This episode is sponsored by National Debt Relief, a Better Business Bureau A+ accredited
business with over 13,656 client reviews and growing daily.
They can help you reduce your debt to a fraction of what you owe if you qualify.
Get a free report comparing all your debt relief options at https://www.nationaldebtrelief.com/HTA
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Friends, today we’re going to talk about a word that starts with “D” that you’re
not supposed to discuss in polite company.
Good thing we’re not very polite company!
Today we’re gonna talk about, yes, debt.
Carrying some kind of debt is a pretty normal part of being an adult in today’s society.
Consider this episode as an introduction to the kinds of debt that you might encounter
throughout your lifetime.
What kind of debt you have affects your credit score, and your credit score is super important.
It can affect everything from opening a bank account to buying a car to renting an apartment
to even buying a home.
Some employers even look at applicants’ credit scores, so yeah, it’s a big deal.
There are some times when your credit score may need to take a back seat to getting out
of debt but we can talk about that in another video.
All that said, you’re taking a good step by learning how all this works!
For many people, deciding whether to take out loans to go to college for the first time
can be their first big experience with debt and managing money.
Depending on how much money your parents make and what kind of aid you qualify for, you
might get government-subsidized student loans or private loans, which tend to have higher
interest rates.
You can take out student loans even if you don’t have a credit history, and some loans
let you take out as much as you want, but remember, the choice you make at the age of
17 or 18 might follow you for the rest of your life.
Pros: You can go to college and making loan payments builds your credit history.
Cons: If you take out too much or can’t find a good-paying job after college, you
might be stuck paying off your student loans for decades.
Defaulting on your loans--where you admit that you can’t pay them--is a serious choice
that could impact your financial future for the rest of your life.
The other thing you should note before taking out student loans in the U.S. is that it is
extremely difficult to file bankruptcy to get rid of them.
There are still many ways to try and make college a little more affordable, and we have
a few videos on the topic in the description below.
I didn’t really have a strategy when I was 18, I wanted to go to a four year university right off the
bat, but then I realized I can get the same education at a community college
for the first two years for less than a 5th of the price of a 4 year university.
Credit cards:
Every time you use a credit card, you’re taking out a small loan that you promise to
pay back to the credit card company with interest.
The most common type of credit card is unsecured, meaning it’s not backed by collateral.
If you don’t pay your credit card debt, the company can’t take your home or car,
but it can try to sue you depending on how much you owe and what state you live in.
Lawsuits are expensive though so they usually try to settle before suing you.
Pros: You can make purchases even if you don’t have the cash in hand, and you’re building
your credit score if you pay back on time.
Some credit cards also offer reward programs that offer things like airline miles, store
discounts or cash back.
Cons: If you don’t pay your credit card bill in full every month, you will pay interest.
It can also be really easy to rack up thousands in debt and end up paying two or even three
times as much as you originally borrowed.
Medical debt:
Forty-three million Americans have overdue medical bills listed on their credit report,
according to a 2014 study from the Consumer Protection Bureau.
Big debts from unexpected hospital stays can really add up, and unfortunately, unpaid medical
bills do affect your credit score.
There is a little bit of good news.
In mid-2017, the three major credit bureaus, Experian, Equifax and Transunion, added a
six-month grace period for consumers to resolve medical debts before it appears on their credit
report as an unpaid bill.
It’s not a solution to an ongoing massive issue, but it might offer some relief.
Payday loans:
These are small, short-term loans that usually come with really high fees and interest rates.
Payday lenders are typically geared toward low-income people who are strapped for cash
and need to borrow some money to make it to the next payday, ergo the name.
Pros: Low-income people can borrow money even if they don’t have good credit histories.
Cons: High fees and interest rates can trap people in a cycle of debt if they can’t
pay off the loans.
Payday lenders are controversial and highly regulated in many states.
Car loans:
One of your first big purchases in life could very well be a car.
