Scott: [00:00:00] Dollars and Cents with HAPO Community Credit Union helps empower our listeners to achieve financial success while living for today and planning for tomorrow. This podcast focuses on financial education, community support, fraud prevention, real life stories of financial transformation, and much more.
HAPO Community Credit Union serves Washington and Oregon with over 18 locations. Bank on more when you bank with us. Hi, everybody. Welcome back to another episode of Dollars and Cents, HAPO Community Credit Union's financial literacy podcast. Today in the studio we've got a panel, if you will, of guests.
We've got Tony, Teresa, and Domingo. And we are going to be talking today about real life scenarios of debt, how they could have been avoided and how you can claw your way out of them after you have accidentally gotten into these. Everybody introduce yourselves. Welcome to the podcast.
Tony: Well, thank you.
My name is Tony. I'm from the Sunnyside [00:01:00] HAPO branch. I am the assistant manager and with the company for over 16 plus years, and I am certified as a financial coach, which really has helped.
Teresa: Hello, I'm Teresa, financial center manager. I am a certified credit union financial coach, CCUFC. Currently have six.
I am a certified financial coaches on my location. I on a day to day basis work with our membership and our staff, our frontline staff.
Domingo: All right. I am Domingo and I am a consumer lending underwriter. I've been with Habbo for 10 years. I've been underwriting for three and I'm also a certified financial coach.
Scott: All right. So I am the only one at the table that is not a certified financial coach, just in case anybody was curious. Like I said, today we're going to be talking about debt scenarios and how people can get into those, what type of life events might bring those up, how they could have been avoided first off.
And then of course, because we didn't do the right things in our [00:02:00] scenarios, how we can get out of those. So off the top of my head, I can think of a couple of different ways that this could happen. Typically unexpected expenses are shockingly unexpected. They pop up out of nowhere and without proper planning, you don't know how this is going to impact your life.
So one that immediately comes to mind for me is let's make this not the person's fault in any way, shape or form. You're out there driving you've got a nice new vehicle just came off the lot with it. And this vehicle gets into an accident, something goes wrong and it's a total loss. Now we all know the standard story.
You bought a car, you drive it off the lot. It has depreciated to like half its value immediately just by the concept of you leaving the parking lot with it. Most of the time in this situation, that means that you are what is called upside down on your loan. Correct? Correct. Okay. So insurance isn't going to cover the full cost of this, but you're also out of vehicle.
So we're going to have not only the extra expense of paying off [00:03:00] this now broken vehicle, but we've got to find our way into a new one. Let's talk about what could have been done to avoid this. Aside from the fact that say we just drove it off the lot, maybe it's been a couple of weeks, a month or two, you're definitely still going to be upside down on that.
So what could have helped us prevent this? How can we protect ourselves financially against something like this?
Teresa: Well, first of all, let's hope that we opted in for the gap protection. The gap protection is going to cover the deficiency balance in the case that something like this does happen unexpectedly.
Scott: Now that that's an additional insurance feature that you can get. It's purely optional. That can then protect this exact scenario as the depreciation of the vehicle's value goes below the actual cost of the loan. It covers that gap as it were, hence its name.
Domingo: Yeah, and GAP is actually an acronym for Guaranteed Asset Protection.
So covers the [00:04:00] difference between what the vehicle is worth and what the insurance will pay for it.
Scott: Okay. And now, so we've got that, we've got this gap of of funds that if we had opted into this, we're going to be covered. So we don't have to worry about that side of things, but now we've got to go get ourselves a new vehicle.
And so we're looking at possibly another big expense. Now, the hope is if we've got that gap insurance that the cost of our vehicle is covered. And so we're not going to be out of pocket for that. But if we failed that, we're going to be, depending on how nice of a vehicle we're looking at, a couple thousand dollars most likely in additional debt on top of needing to go find another new vehicle.
So how many people go and buy a vehicle that's a probably five, 6, 000 cheaper than they know they could afford? And how many people out there are going and being like, I can afford 36, 000. I'm definitely going to spend 38, 000 on this next vehicle because we all will lie to ourselves and push it a little bit.
I know I do. [00:05:00]
Tony: So one of the things that I used to do when they used to sit with me and they were in that same scenario. is giving them a leader, at least a forecast of what they're getting themselves into. As far as the payment goes I always encourage that they come and get pre approvals before they go out there shopping.
