On: Debt

And empathy.

There is a long-standing theory that the majority of people would rather talk about their sex lives than money. And at the top of the financial do not discuss list is debt. It’s an emotionally loaded word that brings up a lot of stress for people. Household debt across the United States is at an all-time high. Credit card debt is up a staggering 16.6% from Q3 2022 to Q3 2023. The growing debt is not a surprise to me. There is no financial education offered in school but credit card companies are allowed to send you an endless stream of offers with little explanation of what that 29% APR interest actually means for you. And on top of that, there is an abundance of shame piled on the topic of debt making it something people keep to themselves. I can’t count the number of messages I’ve received from people sharing their debt with me, that they’ve been keeping from their partners and families.

From my experience, there is often a misunderstanding around personal debt. People assume that it comes from reckless behavior. That you saw a 62” TV at Best Buy and had to have it or that you went to Vegas and charged it all on your card. When the truth is, that the majority of people I speak with have survival debt. They have medical debt from when their health insurance didn’t offer them the coverage they needed, they have debt from trying to keep their business afloat or college loans from getting the education that promised them their future dream job. Or, they have been living slightly above their means and it’s starting to catch up with them. Consumer debt grows around the holidays. People get caught up in the gift-giving, entertaining, and traveling home to see family, and the expenses start to add up. They put it on their credit card thinking they’ll pay it off in the New Year and then life happens and the balance climbs and suddenly it feels out of control. Once the overwhelm sets in, people start to feel helpless so they ignore it and the cycle continues.

Whatever the reason someone is in debt, the last thing that should be added to their mental load is shame. No one is motivated by shame, we’re motivated by feeling like change is possible for us. We need to normalize the reality that many people are silently carrying debt and that keeping it as a taboo subject is hurting everyone. It’s obvious the way we currently handle debt is not working, the numbers are climbing and it’s possible that maybe we should try a more empathetic approach.

Today I’m sharing an interview with a friend who lost her business during Covid and her experience trying to keep it afloat and now dealing with the aftermath of the personal debt she took on during that time. She recently reached out to me because she was ready to tackle it and I think her story is inspiring. When we were working on figuring out a plan to pay it down, I kept reminding her that it was within her reach to be debt-free, that her situation was normal, and that instead of being embarrassed she should feel excited about the progress she’s making. And if I were sitting by you, I’d tell you the same thing! It’s never too late to create a new financial reality for yourself.

If you’re curious, this is the plan we used //

1. Before we met, I had her gather every letter she had received from banks, credit card companies, and lenders.

2. Run a credit report (she used Credit Karma). This showed all of her debts, the amount owed and the company holding it. Debt can be sold so you might not recognize some of the names listed on the report but you can ask what the original debt is from when you call.

3. We made a plan. There are two theories - 1. start with the highest interest amount and work your way down or, 2. start with the smallest amount and get some momentum. We decided to start with the smallest amount but outlined a plan to address all of the outstanding balances.

4. Negotiate! All of the debt she paid was negotiated down significantly. You can read more about how in her interview.

5. When you do reach an agreement and/or a payment plan. Make sure you confirm with them that the debt will be taken off your credit report after the amount is paid.

6. Take it slow. And celebrate all your wins. Tiny progress is progress. For some people, even opening the letters is a big step. Taking action is the hardest part. Be proud of yourself!

INTERVIEW //

What got you to the point of being ready to confront your debt? My kids are college age and we hit a point where we couldn’t qualify for the loans we needed to help them. I realized if I wasn’t going to do it for me, do it for them. I just knew the situation wasn’t going to get any better. And it felt like I either take the bull by the horns or let this thing follow me around for the rest of my life.

