
[27:49] That's a gigantic amount just to be paying on interest.

Speaker 1:
[27:52] Yes, it is, but it still could be better than debt settlement because at least you're making payments on your debt. You're in hopefully good standing with your creditors. You're not being sued by them or getting negative marks in your credit report. But it can be expensive. It can be really time intensive. And, you know, you need to often have an income that's outpacing your expenses for this to be a viable option. And for some people, that's just not the case because a lot of folks are getting into debt just covering necessities nowadays.

Speaker 2:
[28:18] So let's move on to another option, a balance transfer credit card. Talk to me about this.

Speaker 1:
[28:23] Yes, I am a big fan of this option because it can allow you to take one of the most expensive parts of credit card debt payoff out of the equation. And that's interest. If you have a high enough credit score that's probably going to be maybe 670 and higher, you might be able to qualify for a card where you can transfer some or all of your balance. You'll pay a fee of around 3 to 5% of your balance typically. And then you might have somewhere around 18 months, potentially more, depending on the card, of no interest on your credit card. And you can just make so much progress on your debt payoff with this route.

Speaker 2:
[28:56] Do you know once that period expires, how much the interest potentially could be? My mind tells me it's still probably going to be less than what you were paying on all that debt before.

Speaker 1:
[29:04] It might actually be just what you had before. It depends on the credit card, but it's probably going to be somewhere in the 20%. So just do what you can to see how much you can put toward that debt on a monthly basis. So you don't end up keep paying this debt when your interest does kick in whenever that happens to be.

Speaker 2:
[29:18] Yeah, so it just gives you a period of time where you could quickly pay down as much as possible without having to worry about interest essentially.

Speaker 1:
[29:24] A big caveat with these balance transfer cards too is that it can be a slippery slope with debt payoff because you transfer your balance to this new card, you have no interest rate on it, and then your old card is suddenly wide open. And I have a friend who went this route, they ended up in twice as much debt as they were in the beginning because they just racked up all this debt on their previous credit card. So if you think that you have an issue with managing your spending and your budgeting, this might not be the way to go. But if you do go this route and you know that this is potentially a risky option, do things like block your access to your previous credit card. You might want to consider closing the account. Yeah, you'll take a hit to your credit report and your credit score, but it's just going to be a temporary blip. And again, focus on the long-term of paying off your debt.

Speaker 2:
[30:09] And I think that speaks to the broader, I guess underlying theme with debt sometimes, which is the habits that are causing the debt. And then, again, there's several reasons people get into debt. It's not always spending irresponsibly. Sometimes you just don't have enough income to cover your expenses. But it's really important while you're paying down that debt to also address any financial habits that you have that are going to put you back into that debt. All right. I like this one because I used to work for a credit counseling agency.

Speaker 1:
[30:36] Wait, I didn't know that.

Speaker 2:
[30:37] Yes, you did. But I'll tell you again. I used to work. I used to write for them. All right. I love the work that they do. But yes, so what about a debt management plan at a credit counseling agency? How would that work?

Speaker 1:
[30:49] Yes. This is really distinct from debt settlement. Yes. I'm going to spend my time with this a little bit because people often think that they're the same thing. There are debt settlement companies and then there are non-profit credit counseling agencies and you need to find one that's a non-profit because they actually have agreements with credit card companies. They were started by credit card companies decades ago to help people who cannot make their credit card payments.

Speaker 2:
[31:13] I didn't know that.

Speaker 1:
[31:14] Typically, how this works is you can get on a debt management plan over generally three to five years and they will have your interest rate often times. It may even be less than half your general interest rate and then that way you're still in good standing. You are cutting your interest rate, which is often the hardest thing to get over when you're paying off your debt and you're making progress and three to five years can be a long time to be paying this off. But it's a lot better than eight years going the DIY route.

Speaker 2:
[31:43] Way better than eight years. And then are there some requirements that you have to meet in order to use these programs? For example, do you have to maybe stop using your credit card altogether?