For one, they get a good forecast of what they're going to get themselves into. And they did have a gap advantage. You know, there was that incentive of the thousand dollars that we would give you towards a new vehicle which is a nice incentive, but more than anything, the financial stability is what was my aim.
Encouraging them to not get themselves into an entrapment of some sort. Looking at what they're getting themselves into, what the payment's going to, how it's going to affect them forecasting, you know, so that's always been my aim, making sure you know what you're getting yourself into before you sign the paperwork and you commit to something or even go out there looking for vehicles, having a mental picture of what it is you're looking for, what you're.
What's within your means and what's not going to set you off because of the [00:06:00] accident that, like you said, was unforeseen. I mean, there's nothing worse than having an accident and not getting yourself into a new vehicle, a new payment, and now it's affecting your lifestyle. You can't go on vacation, you can't do this, you can't do that.
So,
Scott: Now, you mentioned getting into a new vehicle do we think that this would be the type of scenario with enough extra cost already on top of this, having failed to get that gap coverage that we're no longer looking at being able to get into a new vehicle?
Domingo: Yeah, it's a tricky scenario. There's a variety of different answers to it.
Yeah. Yeah. but it all is, is in the long run, you gotta have a plan. What's the plan? So you have a vehicle that you purchased. It gets totaled for whatever reason. You have a negative deficiency balance. That's technically what it's called. Okay. How do you take care of that and get into a similar vehicle that you had before?
Scott: So from a loan [00:07:00] perspective, In that case insurance doesn't cover it. The vehicle's totaled and gone. I still need to make my monthly payments on that loan. We're assuming then that the insurance company, that bulk payment that I'm receiving from them is going to go towards paying off that loan. But I still have a monthly payment for that vehicle.
Correct. Is there anything that they can do to say renegotiate that payment to drop that? Because if I'm spending because we calculated and we talked about budgeting this out, if I'm spending my entire car payment on this one that I don't have the vehicle for anymore, I don't have anything in my budget to afford a new vehicle.
Domingo: Correct. So there's a variety of different things you could do here at happo. We have a program that is worked out through our risk management department asset recovery. Mm-Hmm. And we call it a deficiency balance loan. It's per, it's essentially a personal loan to cover. Okay. That remaining [00:08:00] balance.
Okay. And what that does for our membership is it allows them to take that, let's just call it a 500 monthly payment. And shrink it down to something that is affordable for their budget. So that way they are able to get into a different vehicle. I'll sell when
Scott: they had effectively what this is accomplishing is instead of defaulting or ending up with late payments on the current car loan, we're almost refinancing that loan into a different thing, using this new loan to pay off the other one with a different.
Timeline and a different payment based on interest rates and other, other aspects.
Domingo: Correct. It essentially turns into a personal loan. The interest rate is high, higher than an auto loan because it's unsecured. So that is something that we will work with our membership to help them through this difficult situation because nobody wants that.
Unfortunately, it happened to me. I bought a brand new vehicle and [00:09:00] I did put some cash down. It got totaled. No fault of my own. But because in my mind, I thought I'm never going to wreck this beautiful vehicle that I got, unfortunately did. And lesson learned. I had a deficiency balance that I had to, unfortunately, I didn't have any savings.
Because I used my down payment, my savings as my down payment. Yup. So I had to make those monthly payments and I worked through that. And with that, I wasn't able to buy that vehicle again because I had no cash down. So I had to buy a smaller in between car for drove it for a couple of years so I could work back up to where I was before to buy that vehicle that I always dreamed about.
Scott: So part of this is you had to back off on your budgeting, get yourself a lesser vehicle than the one that you were hoping for. For the meantime and sacrifice might not be the right word, but I guess it probably still feels like that. It felt [00:10:00] like that because you, you know you work for it.
Domingo: Yeah. We all work for it. You planned ahead. You'd already gotten there. And, and, and this is what I, what I worked for. This is what I accomplished. And yes, I had to take a step back. So it was a compromise. to the in between. Luckily, it was only two years. I know it sounds like a long time, but it was two years, 18 months or something like that.
So that way I can work my way back into what I desired. All right. It's tough.
Teresa: Something to keep in mind with that is having the loan to value top of mind. That's actually something I never really took and considered before working in a financial institution or being certified as a financial coach.
