"I'm 25 and Owe $156,000 (File Bankruptcy?)"

Summary

Podcast Summary: "I'm 25 and Owe $156,000 (File Bankruptcy?)"

Podcast Information:

• Title: The Ramsey Show Highlights
• Host/Author: Ramsey Network
• Description: The Ramsey Show Highlights offers a quick, daily dose of life and money advice in under ten minutes. Featuring experts such as Dave Ramsey, Ken Coleman, Rachel Cruze, Dr. John Delony, George Kamel, and Jade Warshaw, it delivers practical guidance seven days a week.
• Episode: "I'm 25 and Owe $156,000 (File Bankruptcy?)"
• Release Date: March 27, 2025

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Introduction to the Caller’s Financial Predicament

Caller B (25 years old) reaches out to the show, expressing distress over accumulating $156,000 in business debt. He is contemplating bankruptcy but is uncertain about the best course of action.

• Debt Breakdown:
  • Vendors: $30,500
  • Merchant Cash Advance: $55,000
  • Parents: $65,000
  • Additional Vendor: $7,250
• Business Type: Sells cabinets and countertops.

Notable Quote:

“I've racked up about $156,000 in business debt, and I've kind of been contemplating bankruptcy, and I didn't know if maybe you thought I should or maybe had other advice or options.”
— Caller B [00:06]

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Understanding the Debt Sources and Business Dynamics

Caller B explains that the merchant cash advance was obtained based on future revenue, leading to daily payments that became unsustainable during a slow business period in 2024. He acknowledges poor bookkeeping and overextension after initial business success.

• Merchant Cash Advance Issues:
  • Provided based on bank statements.
  • High-interest rates likened to payday lenders.
  • Daily payments depleted finances, especially during downturns.

Notable Quote:

“Last year in 2024, I had a very slow time and it pretty much just took me for everything I had.”
— Caller B [01:36]

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Current Efforts and Challenges in Debt Management

Caller B is currently engaged with a consolidation agency, incurring costs of $1,200 weekly, which adds to his financial strain. Missing payments threatens the cancellation of the program, necessitating an additional $28,000 payment to negotiate.

• Consolidation Agency Issues:
  • High weekly fees.
  • Non-refundable program costs.
  • Pressure from the agency to maintain payments.

Notable Quote:

“Every time I miss a payment, they're threatening to cancel the program. And it's non refundable and it's still another $28,000 I have to pay into it before they'll negotiate with them.”
— Caller B [02:14]

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Host’s Analysis and Strategic Advice

Host A empathizes with Caller B, sharing his own experience with bankruptcy at a young age. He emphasizes that bankruptcy may not resolve the debt issues effectively, especially concerning personal loans from parents.

• Key Insights by Host A:
  • Self-Awareness: Commends Caller B for recognizing the mistakes leading to debt.
  • Bankruptcy Consideration: Advises against bankruptcy as it won't absolve debts to family and might not be the best financial strategy.
  • Debt Prioritization: Suggests prioritizing vendor debts to maintain business operations and stabilize cash flow.

Notable Quotes:

“Bankruptcy is not going to solve it because you can't bankrupt mom and dad. You can legally, but you're not going to. You're going to pay them.”
— Host A [04:29]

“You can make 100... you can make 100 grand a year and you have a $90,000 problem.”
— Host A [05:07]

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Step-by-Step Debt Resolution Plan

Host A outlines a comprehensive plan to help Caller B navigate out of debt over three years without resorting to bankruptcy:

1. Vendor Negotiation:

   • Immediate Action: Contact vendors to set up a repayment program.
   • Payment Strategy: Allocate funds to clear vendor debts first while maintaining supply lines.
   • Quote:

     “Get on the phone with them and set up a program to pay $37,500 plus your new material needs going forward...”
     — Host A [06:03]

2. Business Financial Management:

   • Operate Properly: Ensure the business runs efficiently without overextending.
   • Profit Utilization: Use profits (estimated at $100k-$120k annually) to address debts systematically.
   • Bookkeeping: Maintain up-to-date financial records to prevent further issues.
   • Quote:

     “You need to get on the phone with them first and we need to get on a program with them where we're going to clear them first.”
     — Host A [05:50]

3. Settling Merchant Debts:

   • Savings Goal: Accumulate $30,000 to negotiate with merchant cash advance providers.
   • Settlement Approach: Aim to settle merchant debts for a fraction of the owed amount.
   • Quote:

     “And then you save up 30,000 bucks and you call the merchant people that you owe 55 to, and you settle with them for pennies on the dollar.”
     — Host A [07:14]

4. Repaying Family:

   • Final Step: After settling business-related debts, focus on repaying parents.
   • Financial Discipline: Commit to not borrowing from anyone again to prevent future debt cycles.
   • Quote:

     “Then you go pay mom and dad the next year.”
     — Host A [07:14]

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Encouragement and Psychological Support

Host A provides motivational support, reassuring Caller B that the debt resolution plan is achievable. He emphasizes the importance of perseverance and emotional resilience in overcoming financial challenges.