Speaker 1:
[31:52] Typically you have to stop using your credit cards. You typically have to have a stable income to make these payments. And sometimes if you even miss one payment, you might get thrown off the plan.

Speaker 2:
[32:00] So they're running a strict program.

Speaker 1:
[32:02] Follow the rules, but you're getting a good deal for it too. So hold up your under the bargain.

Speaker 2:
[32:06] That's right. I actually asked Ayoola's babysitter when he was like three, he had a babysitter and her son had put her into debt and she didn't know what to do about it. So I recommended a credit counseling agency for her. And one of the apprehensions that she had was not wanting to not use her credit cards anymore. Right. So some people don't want to go with that route because they're really attached to their credit cards or they need their credit cards to keep paying their bills. But like you said earlier, if you have a spending habit, it can be a good way to reset your finances, just stop using them all together.

Speaker 1:
[32:39] Yeah. And additionally, beyond just debt management plans, these nonprofit credit counseling agencies offer financial coaching too. So the first step is really a free counseling and coaching session with them. You can call them up and get advice and have them help you through managing your credit cards, even if you don't go on one of these plans.

Speaker 2:
[32:57] Yeah. And that's one of the most important parts too. And those debt settlement companies, I don't think they're doing that.

Speaker 1:
[33:02] No. They just want your monthly payment and then you're going to be left high and dry, potentially with a lawsuit. Again, you can get sued if you're not making your credit card payments.

Speaker 2:
[33:10] Thank God for this episode. Okay. Talk to us about Chapter 7 bankruptcy. And this, I think, I feel like bankruptcy always has such a negative stigma, but it's not always a terrible thing, is it?

Speaker 1:
[33:20] People get very scared and they can feel really guilty about even considering bankruptcy. It's just still so highly stigmatized, but it exists for a reason. It's one of the many tools that people have available to them. Chapter 7 bankruptcy is often people's fastest and least expensive way to get out of really overwhelming debt. And a lot of financial advisors will say, if you don't see a way to get out of your credit card debt within three to five years, then you should probably consider Chapter 7 bankruptcy. Because think about what your debt is preventing you from doing in your life. Paying it off for that long can just stop you from buying a house, saving for your retirement, saving for your kid's college. And it's just overly burdensome for many people when it hits that level. That's why this relief valve of Chapter 7 bankruptcy or even Chapter 13 bankruptcy exists. But for most people, Chapter 7 is going to be the fastest and easiest route. You can receive a discharge and have your slate wiped clean within just a few months. And guess what? We talked about how much you'd be paying if you just make the minimum payments when you're around $18,500 in your credit card debt. For Chapter 7 bankruptcy, you might just be paying around $2,400 all in. And it's so much faster too.

Speaker 2:
[34:32] When you say fast, what are maybe one of the first one or two steps that people take if they want to file?

Speaker 1:
[34:37] The first step is going to be having a consultation with a bankruptcy attorney. And in fact, if you are in the situation where you don't see a way to pay off your debt within three to five years, and you are considering a debt management plan or debt settlement, it's really smart to have that consultation before you make a decision one way or another, because a bankruptcy attorney can map out all of your options. Do they have a slight incentive to steer you toward bankruptcy that would give them some money? Sure. But they're not nearly as, I would say, corrupt as a debt settlement company. They're helping people get out of their debt. So have that conversation with them before you make any of these decisions.

Speaker 2:
[35:14] Sean, have you ever, this is very vulnerable, you can choose not to share. I'm TMI, so I'll share mine. But have you been in debt before and if you have, what strategy did you use?

Speaker 1:
[35:25] I did have some credit card debt. It was in college and a little shortly thereafter, and I just paid it off DIY. It wasn't a huge amount of debt. I didn't feel too bogged down by it. I feel grateful for that. I think in part because my credit limit was so low, I couldn't really get into a lot of debt. But if I had known about any of these options and if I had overwhelming debt, I probably would have done the smart thing and just seen what was the fastest, cheapest way to get out of what I owed.

