← How to Money
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This is an iHeart podcast.
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Guaranteed Human.
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Okay, Joel, so I am really excited about this one here on the show, of course, we are all about comparing prices to save money on so many different things in life. I'm talking about flights, phone plans, groceries, even restaurants. So why wouldn't you compare prices for your next ride share? Taking a few seconds to check Lyft can save you real money on your next ride. I actually did this the last time I caught a ride home from the airport after some travel, and guess who came out on top? It was Lyft. Comparing rideshare prices will help you to save money every time you ride. Save money. Check Lyft.
- [00:40]
B
Say you've always wanted to take a spontaneous trip to the Caribbean. Here's the thing. If you get smart with your money, you can do things like that. With Empower, you can start making the most of your money so you can go out and live a little. Isn't that why we work so hard to have some fun with our money? Like treating yourself to something special or
- [00:56]
C
spontaneously doing something extra for a loved one? Use Empower and get good at money so you can be a little bad. Join their 20 million customers today@empower.com not an Empower client, paid or sponsored.
- [01:11]
B
AI is everywhere these days, but WIX Harmony stands out. It's an AI website builder that helps create any type of site while still allowing full freedom to edit everything manually. That means you're not limited to what AI generates.
- [01:24]
C
Plus, there is an AI agent named Arya to help along the way. Try it for free@wix.com Harmony. That's wix.com Harmony.
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Welcome to how to Money. I'm Joel, and today I'm talking about what most people get wrong about paying off debt with Johanna Samara. Okay, so I could rattle off the headline numbers. Student loan balance is climbing. Credit card debt hitting new highs year after year after year. New forms of borrowing, Right, like buy now, pay later, they kind of seem to appear out of thin air, which is a testament to just how creative the financial industry can be. We are a nation steeped in debt, and it's become so normal that we barely question it anymore. But the weight of the debt we've accrued as a society, that is very real, and it's very real on an individual level. And then digging your way out of a debt hole, well, it's a lot harder than it sounds. And in fact, studies show that the biggest barriers to getting help, they're not just financial, they're personal. There's this lack of confidence or know how paired with feelings of embarrassment, shame, even moral failure. And that is why I'm excited for this conversation today. Johanna Samara and has spent two decades on the front lines of the debt world, the underbelly, as it were. And she's currently the vice president of debt resolution at Money Management International. So, Johanna, I'm so glad to have you along. Thanks for joining me today.
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A
Thanks for having me.
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B
Of course. Okay, first question that I ask everyone who comes on is what they like to splurge on. We call it the craft beer equivalent. What is it that you like to spend a lot of money on, even though while you're being smart, you're doing, you're investing and saving for your future?
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A
So it's definitely scuba diving. So it's gear classes to make sure that I'm as safe as possible when I'm in the water. Especially since a lot of what I do is decompression diving here on the coast of North Carolina.
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B
What's decompression diving? Is that like a therapeutic thing? Diving makes you feel like decompresses, takes all the stress away?
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A
It does do that for me, but it is, you're diving at very deep deaths depths. And so when you do that, you onboard a lot of nitrogen. So you got to make sure that you off gas that nitrogen and making sure that you decompress before you come up. Because if not, you could. I mean, it can potentially lead to death, but it typically leads to decompression sickness and things like that.
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B
Okay. Have you, have you ever had that before?
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A
I have not.
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B
Okay, good.
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A
But yes, it is bad. It can end in death, so.
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B
Okay. All right. I've always been interested in scuba diving. Have never done it, but I think maybe this is the kick in the pants I need to go give it a shot.
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A
Absolutely. It's great. Just go do a try scuba class if nothing else.
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B
Okay. All right. How hard is it to get certified, by the way? Is that a lengthy process or is it pretty easy?
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A
It'll take you a couple of weeks. So you'll do some online training, you'll do some classroom, you'll do some pool sessions, and then they'll take you out to an open body of water to do your certification dives.
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Okay, cool. All right. Maybe that'll be my next hobby.
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Do it. You'll love it. Okay.
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B
All right, let's talk about debt. I'm curious. Maybe let's start out with an overview. Like, what is the state of America's relationship to debt in 2026. And how would you say maybe that has changed over time?
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A
So I think in 2026, across the country, I mean, millions of households are, you know, under financial pressure, pressure, rising costs just for essentials, housing, food, healthcare, transportation. And it's really outpaced income growth for many families. So a lot of families are having to rely on credit cards to cover everyday needs. It's not just a result of, you know, unexpected emergencies anymore. It's really become a tool for survival.
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B
Do you. And how has that changed from maybe 10 years ago? Do you feel like pre Covid. Pre recent bout of inflation, it felt like there were more lifestyle choice and just like poor habits that led people into the doors of mmi and now it's more. Oh man. Had to take on this debt out of necessity just to make ends meet. Like, how have things changed in the last 10 years?
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A
So I think in the last 10 years, it's definitely more geared to. I have to have these credit cards for everyday needs. Whereas previously, even though, you know, consumers, it was typically one thing could throw them off track, but they were doing things like, you know, going on vacation and having fun and, and they were able to do more activities. Whereas now it's really just about groceries and medical bills and what they need to cover it.
- [06:23]
B
Okay, and do you still see it? Do you think, like, a lack of financial literacy is. Continues to be part of the problem, or do you find that people who come in have a fair amount of knowledge about personal finance, they just don't have the income to support the a, like the lifestyle that they've. And I don't know, is their lifestyle excessive? Is it like what is happening here? Because it does feel like there's, as Americans too, we have a unique problem compared to maybe much of the rest
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A
of the world, right? Yeah, I mean, I think that it's definitely a unique thing, and I don't think it's about poor decisions, but it is definitely about that financial counseling piece of it. A lot of people, I mean, they don't teach it in high school, right? You. You can learn about home EC and how to cook or, you know, maybe balance your checkbook if you're lucky. But for the most part, they don't teach you about how to balance your budget, you know, how much to save, how to live within your means or any of that. And so people are just trying to. Trying to survive now, really.