But really knowing where you stand, where the value of your vehicle, and how much your loan's gonna be. Sometimes a down payment is gonna help with the loan to value. But that's something to consider. The lower you are on the loan to value, the better place you're gonna be in if something does happen.
Scott: Now, obviously in that particular case, [00:11:00] if say we have an 80 percent loan to value, we're, we're looking at 20 percent equity or, or additional value in there, which is going to obviously help that is going to cover part of that gap. Does that assist in rates in any way, shape or form? If you have a better loan to value, is that going to impact rates at all?
Or is, is the, the rate valuation mostly going to be on the longevity of that a five year versus a seven year or a 10 year loan?
Domingo: It's kind of a sliding scale. So because of our Fair Lending Credit Act laws, we, let me explain this. So it's a sliding scale. So 60 months, 70 months, 72 months, 84 months, six, five, six, seven years.
And then also your credit score is also a sliding scale. So depending on your credit score, your interest rate, the higher the credit score. Just lower the interest rate. Okay. The lower the term, the lower the interest rate. So it kind of goes like, yeah, if you're
Scott: [00:12:00] willing to repay us quicker, we'll give you a better rate on that.
But if you need the longevity to lower that payment, it's going to be a slightly higher interest rate.
Domingo: Correct. And it's all credit
Scott: score is going to be your risk and how, how good you have been in the past on repaying. Cause we know that making your payments on time is, I believe 30% of your credit score.
Don't quote me on that. I might be wrong, but it's pretty close. I know it's one of the largest parts of your credit score is your repayment history.
Teresa: Correct.
Tony: So in regards to that one of the things that we always wanna demonstrate to the individuals in front of us, our members, is showing them the show the gap.
You know, and that, that's a good illustration, a visual for them to see whether they should be purchasing a gap. In regards to loan to value, you know, the strength of the gap and if it's going to kick in and in unforeseen situations it, you know, so we do have quite a few tools that are visual. A lot of people are visual.
You can tell them as much as you want, but it doesn't make any sense unless they can actually see something on paper or
Scott: you [00:13:00] get that graph that that has your, your cost over time and your value dropping in a, in a nice little arc, but your, your loan costs being a nice flat line.
Tony: Correct. And just like that, I mean, you can see that, you know is it beneficial to purchase a product or a service, you know, because it is an extra cost, but we do our best to be competitive with the price that we give give it extra features give tools to be provided for visual purposes and in education with the financial, you know, classes that we take and all that stuff talking, kind of going back on topic of, of scenarios where when I first started working for the company, I had a situation where a father co signed for his daughter.
Daughter's boyfriend wrecked the vehicle, did not tell dad, dad got stuck with a vehicle that got still had to make that payment, you know, so under the circumstances you can pretty much visualize what that conversation I was having with him. He was pretty ticked off. He [00:14:00] was upset. He was confused. He wanted to know why he's, you know, the insurance didn't cover.
So as a new employee I had nothing but empathy. You know, I mean, I wasn't showing sympathy. I was showing empathy. I saw the circumstances. I saw that there was a need there, and I wanted to help this gentleman. I wanted to ease his pain. And so all I could do was everything that was taught to me weeks before.
The outcome was where, you know, same scenario that you were talking about where, you know, all these different departments came together and gave this gentleman a new plan, was able to buy a new vehicle for the daughter, you know, coincide, had better understanding what he was getting himself into. And obviously not as inexpensive, low to value, all that came into mind, and it actually played out.
Helped me for future situations and at the same time gave me great satisfaction knowing that I was setting them up to be able to overcome this unforeseen situation that he [00:15:00] found himself in. You know, I tell the same stories over and over again because they are very good stories. They demonstrate that sometimes we're not set up for something and it is my job, my
professional to, you know, educate you and hopefully create that financial foundation that you can build upon.
Scott: Hopefully get people an opportunity to hear the scenario and maybe learn from, from that, as opposed to having to live through it to learn that maybe when we talked about this the first time you should have, without going into an, I told you so type of a conversation, I told you you should have that gap insurance.
This is why. Cause obviously they're already in a situation where he's not the happiest of camper there. So when I told you so type of conversation, probably not going to come across the
Tony: best way. Yeah. So being that, that was my, one of my very first experiences is like, welcome to Happily. I was like, I wonder what's going to be next.