Speaker 2:
[35:49] Yeah, that's smart.

Speaker 1:
[35:50] Yeah, what about you?

Speaker 2:
[35:51] I have been in debt before, I think maybe like $10,000 or so.

Speaker 1:
[35:56] That's a lot. Sorry.

Speaker 2:
[35:57] No, it's okay.

Speaker 1:
[35:58] And credit card debt?

Speaker 2:
[35:59] Yeah, I used the snowball method. Luckily, I had the income to clear the debt quickly, so it wasn't for very long, but I used the snowball method and just threw chunks of cash at, and it was very gratifying to pay off, right?

Speaker 1:
[36:11] How many accounts did you have?

Speaker 2:
[36:14] Maybe like two.

Speaker 1:
[36:15] Okay.

Speaker 2:
[36:16] So I used the snowball method and just paid off one at a time. And then that was it really.

Speaker 1:
[36:21] How long did it take you?

Speaker 2:
[36:22] Ooh, like three months.

Speaker 1:
[36:25] Wow. Okay. So you must have just realized, oh crap, I have all of this debt.

Speaker 2:
[36:28] Exactly.

Speaker 1:
[36:29] Let me get serious about it and just pay it off.

Speaker 2:
[36:31] Yeah. Because I don't like, well, I don't think anyone likes having debt, but it is a weight on your shoulders, right? When you're like, oh, wait a minute, I have a high balance somewhere. So paying it off quickly definitely make me feel relieved. But there is that little thing in your head that's like, oh, I can just pay it off over time. But it's like you're accruing interest the longer that you leave the debt. So you may as well pay it off as quickly as you can.

Speaker 1:
[36:48] Yeah. And for someone who's maybe in either situation where they're seemingly already in a debt settlement program, I would implore them to look for their way out possibly. I don't think that they're locked in forever. So you could stop the bleeding, maybe get on better terms with your creditors and just find a way out. Because these programs can't take so long to get through.

Speaker 2:
[37:10] But patience is key here. And it's better for it to take longer using a cheaper and more effective strategy than to go with someone like a debt settlement program who's maybe promising you heaven and earth, and then you end up in a worse situation.

Speaker 1:
[37:22] And also for anyone who is in this overwhelming debt, it can feel really stressful. There can be a lot of shame and guilt attached to it. I would suggest focusing on the goal and the why behind getting out of debt, because it can be easy just to accept it as something that you'll have forever. What would you be doing with that amount of money that you're paying towards your debt each month? It can open up a lot of possibilities.

Speaker 2:
[37:42] That's right. That's right. So not having that debt anymore exactly allowed me to save more and just really gave me peace of mind. I would say that's probably the most intangible thing that I was able to get out of paying it all.

Speaker 1:
[37:52] Okay. Well, listeners, Edith, anyone who's paying off your debt, please let us know what you decide, how to resolve your debt as quickly and as cheaply as possible. Hopefully, we love hearing your stories. And that's all we have for this episode. Remember, listener, that we're here to answer your money questions, so send them our way. You can hit us up on the Nerd Hotline at 901-730-6373. That's 901-730-NERD. You can also email us at podcastatnerdwallet.com or leave us a comment on Spotify or YouTube.

Speaker 2:
[38:18] Join us next time. We're going to be going into some Finance 101 topics, but before then, please follow us on your favorite podcast app, whether that's Spotify, Apple Podcasts, iHeartRadio, or you can also follow us on YouTube because we're on there too, and we would love for you to join the party over there.

Speaker 1:
[38:36] Here's our brief disclaimer. We are not your financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.

Speaker 2:
[38:46] This episode was produced by Tess Bigland, Hillary Georgie, Help with Editing. Eve Krogman edits our video and our audio, and we want to say a huge thank you to NerdWallet's editors for all the ways they help us.

Speaker 1:
[38:57] And with that said, until next time, turn to the nerds. Hey, Smart Money listeners, we have a brand new email newsletter, and it's completely worth signing up for, especially since it's free.

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