Can you talk about avoidance? Was your debt something you thought about often? I was fairly good at compartmentalizing but more and more things started to show up that were not allowing me to compartmentalize it anymore. After a few years of avoiding it, it just got worse. And you realize it’s not going to go away and you might as well stare it in the eyes as quickly as you can. It was when the New Year came around, once again, that I decided I was going to face the monster. I always started out the year saying I was going to pay it off but then it would be mid-year and birthdays and holiday planning and the last thing you want to do is put all of your money towards your debt.

Before I met with you, I rarely sat down, opened the letters, and added up the full total. Individually they felt so much bigger than looking at the collective total. Not looking made me feel like there were twice as many debts. It was so much bigger in my mind than what it ended up being.

The debt that you acquired came from a period of trying to keep your business afloat during the pandemic. Can you talk about what it felt like to pay off debt created just trying to survive? It felt very very frustrating. When we had to close the business, I paid all of our vendors and employees. We didn’t leave anyone high and dry but ourselves. And the debt I had to take on was after not even paying myself as the business owner. You get so far into the hole and you don’t want to end things there and at some point, you realize that you have to let go, the hole is only getting deeper.

I used our tax return this year to pay off part of the debt, and once the return hit my account I looked at it for a few days before I called to make the payment. I felt resentful that I had to hand over that money on top of all the money I had already been paying them with minimum balances and interest fees. But, I got to the point where I realized there was no magic fix coming to save me. And that paying the money does suck. But it’s also going to give me peace of mind. Even though it wasn’t fun to pay the money, it feels like a load off already. I did it. It’s done. I paid it.

The idea of negotiating your debt is something that people talk about but can feel scary, were you able to do that? Everyone I spoke with was incredibly kind and went above and beyond to help me. For the most part, they were all willing to work with me, much more than I ever would have expected. Once they had me on the phone it felt like the ball was in my court. I was honest with them about my situation and pretty much across the board, I was able to negotiate the balance down by 40% or 50%.

What surprised you about the process of paying off your debt? It was so doable once I sat down, and just did it. I never would have thought I would ever be able to tackle it in only a matter of months. It was not nearly as bad as it seemed in my mind. I thought it would take me a year!

I know you’re still in the process of making some final payments but can you share any positive bi-products of paying off your debt? Have you felt emotional relief? The #1 thing has been peace of mind. Even with compartmentalizing it, it was a dark cloud over me. And now I’m on my way, the hard part is over.

I also feel the freedom to pay closer attention to my money. I’m looking at our bank statements and spending. All things I was avoiding for so long. I feel empowered to be able to manage my own money which feels wild to say.

I hope you found her story inspiring! If you have debt you’ve been wanting to tackle I hope you remind yourself you’re not alone and take one small step towards addressing it. I promise the relief you’ll feel will be a catalyst towards creating more positive changes in your life, finances, and beyond.

What in the world: An update on current events.

Chipotle’s Stock Split: Chipotle is asking shareholders to approve a 50-for-1 stock split. Currently trading at $3,200 they are the fourth most expensive stock on the S&P 500. Chipotle gives stock to top-performing managers but as the price has ticked up it’s become harder to do. The split may ultimately help boost the stock price as a high price tag can make investors apprehensive to invest.

Winning Streak: The Jobs Report came in lower than expected and the market was thrilled. The Dow closed its fourth straight winning day riding high on hopes that the cooling jobs market means that a rate cut is near.

Berkshire Hathaway: Hosted its annual meeting on May 4th where Warren Buffett addressed 18,000-ish investors. I love listening to him speak, he’s so positive. Here is a recap if you’re interested. And a video of him talking about the limitless opportunities that exist in America.

Retiring Abroad: As the cost of living rises, more people are looking to move abroad to retire. A round-up of ten places where couples can live on approximately $2000/month. Sounds too good to be true!

Equinox Needs Boundaries - Equinox was already pushing it with their high monthly membership fees and now they’ve launched a new $3,000/month program designed to extend lifespan. And that monthly price does not include the gym membership. They are the latest company to jump on the de-aging bandwagon, the new obsession of the ultra wealth.