So,
Scott: yeah. Well, I can tell you exactly what's going to be next because our next [00:16:00] scenario is going to be a little bit more expensive. We all know that when budgeting, you should probably have an emergency savings account,
Tony: correct?
Scott: We'll talk about that a little bit more in detail here in a second, but let's go ahead and say that we have an expense that our emergency savings account can't cover.
We'll go with my personal life scenario here. A couple of summers ago here in the Tri Cities, we hit 118 degrees a couple of days in a row and my entire AC unit just burned. ate itself up. It died and we needed to replace that. That was a huge five digit expense on our side to get that replaced.
And we were able to handle a decent amount of that through pre planning. But that type of an expense is going to be a lot more than most people have in an emergency savings account. So when something like this comes along how do we go about planning for it? Obviously, emergency savings is a fantastic thing as far as a starting point, but [00:17:00] an expense like this, we're talking about a it's just a small chunk of the overall expense of what you're going to take on.
So let's talk about major expenses that can come along. This could be in my particular case, household in some other people's cases, it might be medical. Things that you're not expecting systems should be running fine. You shouldn't get hit by a car in a crosswalk. Any of those type of scenarios, and all of a sudden you've got a huge bill in front of you that you need to handle.
So obviously I think the first piece is to avoid that. We talk about emergency savings but let's get that out of the way. What is the general concept for an emergency savings account? Scenarios that you're talking about.
Domingo: Things that we're not expecting and that we hope this savings account can, can help us cover
Scott: flat tire.
We need to replace the tire sidewall or something like that. Now all of a sudden, like we weren't planning to spend a couple hundred dollars on new tires because [00:18:00] they should have been good for a couple more years and a flat repair isn't going to help us out. So we need to go spend. A couple hundred dollars here to replace this.
And now we're not taking a burden because we have that set aside just in case. When people are planning for an emergency savings account, how far do you guys tell them to go in putting money aside?
Tony: So budgeting is first off the biggest thing. So sitting down, seeing what their overall plans for the future, what is it that you're trying to do?
But to answer your question, six months is usually what. You know, you get started with that and then you keep
Scott: adding. Six months based on what though? Based on my regular monthly expenses or based on a certain percentage of that?
Tony: So six months of monthly expenses would be what I would indicate. And the reason why is that if you were to lose your job, I mean you're buying yourself time and that's basically what budgeting is all about is buying yourself time.
You know, if you were to get injured, for example, myself, couple, well, it's already been a long time, time flies. I went skiing, [00:19:00] you know. Second time going up on the hill, I thought I was ready for the Olympics, you know. And been skiing all day. Decided that I was done. Someone, all they had to say is like, hey, let's go one more time.
I was in the front of the line. Jumped back up there. On the way down, I was by myself. A little kid got in front of me. And, you know. Got in an accident, my knee went out. It bent. It was the ugliest thing and it, it affected me. I didn't want to get the surgery so it actually took me three years because I'm just that kind of person.
Stubborn. Finally got the surgery and I was out for a while. How that affected me financially was questionable. I mean, as far as it goes, luckily we were set up for it. We had budgeted for unforeseen situations. But And any other persons who wasn't, that would have been something that could have hindered a lot of what pays for the cost of food gas and, you know, electricity bills and all that kind of stuff.
I'm the bread maker of the family, you know there's times where [00:20:00] my wife decides she wants time off and, you know, luckily we're set up to work and say, yes, go ahead. Once things got started getting crazy, then go back to work, you know, but in those scenarios budgeting at least six months, I think is a good way to start, you know, but if you can budget for even longer, that's even better.
I mean, there's nothing wrong with setting up for the future, setting yourself up
Teresa: and I would say Six months is a great goal to have but also starting small make yourself a goal of a thousand You know a thousand dollars to begin with and then have a goal of three to six months of expenses That way it's something realistic too because it can be hard to save And something else that may help with that as well is having multiple savings accounts At HAPO you can have more than one savings.
You could have sub savings. So putting money You other than your checking or your primary savings.
Scott: Something where you don't have a debit card where you can immediately pay for it or access that money. We did an episode earlier with one of our [00:21:00] financial education members, Sabrina, where we talked all about budgeting and we did actually speak about multiple accounts and making some of those accounts difficult to access on purpose so that as the money is in you have less of an immediate ability to access that money.