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B
Yeah. I was just talking with my uncle on the phone last night, and he's had his own business for like 30 years. He's getting ready to retire. And like only in the past few years has he started. We've had conversations about investing for his retirement and it's like, I think that's kind of more. He's not abnormal. Right. Like that is a normal occurrence in this country. That, that's just not on people's radar. It's not on their minds until. Oh man, that's just a few years away. I guess I better start thinking about this. And the same is true with a whole lot of the personal finance topics that we cover here on how to money. I, I want to start off by talking about like how a debt goes to collections. How does that happen? Can you give me make like the Schoolhouse Rock overview version? You know, I'm just a bill. Like I'm just a debt. How do I. What happens to me?
- [08:13]
A
Yeah, so what really happens is when a consumer stops making their payments, the account doesn't immediately go to collections. Most of the time, creditors try to wait for several months to, to collect internally with reminders and statements, maybe some phone calls. And usually somewhere in the 60 to probably 180 days past due, the cred has to make a decision. You know, do they keep trying to do it internally or do they send it out to a collection agency? It becomes very costly for them either way. So that's typically what they're looking to do. And a lot of times they're going to send it typically to a contingency agency and we can get more into that. But that's really a, a collection agency that collects on behalf of the creditor and then eventually after all of those efforts fail, if they do, then they, they, they go ahead and set it, Sell that debt to a debt purchaser.
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B
Okay, so the, the debt collection agency, how come, let's say maybe give an example. Why, why is it that the, the original creditor doesn't go after collecting the debt on their own? And I guess maybe sometimes they do for a period of time and then they say, well this isn't our specialty, so we're passing it on to the company who this is what they eat, sleep and breathe.
- [09:25]
A
Right? Exactly. So internal collections become costly or ineffective because people, you know, may phone number or they have to write off the debt. And so they have specialized collectors that have better tools and systems and that's all they focus on, you know, and so it's, for them, it's just a financial and operational decision once the debt reaches a certain age and each creditor has their own matrix of when they send it out and and where they place those accounts as well.
- [09:53]
B
Okay, so before. So you work for Money Management International. I said that at the beginning. Money Management International is a, is a nonprofit entity. And I love the mission and we can talk more about that later. But you were working for a for profit debt collection agency before you joined mmi. Those are different animals. So can you kind of maybe outline the differences between a nonprofit and a for profit agency?
- [10:18]
A
Oh yeah, absolutely. There's quite a few significant differences. And I think that first and foremost is really about, you know, MMI's mission and how do we give people financial counseling and put them in the right solution. In the for profit industry, that's really all that they have for the consumer. And the consumer may not need that. Maybe they need just to help with their budget or maybe they can do it on their own and they just need to talk to somebody and figure that piece of it out for us. You know, we, we really want to keep clients current with their creditors if we can. And so we do have different solutions available other than just settlement like our debt management plans. But our consumers that are in our debt settlement or debt resolution program are significantly different. Those are people that their accounts have typically already charged off. Things are happening with their accounts. So it's really about meeting the consumer and getting them in the right program that meets their needs. And maybe none of that even meets their needs. What, maybe what they really need is housing, counseling or something different. And so we'll put them down that path as well. So there's a lot of different paths that a consumer can take. Unfortunately in the for profit industry, then that's all the only option that they really have available. And so it's all about, you know, marketing and getting people in the funnel and pitching them on that, that settlement program.
- [11:43]
B
So everything's a nail to them because they're a hammer. And MMI is like actually you might benefit from counseling or a budgeting class instead of like a full on debt management plan. And so you're able to be a little more like funnel people into the places where they're going to get the best help, right?
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A
Absolutely. And there's several things that go along with that. Especially if a consumer is entering a settlement plan and they're current with all of their accounts to settle the debt, it really needs to be past due. And the for profit industry, you know, typically a consumer is going to take a huge hit to their credit. And so we try to keep a consumer away from that. And that's why we have those debt management Plans is if we can keep a consumer current on their debt and give them just a better predictable structured monthly payment with maybe some concessions from their creditors with a lower interest rate, we're going to try to do that and not let that account charge off or take that hit to their credit. It's really our last resort alternative for our consumers. So yeah, it's definitely a very different program. As well as the fees alone, I mean the fees alone in the for profit industry, typically they're going to charge about 25% of the enrolled debt. For us, we, our debt resolution program, our fees are really based on our debt management plan fees.
- [13:02]
B
So talk about that is that I know that at least in the past some of those for profit debt collection agencies or debt, you know, the, the effort to help people in a for profit model, often it's been an upfront fee charged at times. Right. But I guess is that illegal and at this point in time and is that something that still happens? Like how wary should people be of these for profit firms?
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A
Yeah. So any firm other than a law firm that wants to charge you an upfront fee for, for settlement, their settlement program, then that is a huge red flag that they shouldn't be doing that. So there were several years ago that the FTC came in and debt settlement companies can no longer charge an upfront fee. They can only charge the fee at the time of settlement after that first payment clears to the creditor. But they can, they can take that fee from your account immediately. As that first payment clears, you may have a settlement that lasts 36 months, but they're going to take that entire fee. Let's say that's a $10,000 account. So that $2,500 fee they're going to take immediately whether you finish that settlement or not. So yeah, a huge red flag. Don't enroll in a settlement company. There are attorney models that do charge some upfront fees because they can do it with the smoke and mirrors of an attorney model. And maybe that's not the correct verbiage to really use, but they can do it based on they are an attorney and so they're getting, they're using the attorney exemption to get around the settlement laws that are out there.