• Encouraging Words:
  • Self-Belief: Reinforces that Caller B has the intelligence and capability to resolve his debt.
  • Emotional Support: Acknowledges the psychological burden of debt and offers empathetic guidance.
  • Commitment: Urges maintaining focus and discipline to follow through with the debt repayment plan.

Notable Quotes:

“You can do this, Garrett. You can really do this. I promise you can. Isn't that cool?”
— Host A [08:44]

“It's the master class on when we get scared, man, we go to fight or flight, we stop thinking. And sometimes it just takes someone to sit down and say, hey, here's a plan.”
— Voice C [08:49]

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Conclusion and Final Takeaways

The episode concludes with a reaffirmation of the debt resolution strategy, highlighting the importance of structured planning, disciplined financial management, and emotional support in overcoming significant debt burdens.

• Final Recommendations:
  • Avoid Bankruptcy: Unless absolutely necessary, as it may not address all debt obligations effectively.
  • Structured Repayment: Focus on clearing high-priority debts first while maintaining business operations.
  • Financial Discipline: Adhere strictly to the repayment plan and avoid future debt accumulation.

Closing Quote:

“You've saved up 30,000 bucks and you call the merchant people that you owe 55 to, and you settle with them for pennies on the dollar. Then you go pay mom and dad as quick as you can...”
— Host A [07:30]

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Key Insights and Lessons Learned

1. Debt Management Requires Strategic Planning: Prioritizing debts and negotiating with creditors can provide a clear path out of financial distress.
2. Emotional Resilience is Crucial: Overcoming debt is not just a financial challenge but also an emotional journey that requires support and perseverance.
3. Prudent Financial Practices Prevent Future Debt: Maintaining accurate bookkeeping, avoiding overextension, and living within means are essential to sustaining business and personal finances.

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Actionable Steps for Listeners

• Assess Your Debts: Break down your debts by type and prioritize repayment strategies.
• Negotiate with Creditors: Reach out to vendors and financial institutions to set up manageable repayment plans.
• Maintain Financial Discipline: Keep accurate records, adhere to budgets, and avoid unnecessary borrowing.
• Seek Support: Don't hesitate to seek advice and support from financial experts or trusted advisors during challenging times.

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This episode serves as a valuable guide for young entrepreneurs facing significant debt, illustrating that with the right strategies and mindset, financial recovery is attainable.

Transcript

[A]

Brought to you by the EveryDollar app. Start budgeting for free today.

[B]

I've racked up about $156,000 in business debt, and I've kind of been contemplating bankruptcy, and I didn't know if maybe you thought I should or maybe had other advice or options.

[A]

Wow. I'm sorry. It's scary, isn't it?

[B]

Yeah.

[A]

Are you married?

[B]

No.

[A]

Okay. How old are you?

[B]

25.

[A]

Okay. And what do you owe the business debt on? What kind of debt is this? Credit cards or vendors?

[B]

So about. So 30,500 is. Vendors, $55,000 is. I was dumb and took out a merchant cash advance, and then I owe my parents like $65,000.

[A]

Okay.

[B]

And then another. Another vendor. 7250.

[A]

7250?

[B]

Yes, sir.

[A]

Okay. All right. And what kind of business is this? Or was it.

[B]

I sell cabinets and countertops.

[A]

Okay. All right. And so a merchant advance on what?

[B]

Yes, so my like future revenue. Basically I gave them my bank statements, and then they said, we'll give you this much, and it was like a daily payment. And then last year in 2024, I had a very slow time and it pretty much just took me for everything I had.

[A]

Yeah, that. That one got you. It's a payday lender of your world. Yeah. The interest rate's also ridiculous, correct?

[B]

Yes.

[A]

Okay, and so what method do they have access to your current checking account? Is that how they. They clean you out every so often?

[B]

They were. I've since put like stop payments on them. And I'm actually, I was working with like a. Or am technically still working with a consolidation agency. But that. That cost is like twelve hundred dollars a week, which I can kind of do, but it. It's hard to manage that. And every time I miss a payment, they're threatening to cancel the program. And it's non refundable and it's still another $28,000 I have to pay into it before they'll negotiate with them.

[A]

And yeah, I think you stopped that immediately too. You jumped from the frying pan into the fire, didn't you?

[B]

Yeah, I panicked. And I did all that before I kind of talked to anyone about it. Now pretty much my whole family knows and I've been a little more open lately, so I've been getting like some more advice.

[A]

Yeah. Okay. So if you didn't have this mess, did you do all this because you weren't making money?

[B]

No, I was doing pretty well. And then I took a pretty sizable loss on a job and I also got a Little full of myself after like a really good four month stretch. And I fell behind on my bookkeeping, which looking back, that was kind of the debt. That was like my detriment to it all.

[A]

You did a really good job. In two sentences. Describ what happened because that's exactly what happened. I can smell it. You're.

[B]

Yeah.