And we think that a emergency savings account is a pretty good indication of where that should be. One of those accounts that you can access it, but it might take one or two extra hurdles to get there. One of the things we actually discussed in that was not just in a single financial institution, but in multiple financial institutions.
I do my standard banking here and I have a second secret savings account that is for this in another institution where I don't see it regularly. And therefore it can sit there and kind of grow without me seeing that I've got this, because some people, when they see that they've got money sitting around, it'll burn a hole in your pocket.
You will immediately go out and buy something with it. [00:22:00] And how long can you not look at that and let it grow to become this? Like you said, a thousand dollars. That sounds like it could be a lot to some people. Six months of expenses is probably going to be more than that.
Teresa: Right. But
Scott: I think staging it like that, you get those reasonable goals that you can hit and achieve and start to feel good about those things and have them set aside.
Teresa: Yes,
Tony: I have to agree with Teresa and what you're saying. You know, it's always been taught to me that you have to create goals that are achievable. If you start creating something that's too far from your reach, then yeah, you're gonna distract yourself and you're gonna end up doing things like what you said, you know, I have it here, let's go ahead and spend it.
So starting something with something small, having those different, you know, savings accounts, I'm sitting down with a financial coach. I mean, all those are great tools that Apple does provide. And they're free services. I mean, all it is is, you know, I'm spending a little bit of time committing to talking to somebody, you know, planning out whatever it is that you want to plan out.
Apple does provide a lot of services, a lot of products that [00:23:00] really do create that whole financial stability, you know? Exactly.
Scott: Talk about the things that maybe people hadn't considered and come up with plans to, to move forward. So, assume now that we didn't. plan for six months worth of expenses or that six months worth of expenses doesn't cover this cost.
What are some avenues that people have available to them to make sure that this expenditure doesn't really impact their day to day life or minimize that financial stress that they're going to feel from this big expense that has come about?
Domingo: For me, there's a couple things that I think about. One, basically maintenance.
I know it's, it's boring and not very exciting but being a homeowner, I have learned that getting your air conditioning service twice a year is actually a great benefit because if you have a good service, they're going to let you know [00:24:00] before it's time. Hey, This is getting a little weak. You might want to look at this and, and get an honest opinion.
If, if your regular guy comes out and says, Hey, this needs to be replaced next week, call somebody else, make sure that that is an honest opinion. And another thing is warranty. We, we buy appliances and they're great and they're shiny and we expect them to last fifty years like our parents appliances did cause they're still rocking the, you know, the dark brown wood panel stuff but our appliances are a lot more complicated.
A lot more sophisticated and if a warranty is reasonable and you feel that it is something that will protect your investment that is another avenue to kind of help with some of these, these costs. Okay.
Teresa: I know Scott, my point of view is, okay, so maybe we didn't take maintenance and preventive, preventive, preventative measures.
So, now we are in a place where we have to. You know, [00:25:00] come up with this money and we don't have it in savings because most of the scenarios that I get being in, you know, part of the frontline staff is having members coming in with, you know, You know, these real life scenarios. So first of all, I'm going to, well, do we have a credit card that we can use as an emergency savings?
You know that might not be the best case scenario because, you know, interest.
Scott: Correct. But it is a place where you can store some of these costs and pay it off over time. minimizing your immediate out of pocket expenditure to, to correct this,
Teresa: In
Scott: the scenario where my air conditioning unit went out, the the company that I ended up working with was fantastic.
And we were able to open a a new home improvement credit card with them that had a 0 percent interest for 12 months. Nice. So. In that scenario, I was able to effectively do that and put this cost on an additional card that then didn't generate interest over the next [00:26:00] year. At which point I was able to put money aside and pay the whole thing off.
I didn't end up paying any interest on that at all, but I was in a scenario where that was a thing that I could do. Having a card where you can move those costs to, and you're going to carry that balance, you're going to end up paying more in the long run. But you aren't going to end up defaulting or going broke based on the fact that you've got this major expense.
You've got to come up with a bunch of money. You don't have to go to the black market and sell a kidney in order to afford a new air conditioning unit or anything along those lines. Please don't go looking for black market sales people for kidneys. That is not our advice today. But yeah, so other methods that we can use to take and and move this debt to a to a place where we can minimize its monthly impact on us.