- [14:34]
B
Okay. As humans, I think it's really easy for us to stick our heads in the sand about a lot of things in life. Right. And just kind of keep marching on. And I think the truth that's true of debt issues as well, it's like, well, maybe I'm just going to keep heading in the same direction and just hope that things magically better. Maybe I get a raise at work and my income increases enough where I can start making a dent in this debt. But how do, how do individuals compound maybe their own debt problems by taking that approach?
- [15:06]
A
So they can, I mean, obviously that's going to continue to compound their issues, but I don't think anymore that the consumers are really thinking that way. They're just, like I said earlier, they're just trying to survive. But they do kind of put their head in the sand and they don't want to talk to anybody because there is that stigma against, you know, debt is bad and they don't want to talk to their friends or family about it. And so there's an embarrassment that goes along with that and not being able to pay your bills or whatever that. But that's why companies like ours have been around for so long is, you know, we can be that judgment free zone that you can talk to us and we can walk you through what, what needs to happen. We can walk you through financial counseling, get you, you know, talk to your creditors on your behalf and really be there for you and hold your hand through that process. So people should know that they're not alone in it.
- [15:55]
B
Yeah, yeah. It's funny that they don't want to tell their friends and family who are probably also dealing with similar issues. And I think there's that sort of stigma that people feel about their situation when, when you look at the statistics and the reality of what's happening in America as a whole, Even people who make good money often find themselves tied up in, in boatloads of debt. I'm curious too. Like you. You talked about how if a debt is past due, sometimes there are more options. Does it help to be more proactive when you owe a debt that you can't pay, to call the firm that you owe, the company that, the credit card company, the hospital, wherever you owe this debt before they can call you? Or is it a better idea sometimes to wait and let the problem compound in order to get a better deal or resolution?
- [16:45]
A
So that kind of depends on the delinquency. If you're current with your, with your accounts and you're just not able to pay them again, talk to, to, you know, your, your bank, especially the original creditors. A lot of them have their own internal hardship programs or they work with companies like MMI and they'll, they'll send you over to us and we'll do a counseling session with you and walk you through that. And Like I said, we, we do work with a lot of the major creditors where we can get better interest rates, get you on a plan, get your, your budget really organized, see where you could cut costs, that type of thing. There are, and this is probably some of the issue with the for profit industry is like you have to do a strategic default, like you have to be past due to settle your accounts. And the same with a nonprofit settlement program. If we're going to settle your debt, then you have to be past due. But the difference is we don't tell you to go past due. We're never going to tell a consumer to stop paying their debt. Consumers come to us and they've already stopped paying their debt and a, the payment on their DMP program would be too high, so they're not able to afford that. So then a debt settlement plan makes a little bit more sense for them because they're already past due and they already can't afford their minimum monthly payments.
- [17:58]
B
So in the for profit model, that's a way of like escalating things to try and get a reaction, to get a settlement to happen. Whereas MMI has better relationships, I would say. Is that what you would say with, with some of these creditors to be able to arrange for a better debt payoff plan for clients?
- [18:20]
A
Absolutely. Settlement should really be the last resort for a consumer, you know, before bankruptcy and the bankruptcies are hard. So yeah, there's a lot of different options that we have available and it's definitely about learning through that. I mean, and again, you know, we may give you a counseling session and say you can probably pay this on your own. And you know, this is how, how we would do it. But there are significant differences with those strategic. They, the for profit likes to call it a strategic default, but it's the consumer, the creditor is not going to settle your debt unless you're in default. And MMI does have those relationships with the bank that we, we may be able to get you a better settlement offer. There are some major banks out there that won't work directly with a for profit debt settlement company, but they will work with companies like MMI for settlement.
- [19:09]
B
And I want to get into the specifics of debt management plans debt settlements in just a second. I'm curious too though, as a, as a former debt collector yourself, like how, how should people react? What, what should they do if they're contacted by a debt collector about an old debt? Because especially in the era of endless scams, AI scams, I mean, they're all over the place. It's like you're telling me I owe you money. And in fact, I probably do owe some people money. So there's a good, like you're just assuming based on the way you've handled finances, that you probably do owe different entities money. What do you do when you get that call? What should your first reaction be?
- [19:45]
A
So I would make sure that that is legitimate. If you haven't received anything in writing from that company, tell them that, hey, send me something in writing. I'll call you back. I definitely don't, you know, try to hold, put your head in the sand and just avoid it. You want to talk to them and say, hey, I can't afford this right now. Especially if it's your original creditor, you know, it's them. But again, make sure that you get something in writing. Make sure that you're talking about the right account. If nothing else, get their phone number and call them back and make sure that it's a legitimate company and maybe Google that number because the scams are out there and it's happening every day, especially with the elderly and.
- [20:20]
B
Yeah, so. So debt validation is kind of what you're talking about. Right. Like you and that, and that is something that people have the right to ask for under federal law. Right. Like, and can you maybe give the Fair Debt Collection Practices act is, is one of those things that offers a lot of consumer protections for individuals.
- [20:38]
A
Yeah.
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B
What are maybe some of the most important rights we have as living in a free society with no debtors prisons, thank goodness. What are some of the rights that we have?
- [20:49]
A
So one of those is after the initial contact that the FDCPA does state that the collection agency has to send you a written demand letter. So even if it's not validation of the debt, you should at least get something from that collect agency that says, hey, we're collecting on the behalf of bank of America. So you'll at least know it's a legitimate collection agency and it's your debt that you owe. But still be careful because it could be, if you have a very common name, it could be somebody that has the same name as you. And so you want to make sure that it's your debt. The debt validation process is something else that can protect it. Maybe you don't think that you owe that amount and you don't understand, you know, how did this bill double, whatever that may be. You can request your past statements, you can request the breakdown of that account and to figure out how much interest and late fees and over the limit Fees were added to your account, so make sure it's yours. Make sure that's the amount that you owe.
- [21:40]
B
Yeah. Is there any way to push back sometimes on the fact that the bill has grown significantly and how often does the original debt holder not have the documentation to prove that the debt is owed? And so sometimes that's how maybe the debt falls away for you.