Whether you’re buying new or used, make sure that you’ve already checked with your
bank or credit union to find out what kind of car loan you qualify for before you go
shopping, and make sure that you can commit to monthly car payments if you can’t afford
to pay for the vehicle up front.
Look at the final purchase price of the car, not the monthly payment, to make sure you
really are getting a good deal.
Pros: If you pay off the car on time, you’ll establish great credit history that will be
useful for years to come, and, uh, you’ll have a car to drive.
Cons: If you sign up for a payment that’s not realistic, you could find yourself struggling
to make ends meet every month.
And if you don’t make the payments, you won’t get to keep your car.
Mike & Emma made a video on how to buy a car, so check out that link in the description.
Home loans:
Hopefully, you’ve built good credit and saved up a lot of cash before you start to
looking to buy a home.
When you’re buying a home, you can usually expect to pay a (relatively) small chunk of cash up
front-- a cash down payment--and the rest over the next few decades in a monthly mortgage
payment that you owe to the bank that loaned you the money to buy the house.
The more you can afford to pay up front, the less time you’ll spend paying the mortgage
and the interest and insurance that often comes with it.
Pros: Instead of paying rent, you’re paying money into an asset that you’ll eventually
own, and hopefully it will appreciate in value over time, offsetting the cost in the long-run.
Cons: If you get into dire financial straits and get behind on your mortgage payments,
the bank might foreclose on your home and take it back.
Even in the best circumstances of home ownership, you should also expect to spend money on property
taxes, homeowners insurance and maintenance fees.
Home equity loans:
Let’s say you want to take out a big loan to pay for something major, like a home renovation,
your kids’ college education or starting a new business.
If the house that you’re paying on is worth more than the amount of money you still owe
on it--or you own the house--you can take out a home equity loan.
Pros: These loans are usually low-interest, since the bank knows it can take your house
if you don’t pay the loans back.
Cons: Since the housing crisis of 2008, these kinds of loans are harder to get.
You also run the risk of losing your house if you don’t make the payments.
Debt consolidation loan:
If you’ve got so many bills to pay off that you don’t know how to deal with them, a
debt consolidation loan might an option for you.
Consolidation loans are typically geared toward people with a lot of unsecured debt spread
among different places, like credit cards, medical bills or overdue utility or rent.
As we learned a few minutes ago, unsecured debt means there’s no collateral attached
to it.
A secured loan, like your house payment, isn’t likely to qualify for consolidation.
So, if you have a ton of unsecured debt owed to different companies, you might be able
to talk to a debt counselor and seek a debt consolidation service that will help negotiate
your loans into one interest rate and one monthly payment.
Pros: You’ll improve your credit rating and get fewer calls from collection agencies,
and, hopefully, get on the path toward straightening out your financial life.
Cons: You have to be very disciplined about your spending and pay the loan every month.
If you’re struggling with one or more kinds of debt we’ve talked about today, you’re
not alone.
For this series we partnered with National Debt Relief, a Better Business Bureau A+ accredited
company with over 13,656 client reviews from folks who were able to resolve their debt.
National Debt Relief is a debt settlement company that will negotiate with creditors
on their client’s behalf to reduce the amount of debt owed and consolidate it into a single
lump sum.
They’re completely performance based and charge no fees until their clients see their
debt reduced.
Their program is recommended for consumers who have over $10,000 in unsecured debt, and
they offer a free savings estimate that can show consumers how much they can save with
no obligation.
Visit https://www.nationaldebtrelief.com/HTA to get a free report comparing all your debt
relief options.
See you next time for part two, where we’ll talk about ways to get your finances back
on track.
[squealing noise]
43 million Americans have overdue mill—million bills
Same thing.
Before you start looking to h—buy a home.
[small squeak] [laughter]
National Debt Relief is a da—
Aw, no. It's not a dad.
See you next time on part 2, where we'll talk about ways to get your financial back on track.
Nope.
[laughter]
Perfect! We did it.
Yay! 3 minutes to spare!