Tony: So one of the things in regards to that, that's a common scenario where unexpected debt comes in, someone comes in and they're like, you know, what do you, what's your advice? What do you think? What should I do? And that's the nice thing about [00:27:00] repeated members that keep coming to you, you kind of know, you get, you build that bond, you started knowing a little bit more than the average person, you know, so.
Sometimes what I can, what I recommend is if they already have like an auto loan, for example, we can refinance it, pull some equity. So going back to that loan to value, that being a great factor you know, and if they don't have anything, maybe they have a car that they've already paid off and it's a clear title.
That's always going to be my first two, just because it has it's an open contract. They have a steady payment they're open to give more payments and pay ahead. So if they can pay. A couple months ahead, you know, they can buy themselves time to go and focus on other things. It's just very flexible for lifestyles.
Scott: Maybe instead of using that emergency savings to pay just a huge chunk of it down, you use that to pay a couple of months ahead on this collateral secured loan.
Tony: Yes. And you know, the comparison, and sorry, Teresa. So the, the, the, Difference between a collateral type using in comparison to a visa is that a visa is revolving, you know, [00:28:00] so the temptation to keep adding to it is always there.
Teresa: And what I was going to add to that was the interest is going to be lower for a collateral loan versus the unsecured loan.
Scott: Mm hmm. The other one that came to my mind was and typically we've talked about these as ways to get yourself capital to do, say renovations would be a home equity loan. Again, utilizing the equity on something.
If rates are good and you can refinance in a almost always a home equity loan is going to be a lower interest rate than those credits. That of course requires you to have some sort of, A home that you can do what you have again, equity into much like the vehicle situation. But you can get a decent amount out of something like that refinancing once again, kind of like how we talked about with the the personal loan on the vehicle to cover that gap, refinancing that loan and kind of consolidate those things together under a better interest rate.
Teresa: Right, and a home equity line is going to be a great option [00:29:00] because of the rate being lower. However, with the home equity, the timeline is a little bit longer. So if you do have the time to apply for the home equity, that'd be great. If you need something quick, It's going to probably be the collateral loan or the credit card or a personal loan.
Scott: And of course, if you need it quick, you could do that and then once again, refinance those things, consolidate all of that debt together under, under a different type of loan when you do have the time. So you've gotten your feet underneath you, you give it a chance and then come back and bring all those together and minimize that, that interest that you're paying on those debts.
Domingo: That's a good point. Right. So your AC goes out, but you know, you're going to need a new roof. Do a HAPO visa to cover the AC unit apply for a home equity line of credit, and then consolidate those back into. The heat lock. So that way the interest rate is lower, payments are more affordable, and so forth.
Scott: Utilize the the debt [00:30:00] features that you have to your advantage to minimize the total amount of, of capital expenditure that you're going to have in the long run. I think a number of people out there that if you're going to end up in these scenarios probably don't have as good of an idea of what is available to them.
We don't want people to necessarily run out and get like a payday loan to have to pay for new tires on a car, which is why we want to talk about things like emergency savings. But again, those, those factors exist. You can go get something along those lines if you need to make that move, but it's not going to be your best debt option.
Of course. Anything else we want to talk about as far as those type of expenditures, any more topics to bring up there as far as how you can manage that type of debt into your monthly budget.
Tony: For me, I would, I would just say education, you know, I mean, have it have time, take time to sit down with a, you know, a specialist, someone who's seen it and can use scenarios for you.
Scott: And before it becomes a problem, a [00:31:00] big problem situation, like you don't want to be drowning in this and then come seek help that could have been much more useful six months ago.
Teresa: So we previously mentioned a Visa credit cards using them for an emergency situations. And so Possibly, if we do use a credit card, we, throughout the year, we'll have balance transfer promotion.
Okay. Where maybe if you had to use a credit card to cover an expense. You can now take advantage of this promotion where we're offering a lower rate and transfer that balance into a lower rate.
Scott: And typically that lower rate, that promotional rate runs for what almost typically it's 12 months or so on those promotional rates.
About a year, year and a half. Yeah, obviously each one's going to be a little bit different. So if you're looking into those, those promo rates for transfers, this is again, another consolidation option. to bring everything together. Take a look at the longevity of that as well as again for anybody that that's looking at these what that eventual rate turns into.
But absolutely taking advantage of those promotional rates is [00:32:00] a fantastic way to minimize that output. So our, our final scenario today is going to be one that is less immediate and impactful as far as like, Oh, goodness, what happened to me? How did this come about? And much more of a slow build that kind of creeps up on you.