- [21:58]
A
Yeah. So the original creditor typically has all of that documentation. It's gonna be a debt purchaser that doesn't. But if you're already that far past due, we're definitely looking at something that's in collections to add that type of interest and late fees and over the. So that significant balance change is really going to happen when your account's past due and in collections and probably charged off.
- [22:18]
B
Okay, I've got a few more questions I want to get to with you. I wanna talk about debt management plans, debt settlement plans, and how people determine which one is best and maybe some of the ethical nature of paying less than you owe. That's a big question too, when we're talking about paying off debt. We'll get to that and more with Johanna in just a second. Say you've always wanted to take a spontaneous trip to the Caribbean. Here's the thing. If you get smart with your money, you can do things like that. With Empower, you can start making the most of your money. So. So you can go out and live a little. Isn't that why we work so hard to have some fun with our money? Like treating yourself to something special or
- [22:57]
C
spontaneously doing something extra for a loved one? Use Empower and get good at money so you can be a little bad. Join their 20 million customers today@empower.com not an Empower client, paid or sponsored. Okay, Joel, so I am really excited about this one here on the show. Of course, we are all about comparing prices to save money on so many different things in life. I'm talking about flights, phone plans, groceries, even restaurants. So why wouldn't you compare prices for your next ride? Share? Taking a few seconds to check Lyft can save you real money on your next ride. I actually did this the last time I caught a ride home from the airport after some travel. And guess who came out on top? It was Lyft. Comparing rideshare prices will help you to save money every time you ride. Save money. Check Lyft. For business owners and entrepreneurs, there is a constant challenge. Getting things done fast or done well. Why not have both? That's why WIX Harmony stands out. It is An AI website builder that helps to create a website quickly without compromising your vision. A fully functional site can be built for any business just by describing the idea. Then you can choose to chat with AI or edit everything manually to get it exactly right.
- [24:14]
B
There's also Aria, an AI agent available to answer questions or help complete tasks. And here's what makes it even better. Aria doesn't just live in a chat box. You can click anywhere on your site and ask her to make changes instantly. It's these details that make creating with WIX Harmony feel seamless.
- [24:30]
C
That's right. Join millions of businesses already using Wix and try Wix Harmony for free at wix.com harmony that's wix.com harmony
- [24:42]
B
all right, we're back from the break. Still talking with Johanna Samara. We're talking about paying off debt and specifically when, let's say you've got more debt on hand than you think is reasonable for you to be able to pay off, what do you do? How do you proceed? Or what if you're being hounded by debt collectors? These are important things. And maybe I know a lot of the how to money crowd is like, not me, I'm doing great. But this hopefully is at least a great episode for you to share with friends or family who feel like they're kind of behind the eight ball when it comes to debt that they've taken on. Johanna, I want to talk about, like there's sometimes this terminology that people are, they're like, I don't, I don't know the difference between a debt management plan and debt settlement. What is the difference and how do people determine which route is best?
- [25:30]
A
So I think that really depends on the person's situation. So if you're current and you're in a pre, pre charge off status that I would say a debt management plan, if you can afford that payment, is going to be your best choice. It is doing. Yeah. So that's 100% of your balance repayment, typically concessions with your creditor. Sometimes we can get it as low as 0%. It's going to be a predictable structured payment and your credit is going to improve over time and your legal risk and tax risk are going to be very minimal. So it should be really your first line solution if you, you have those type of debts now, collections, that's a little bit different. Right?
- [26:10]
B
What, what is it, what is in the creditor's interest to agree to that? To say, listen, you owe me at an 11% interest rate. This debt, like it continues to accrue I'm just wait, waiting over here, salivating to get my cut. But in the under a debt management plan, I guess some people, as you said, as little as 0% interest, what's in it for them?
- [26:35]
A
So what's really in it for them is they're going to get a 100% recovery of that balance. They're probably going to maintain that consumer in the future. They may not be able to use this credit card, but once their credit starts to become intact, they're going to retain that. Also a lot of times credit cards now are in the 20s, right? We're talking 29% interest. So even though they're not getting that 29%, even if we're getting them zero to seven again, they're going to retain that consumer. They're going to recover that entire balance instead of having to do a settlement and recover less or potentially never recover that.
- [27:09]
B
And then in terms of debt settlement, what does that look like? And then how does someone walk through comparison between. Are those the two main options? Are there other options for people out there too?
- [27:21]
A
I mean those are the two main options that are out there, but there's also again, doing it on your own and trying to. But either way it's that repayment of the debt of the 100% or do a settlement or the bury your head in the sand kind of aspect to it. There's also bankruptcy out there, but the bankruptcy laws are very different. Chapter seven used to be really huge. I think it was around 07. I could be wrong on the date. It may have been 05 somewhere around in there. But bankruptcy law has changed. So Filing a Chapter 7 isn't like what it used to be. You have to be below the median income in your state and a lot of people don't meet that threshold. So they're going to end up in 100% repayment of their debt anyways through the bankruptcy court. So that's always a viable option as well. But it kind of depends on where you are at in that collection cycle.
- [28:07]
B
Again, you told me at one point that consumers can settle their debt at any time. Tell me more about that. Like should people attempt to DIY this? Should more people be looking to say, hey, like the credit card companies are making these individual deals with, with credit card users, with consumers regularly, like, is this something I should be. Even if I can afford to pay this off slowly but surely, is this something I should be looking towards?