[A]

You're really on top of that. That's very well done. You weren't doing your books. One job you got. You got out too far over your skis on and they set you up for a fall and you were feeling invincible. Those three things together put you here. I believe you. That's well done. Congratulations. That's a. Most people aren't that self aware when they're in this much pain. Well done. Proud of you. We work with entrepreneurs and have for years. I've been bankrupt when I was your age, so I know exactly how it feels to be where you are. So the way we fix this is we take the things that are working and we apply them in a forced rank order of importance. Bankruptcy is not going to solve it because you can't bankrupt mom and dad. You can legally, but you're not going to. You're going to pay them.

[B]

No.

[A]

So half of this almost is one thing and it's them. Okay.

[B]

Yes.

[A]

So the rest of it is ninety thousand bucks worth of stuff. How quick can we make that? Now let's pretend that you were just operating properly. You weren't out over your skis, you weren't taking jobs that could take you down. You weren't feeling over your feeling and you weren't borrowing any money. What can you make in this business? What kind of profit in a year can you make if you just started fresh?

[B]

So last year I did about $400,000 of revenue.

[A]

Right.

[B]

And I have a. My margins are right around 31%.

[A]

Okay. So you can make 100. You can make 100 grand a year and you have a $90,000 problem.

[B]

Yes.

[A]

Because mom and dad are. Mom and dad aren't pressuring you.

[B]

No.

[A]

But you want to pay them. But they're. They can be. They can be at the end of the list. And that's okay?

[B]

Yes.

[A]

Okay, so now here's an idea.

[B]

Nice. As well.

[A]

What vendors do you have to pay to keep supplies coming? To keep the business open? What dollar amount does that represent? The 37,000.

[B]

Not entirely.

[A]

Yeah, I didn't think so. Half of that? Yeah.

[B]

About 20.

[A]

Gotcha. Okay, so you need to get on the phone with them first and we need to get on a program with them where we're going to clear them first. And in return, they're going to keep sending you supplies. Cod.

[B]

Yeah, I have been. I've been paying them. It was a large.

[A]

Now, listen, I'm giving you a program. I'm not asking for the story now. I'm telling you what to do. Okay.

[B]

Okay.

[A]

Get on the phone with them and set up a program to pay $37,500 plus your new material needs going forward. Out of your hundred. It's the first thing you do. The merchant people tell them they're not getting paid, maybe ever, but they're certainly not getting paid right now. You're gonna sit on the sidelines and we're gonna settle up later. If you wanna sue me, sue me. But I don't have any money. And if you sue me, I'm gonna file bankruptcy and you're gonna get nothing. So you need to just sit over there until I can get this thing cleaned up, and then I'm gonna come pay you off. Okay? You have a conversation with them, but you give them no more money and no more access to your business. You go make 100 a year. 120 a year. You clean up your vendors first, and then you keep the cash flow running. You keep your books up to date. And then you save up 30,000 bucks and you call the merchant people that you owe 55 to, and you settle with them for pennies on the dollar. Then you go pay mom and dad the next year.

[B]

Right?

[A]

You're out of debt. I just got you out of debt in three years.

[B]

Sounds. Sounds good to me.

[A]

It's doable. What I just described is very doable. I've done it a thousand times. Now. The trick is you got to believe it. And you got to be tough enough to run off these people that have been scaring the crap out of you, they've been running your life emotionally. They live in your head rent free. Can you tell I've been there?

[B]

Yes. Yes. For sure.

[A]

It's no fun. And you feel like they're saying you're not a good guy, and you're a good guy that made a mistake. You're not an evil person. You didn't set up a business to go screw somebody.

[B]

Right?

[A]

You're just a young guy that made some mistakes, and now you got to go clean up your mistakes. You can file bankruptcy if you want, dude, but you're still going to have to pay your parents. And you did all of it over 90 grand that I just settled for. Somewhere around 50. And you shouldn't file bankruptcy when you had to be able to make 120 a year. Not morally, but I mean mechanically. Shouldn't file bankruptcy when you got the ability to make 120 a year. And 50 grand cleans up your mess. Because you're going to pay the 37. You're going to pay the 37,000 worth of vendors because you got to keep them in your life. The other people. You're going to settle for 50 cents on the dollar, and then you're going to call mom and dad and pay them as quick as you can and never borrow money again from anyone, not even your parents. Have you learned your lesson?

[B]

Yes. Yeah.

[A]

You can do this, Garrett. You can really do this. I promise you can. Isn't that cool?

[C]

Yeah. It's the master class on when we get scared, man, we go to fight or flight, we stop thinking. And sometimes it just takes someone to. To sit down and say, hey, here's a plan.

[A]

Here's the forest. Here's the trees. Yeah, yeah.

[C]

Don't burn everything down.

[A]

Lost. I'm lost in the woods. We don't have to burn the forest.

[C]

Yeah, that's exactly right.

[A]

Just got to cut that two trees over there and then we can get out.

[C]

And then. But you got to keep walking.

[A]

Yeah, just keep moving. Keep moving, keep moving. And the good news about this guy is he's really smart because he quickly self analyzed. Very unusual. Very unusual. Create your free every dollar budget today. The simplest way to budget for your life.