- [28:32]
A
I think that it is something that they should look at. And again, it's going to be past you. The creditor is not going to come to them and offer them a settlement when they're current on their account. I mean, why would they? At that point, you're somebody that they're collecting interest off of. They're, you know, you're making your minimum monthly payments. But if you're already past due and you're your creditors calling you to offer a settlement, that is something that you could do. Doing it on your own is a little difficult, right? It's shaky territory. You trust this bank, they owned you or I'm sorry, they loaned you money in a time of need. And so you trust them and you want to repay your debt. Intrinsically, we want to do the right thing, right? Repaying debt is what we always do. Nobody wakes up one morning and says, I want to join a debt management plan or I want to join a debt settlement program. Something significant has happened in their life where today it's just the economy in general. You know, inflation's going up and wages aren't keeping up with that gap.
- [29:25]
B
Some people also don't qualify for a debt management plan, right? Like why is that and what's their best bet if they don't?
- [29:31]
A
So typically what we're seeing is if they don't qualify, there is a significant budget deficit for whatever reason that may be. And maybe it's, you know, medical bills. And I think that that's a huge part of what's happening now is, you know, we have a lot of medical bills. Maybe it's a job loss or a divorce. There's something death in the family. There's something that's significant that has really tipped them over the edges. They're not going to be able to afford their minimum monthly payments. But again, there's things out there before you get to settlement or before you get to bankruptcy, like the debt management plans or trying to get on an internal hardship program with your original creditors. Unfortunately, the for profit industry is catching those people in their funnels prior to even getting to a solution with their creditors or a nonprofit. They, you know, they're doing these late nights, you know, people are up at night and they're doing these ads of, you know, we, we can settle your debt for less than what you owe, get you a better payment. And people are really payment shopping right now.
- [30:31]
B
Oh yeah, a lot of payment shopping going on. If payment shopping for your debt pay down isn't the best way to go about it, what is?
- [30:39]
A
So I think the best way to really go about it is, you know, sit down with a Non profit like mmi. Go through your budget, figure out where you can save costs. We can also, we have alternatives that we could send you to. Maybe you need some help with food stamps or there's food pantries in your area. Those are other things that we would look towards besides helping you with your budget. And again, maybe you actually need help with your rent and we could do some housing counseling for you or you need help with your mortgage. So we can talk. We, we have other solutions that are available other than just, you know, settlement or DMPs.
- [31:19]
B
Okay, let's talk about the ethical nature of debt repayment. Should people have to pay back the full debt obligation they took on? Because this is, this is ethically ambiguous territory at times, Right. When we're talking about what should be done, what's doable, what are the ethical ramifications of seeking help, negotiating down your debt, at least with a debt management plan, we're talking about, yeah, getting a better rate, but paying back everything that you owe with debt settlement, we're talking about asking to pay back less than what we borrowed. So, yeah, what's the ethical. There's some ethical, potentially ethical landmines there.
- [31:54]
A
There is. I mean, a DMP is more about keeping promises and paying what you owe just in a way that's realistic. And I think for settlement, it's about, it's not about avoiding responsibility, it's just about choosing the least harmful option when the math no longer works. So it's really your last resort in a safety net.
- [32:15]
B
In terms of. You mentioned medical bills. How big of an issue are those from consumers that come to mmi? Is medical debt like typically a big problem that they face? Is that the straw that broke the camel's back? They've got these other debts that they could handle it and then boom, a medical, they have some sort of medical emergency and they have a massive medical bill that they can't afford to pay. And then that pushes them over the edge. What does that look like? And then I'm also curious, like I talked with Jared from $4, which is an awesome organization that helps people figure out what they're eligible for in terms of full forgiveness for medical debt if they're below a certain income. And is that something that most people are just unaware of and so they're paying back debt that maybe they don't owe in the first place?
- [33:06]
A
Yeah, absolutely. And I think that programs like that are excellent places to go for resources to understand what your rights are as a consumer, what's available in your state or with that particular hospital. So those are things that people should go to. I'm unsure for mmi. I mean, I know that medical hardships are a huge thing for us or disaster relief or disaster recovery. That's another thing that, that MMI really works with. So there are significant things that, that happen, but the medical debt is definitely a huge percentage of our, of our population.
- [33:40]
B
Yeah. How much negotiation typically happens in the debt settlement space? I mean, some, some consumers just had have no idea that their debt is even negotiable. Most people, if they know that it is, have no idea how much wiggle room exists. Like, can you shed some light, like how, how much in debt? If someone were to try to settle their debt, whether it's DIY or whether it's with the help of a nonprofit, how much can they expect to have that balance reduced? And what do the terms look like usually?
- [34:10]
A
So on average, a debt will settle for about 50% of the current balance. And that can be spread over time. So a debt settlement program is probably going to take you 36 to 48 months, kind of like a debt management program plan. So that, that's kind of your, roughly your time frame.
- [34:30]
B
How much does something like that impact someone's credit?
- [34:32]
A
So if you are already current and you have to do that strategic default like the for profit, it's a huge impact to your credit. You're going to see a huge slide. Eventually once those accounts are paid off, then it's going to come up. And that's the biggest thing is you're going to see that initial drop later recovery. With a dmp, if your accounts are current and we can get you those concessions with your creditor, then your, your credit is going to improve over time. I think roughly for MMI consumers that enroll in a DMP, they have about a 621 credit score. We see that quickly rise. Well, it still improves over time, but we're going to start to see that 20, 30 points rise within probably the first year with a settlement plan. Our consumers that we're pulling into our settlement programs and saying, hey, you know, there's other options, they're already past due. So they've got about an Average credit score, 550. So they were already down that path of being delinquent. And I think that's again a significant difference between for profit and nonprofit.
- [35:33]
B
And how does a consumer know would it make sense to stop paying a bill? Right. Because there is. If it's hard to put food on the table, like, oh man, it's just hard to make Ends meet. How do I know which debt to stop paying on, when to stop paying on that debt? It's. And then what signal does that send to the creditor? Yeah, talk to me about someone who feels like they're getting to the end of their rope and they're just not sure what to prioritize.
- [36:02]
A
Well, obviously you want to prioritize your security, you know, your housing, your car so you can get to work. Those type of things that are significant to your day to day life because you need a place to live, you need a car to drive to work if you have that ability. There are some people that, you know, they, they live in a metropolitan area and they could take the bus or whatever, so maybe they don't need that car. If you live in a more rural area, you're going to need that car to get back and forth to, to work. So definitely try to take care of those secure debts that aren't toys. So they're not your four wheelers and you know, your motorcycle and unless your motorcycle is your primary mode of transportation. Right. So those are the things that you really want to focus on and then you get to that unsecured debt. I would definitely, definitely say your, you know, your medical debt is important, but a lot of times if you call the hospital and you're paying something on it, they're going to work with you. Not every hospital, not every place, but those folks are going to work with you. And then when it comes to the unsecured debt, it's probably, you know, when you no longer, you've had some emergency and now you can no longer make those minimum monthly payments. And so it's really that unsecured that goes away first and your family has to be able to eat so you want groceries. And all of those things are very important over that unsecured debt.
- [37:17]
B
I think some people maybe feel like they have to stretch the truth in order to get a better deal like from the party that they owe money to. But then some people really can't afford to pay. Talk to me maybe about hardship letters or an honest financial disclosure. What does that look like? And how much information do creditors want from individuals when it comes to finding a settlement that where they don't feel like they're being taken advantage of, but the individual is getting some concessions.
- [37:48]
A
So I think that, you know, a consumer should have full disclosure with their creditors on what their hardship is, you know, especially when it's something significant like medical or job loss or a divorce, whatever that may be, a death of a loved One because of the, those are significant impacts to somebody's life. Especially you know, if that death of a loved one was a spouse and they were your primary wager. So, so be forthcoming with your creditors. Tell them what's going on. Creditors these days, they understand, they get it and they, they've seen your charges on your credit cards, right. They, they know that you've been spending your, your money on groceries and not frivolous things that you weren't out at Bloomingdale spending $3,000 on just clothes, right. So they're gonna see that progression in your debt. So I think that just being open and honest now, when you're talking to collection agencies and law firms that may be collecting on behalf of the creditor, you may not want to necessarily, you definitely want to disclose all of your hardship, but there are times that they're going to use the information that they get to collect that debt. So especially if it's down a legal path. So you know, be careful. They're going to figure out where you work, but definitely say, hey, I've returned to work, I make less money than I did before. Because a lot of times if they do go down that legal path and they file a lawsuit there, in some states they can, you know, do a wage garnishment, a bank levy, lean your home, depending on, you know, whatever the state regulations are.
- [39:16]
B
So we were talking about settling for less or trying to negotiate, right. A lower payment, full payment in order to pay less than what you owe. I'm curious, like when it do people typically have better results when they're negotiating with the original creditor or with a debt collector that's assumed the debt later on. Like what's, what's the difference there look like negotiating with each party.
- [39:47]
A
So internal collection agencies, if it's severely past due and it's at that charge off phase, you're probably going to get a pretty good deal with your original credit manager. Collection agencies, same thing. If it's that contingency agency where they're collecting on behalf of the bank, the bank actually gives them their guidelines on what they can settle for. And it's all based on, on whatever their hardship parameters are. And it varies by, by bank. So some are as low as, you know, I've seen it in the industry years ago, as low as 10% that you're paying repayment or it's as high as 70, 80%. If you're down that legal path, once you get to a debt purchaser, you should definitely try to settle that account for as little as possible because they purchased that debt from the original creditor for pennies on the dollar, probably somewhere around 12 cents on the dollar. So you definitely have a little bit more leverage there. And less again, they go down that legal path.
- [40:37]
B
Okay. All right, I got a few more questions I want to get to with you, Johanna, including like, yeah, what are some of the best resources MMI has to help people? We'll talk about that and more right after this. Say you've always wanted to take a spontaneous trip to the Caribbean. Here's the thing. If you get smart with your money, you can do things like that. With Empower, you can start making the most of your money so you can go out and live a little. Isn't that why we work so hard to have some fun with our money? Like treating yourself to something special or
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C
spontaneously doing something extra for a loved one. Use empowerment and get good at money so you can be a little bad. Join their 20 million customers today@empower.com not an Empower client, paid or sponsored. Okay, Joel, so I am really excited about this one here on the show. Of course, we are all about comparing prices to save money on so many different things in life. I'm talking about flights, phone plans, groceries, even restaurants. So why wouldn't you compare prices for your next ride share? Taking a few seconds to check Lyft can save you real money on your next ride. I actually did this the last time I caught a ride home from the airport after some travel and guess who came out on top? It was Lyft. Comparing rideshare prices will help you to save money every time you ride. Save money. Check Lyft. For business owners and entrepreneurs, there's a constant getting things done fast or done well. Why not have both? That's why wixharmony stands out. It is an AI website builder that helps to create a website quickly without compromising your vision. A fully functional site can be built for any business just by describing the idea. Then you can choose to chat with AI or edit everything manually to get it exactly right.
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C
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- [42:54]
B
All right, we're back. We're still talking about paying off debt with Johanna Samara from mmi, which is just one of my favorite nonprofits that's helped just, I don't know, tens of thousands of people get out of debt, pay off their debt and more than that. Right. They've helped people learn what it looks like to successfully manage their household finances. So it is the kind of Swiss army knife, if you will, of, of help with people's finances, which I think is so wonderful. And charging far less. Right. Than some than these for profits do. So really it's, it's a mission driven organization. Johanna. I'm like compare that to maybe some of the tactics of the debt collectors out there. What are maybe I'm curious, what are some of the biggest tricks that they tend to use? And there are a lot of debt collectors just doing their job. They are fine people. Not questioning their morality. But then there are some unscrupulous debt collectors too, just like they're bad people in any industry. But what are maybe some of the tricks or the attempts that they use? How do they attempt to get people to maybe pay more than they can actually afford? Because I gotta imagine sometimes you feel like you negotiate a deal with a debt collector and it turns out you can't even afford the deal you agreed to.
- [44:19]
A
Right. A lot of that is they use a lot of scare tactics. And again, there are good debt collectors and there's bad debt collectors. It kind of depends on. But those debt collectors are paid off of commission as well. So they're also, they're having to feed their families and they're feeling the same burdens that, that of the people that they're collecting from. So some of the things that they'll do. And again, you have to know who you're talking to because if it is a collection agency, you have to really look at, they're going to use words like my client has the right to attempt to attach your wages and things like that. And their client does because they, they are the original bank. But if you're just a collection agency, you're not in a position to sue that client. So it's just those things that they try to do also that embarrassment factor.
- [45:04]
B
So like fake legal threats essentially?
- [45:05]
A
Yeah, essentially it is. But it's all about the wording because it's not really a legal threat. If they say my client has the right to. Sure, the creditor does have a right to do that, but that doesn't mean that they're going to do that. So now if they come right out and say, hey, we're going to sue you and they don't have that right, then that's a violation of the fdcpa and that's something that, that you should hire an FDCPA attorney about. So it's really about that wording and that they're going to use and give you that impression. And then there's also that embarrassment factor. Right. So especially if you live in a rural area, like my last name is Samara, it's not a very common name in my area. So they may try to call same last names in your area, hoping that, you know, they're going to reach a family member and leave their name and number. You know, I'm Johanna, I'm calling with a collection agency and name their collection agency. And so their family then is going to start to ask questions or they're going to call your place of employment and call your human resources department and act like they're verifying your employment for a legal reason. Right. And then leave a message with that HR department or leave a message with your boss. So again, it's that embarrassment factor if you're getting those collection calls and people should be aware.
- [46:10]
B
And are they allowed to do that?
- [46:12]
A
They are. So unless you ask them to stop calling you at your place of employment, they are allowed to call you there.
- [46:18]
B
So again, okay, but, but if you ask them to stop. They have to.
- [46:20]
A
Yeah, they have to.
- [46:21]
B
And there are also certain hours of the day that you can say don't call me before then. Before what, 8:00am or after 9:00pm Right, right, exactly.
- [46:31]
A
Yeah. So those are things that you really have to, to listen to or pay attention to. And if you, and you need to make sure like the original creditor, they, the FDCPA doesn't actually apply to them. So the FDCPA only applies to third party collection agents. So you could tell your original creditor, hey, don't call me at work, but they could still do that. Most of the original creditors are going to stop calling you. You still have those buy here, pay here things that are probably going to call you, those payday loans, that type of stuff that's out there. But for the most part, most original creditors do follow the fdcpa or if it's a business debt, business debt is a whole other gambit on collection laws.
- [47:11]
B
Okay, what do consumers need to know about the statute of limitations? Because I think some people maybe are hoping that they can just wait it out. If I just wait seven years, will they get off my back and then this debt eventually goes away. Is there any truth to that?
- [47:31]
A
There is some truth to that. The statute of limitations, depending on the state regulations in your area, some are as little as, I think, four years. That seven year mark is really about the time that it falls off your credit. So seven years from the date of the last payment. But pay attention to that statute of limitations. Maybe you were out of work for medical reasons for three years and the statute of limitations in your area is four years. However, though, if a creditor does sue you and they are able to obtain judgment, they can continue to renew that judgment and then when you do find it in a job, they could potentially execute on that judgment. So statute of limitations is a real thing. It does happen. I don't encourage people to do that. Just because collection activity is going to continue that whole time, you're going to continue with bad credit. So if you have the ability to repay your creditors, you should probably attempt to work with them.
- [48:19]
B
When you said from the date of the last payment, and isn't that sometimes a tool of the trade that's used is to get you to make just a one time payment?
- [48:28]
A
Yeah.
- [48:29]
B
Even if it's for a small amount, because then it restarts that clock ticking. And so you think, I've just done a good job, I gave them 20 or 50 or 100 bucks. And ultimately what you've done is you've kicked the can much further down the road as to when statute of limitations applies.
- [48:50]
A
Absolutely. So it could be that $10 payment and now that statute of limitations reset. The other thing that debt purchasers try to do is they do try to collect on accounts that are outside of the statute. So a consumer needs to be understanding, you know, contact somebody like MMI or contact an attorney to understand the statute of limitations and whether you should pay on that debt or not. If it's no longer on your credit report, that's probably a good rules rule of thumb that, hey, this is probably out of the statute of limitations. But just being out of statute doesn't prevent collection activity. It just prevents your legal right to have to repay that debt.
- [49:28]
B
All right, well tell me what else do we need to know about formal debt settlement that we haven't covered yet?
- [49:34]
A
So I think that the biggest thing that people need to understand about settlement and whether it's right for them and you know, understanding going with a for profit versus a non profit is really making sure that they understand everything that comes comes with it. Because there are pitfalls of being enrolled in a settlement program, especially if you weren't in default when you got there. So I like to call it the tlc. Taxes, legal and credit. So if you weren't past due with your creditors and a company is telling you to do a strategic default, you're going to take that credit impact. Just know that that is going to happen and that there is no way for them to prevent legal action. So your creditor can choose to sue you at any time. Typically in the for profit space a we would see about 50% of our consumers receive at least one lawsuit or more. So that is a significant impact. And if that for profit agency does not have some type of legal model to help you out with that in case you are sued, it's probably not an agency that you want to be with. And again that the fees are going to be very high. But that that other part of the TLC is taxes. So any settlement savings of $600 or more could be reported to the IRS as income. But also so can a charge off. Right. If they decided that they're they're going to do charge off an account, they could still send you a 1099. But those are significant things that people need to be aware of when enrolling in a settlement program. But again, our consumers are already here at mmi, they're already down that path. We would prefer to work with your creditors while you're still current and get you a lower interest rate or get you some significant, significant savings on that account.
- [51:12]
B
And a lot of people think or just assume that bankruptcy is the right path forward or it's the best path forward, or it's the easiest path to getting rid of the overwhelming amount of debt that they have in their lives. Talk to me about that assumption. And how often is that an accurate assumption? Or do most people actually have better options through a debt management plan or a debt settlement?
- [51:36]
A
Yeah, so I think that the debt management plans or the debt settlement plans are really a kind of a way to go. Again, it all depends on if they're below that median income in their state to file for that chapter, chapter seven and be able to just get rid of the debt. A chapter 13 is still going to be a repayment of your entire debt and you're still going to have that bankruptcy on your record. You know, it's not like it's just on there for seven years. If you think about it, when you go to get a mortgage, they ask you, you have you ever filed for bankruptcy? Not have you filed in the last seven years. And so that's some of those things because you're still going to be have to be on a budget, have to make a payment to the trustee of the court. And if you don't make that payment, then there's, you know, significant legal ramifications and you're still back to where you were. So I would definitely say it is an option that's viable for out there for people, but they need to understand what chapter that they qualify.
- [52:27]
B
Okay. Johanna, this has been super informative. We got in depth on debt payoff today, so I really appreciate you taking the time to join me. Where, where can how to money listeners go to find out more about MMI and what MMI offers, they can go
- [52:43]
A
to our website, so moneymanagement.org okay.
- [52:46]
B
And just start messing around. There is this like typically are people going in person? Is this virtual? Like what should they expect if they go to their website and they look for help?
- [52:56]
A
So if they go to our website and look for help, you're gonna see all of our different programs on there that we offer. You could actually try to do some online counseling. We do have that available. So you can go through an online counseling process and we can try to figure out what's working best for you, help you through a budget, give you some resources to maybe contact in your area. And then if that online counseling experience, you're still wanting to know more information, you can talk to a live counselor. You can chat with us as well if you don't want to talk to somebody on the phone. But we do have counselors available pretty much 24 hours a day. Well, actually 24 hours a day, seven days a week, except for I think three days out of the year. So there's always somebody available for you.
- [53:38]
B
No Christmas Day. Sorry, people.
- [53:39]
A
Yeah.
- [53:40]
B
Wait till the 26th. Awesome. Johanna, thank you so much for taking the time to join me today.
- [53:45]
A
Thank you so much for having me.
- [53:48]
B
Oh, all right. Fun to hear. Kind of the ins and outs of the debt collection consolidation industry. And Johanna's been in that industry for a long, long time. She's seen a lot of things. So I just appreciate her sharing her wisdom and insight. I think when it comes down to it, yeah, there are ways to DIY this, right? Like you can even try to approach debt settlement on your own directly with a creditor. But man, working with a non profit, don't listen to the ads. Right. From the for profit companies that purport they're going to help you settle your debt for pennies on the dollar. The they're often not as helpful. They charge more and the Non profits are just better at this. And so MMI is not the only nonprofit that exists, but it is, it's a great place to turn. And so I guess I just want people to know too, that getting help and paying that money is actually worth. It's worth the money because of those relationships that Johanna described that MMI has with creditors. Think about that debt management plan. Yeah, you're paying 100% of your debt back, but if your interest rate gets cut significantly. Right. Well, that impacts how quickly you can pay that debt, back off and try to get that deal. If you going directly through them, it's going to be much harder. Like, good luck. Right. So the fact that you're working with a big organization that has a great reputation out there and they've helped, you know, tens of thousands of consumers in the past do this very thing. Well, the bank of America's capital ones of this world are just more likely to work with a client of MMI than with just insert name here. Right. So don't stick your head in the sand. There is help out there. If you find yourself in debt up to your eyeballs, and if you have a friend or relative who you know is struggling with this and they've been kicking the can down the road and they don't know, they don't know where to, where to turn or how to proceed, then I would just say share this episode with them. Share the Money Management International website with them and just let them know that there are. They don't have to kind of continue in the direction they're going. There is a way to turn the ship around slowly but steadily. Like we've talked about before on the show, you don't get into debt overnight. Often it takes many, many years. And so the, the reality is you're not going to get out of it overnight either. But you got to start turning the ship right, so you can head in the right direction. And I'm just glad to be able to share that there's help out there and you don't have to go it alone. All right, that's going to do it for this episode. We'll link to the Money Management International website in the show notes along with some other resources that we find helpful in terms of debt management, debt payoff. So until next time, best friend out.
- [56:58]
C
Okay, Joel, So I am really excited about this one here on the show. Of course, we are all about comparing prices to save money on so many different things in life. I'm talking about flights, phone plans, groceries, even restaurants. So why wouldn't you compare prices for your next ride share Taking a few seconds to check Lyft can save you real money on your next ride. I actually did this the last time I caught a ride home from the airport after some travel and guess who came out on top? It was Lyft. Comparing rideshare prices will help you to save money every time you ride. Save money.
- [57:31]
B
Check Lyft say you've always wanted to take a spontaneous trip to the Caribbean. Here's the thing. If you get smart with your money, you can do things like that. With Empower, you can start making the most of your money so you can go out and live a little. Isn't that why we work so hard to have some fun with our money? Like treating yourself to something special or
- [57:49]
C
spontaneously doing something extra for a loved one? Use Empower and get good at money so you can be a little bad. Join their 20 million customers today@empower.com not an empower client, paid or sponsored. Is it just me or is it getting really hard to figure out the best way to save for retirement? Well, Fidelity can help you to find clarity so you can save the best way for you. With a free personalized plan, goal tracking, and timely insights, he'll be set to take on retirement your way.
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Get started@fidelity.com future expenses charged by your investments and other costs and fees associated with trading or transacting in your account. Apply Fidelity Brokerage Services Member NYSE SIPC
- [58:32]
A
this is an iHeart podcast.
- [58:35]
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Guaranteed Human.