And the next thing you know, you've been utilizing your credit cards, maybe a little bit too much. Because you see the reward points or the cash back options and you're like, okay, I need to put everything on this card, I'm going to swipe it everywhere. And the next thing you know, you've managed to rack up 20, 30, 000 in credit card debt because you're not paying it off regularly.
So all of a sudden you realize you have this monumental level of debt. Your minimum payment has started to creep up and creep up and creep up. And you realize that it's gotten out of control. Maybe something changes with your employment. You can no longer cover that. The creep of your lifestyle has pushed to a point where your monthly credit card payments and the amount of debt that you've racked [00:33:00] up seems insurmountable.
Tony: A lot of us kind of tend to, we, we go to school, we get an education. We. get done, we get careers. And during that time period, we go through a transitional stage where we don't have enough because we're going to school. And it's all going to that. And then we get our job, we start making income, and it keeps increasing.
So there is a tendency for us to want to keep up with our lifestyle, you know, and kind of like what you're talking about lifestyle creep. That tendency is, is that you know what, we want to reward ourselves. Yes. You want to buy fancier things, better things, because, you know, we worked hard, and we justified those means to
Scott: I spent, I spent how many years eating Top Ramen and Mac and Cheese while I got my degree?
Now it's going to be steak dinners every night, or whatever fancy meal you're looking at.
Tony: Exactly, and Before we know, like you said, we started using the credit cards, you know, it's a piece of plastic, you swipe it and it's magically goes away, you know, out of [00:34:00] sight, out of mind. Exactly. So
Teresa: before maybe that lifestyle starts to creep, we talked about savings and emergency savings, right?
It's also not a bad idea to have a savings for fun stuff. Maybe for hobbies, you may have a savings account for vacationing. If you love to food and love to eat out, you know
Scott: Set that aside as a different type of account instead of an emergency type of situation. This is my, this is the account that I'm going to live off of.
We did in our, our budgeting episode, talk about structuring accounts in such a way as this where you can set aside a different checking or a savings account that you can spend out of. So you're planning ahead for these things.
Teresa: Yeah. Play money, right?
Tony: Exactly. And so just to add to that too, I mean, you always want to distinguish, Between needs and wants.
I mean all this is to prevent you from getting yourself entrapped and digging a big hole that, you know, like we're trying to, you were describing we want to avoid and [00:35:00] with making more money, which we do tend to make, you know, make these impulse purchases. And we don't ever really think about, you know, is this something I really need or is this something I just want
Scott: jet ski?
Thank you. immediately came to mind. All of a sudden, I'm looking at it. I'm thinking, cool, I'm gonna get out on the river. It's gonna be summer. It's gonna be great. We're gonna buy a jet ski. We're gonna go out. We're gonna have some fun jumping off waves. And then I don't think about the fact that maybe I'm also gonna need a vehicle that can haul the trailer.
Oh, wait, there's a trailer that needs to come with a jet ski and then the fuel. And I'm only gonna use this thing probably one or two months out of the year because then I'm gonna have to get it out and hook it up. And then I'm gonna be paying for a jet ski. And this is 100%. I don't own a jet ski, but a random expense that just out of nowhere seemed like fun.
I can afford it, but is it actually going to pay for itself? Is it going to be worth it?
Tony: Exactly, you know? And so that's one of the things that I've when it comes to that topic is that, you know, sometimes we just want to buy things that [00:36:00] we don't need. We buy a computer and we want the latest one. It does exactly the same thing.
Now you're talking to my heart. Your computer. I don't need is something that I will regularly
Scott: do.
Tony: Well, then
Scott: you need to sit down with
Teresa: a
Scott: class for you. Oh boy. So lately in social media, there's been a couple of trends coming around. I don't know how many of you guys are on tick tock checking out the videos, but there have been a number of different Math related videos that come about girl math, guy math, dog math, all of those things.
Let's talk about some of the the way that can impact how we look at things. I talked about a jet ski, but that's going to be a much bigger expense than some of these other things.
Teresa: Yeah, so it's a mindset thing. Some examples that I could think of is I, I like coffee. I like to drink coffee, right?
And the Starbucks app has where you could reload a gift card. So in the mornings, you know, want to go get a coffee using your Starbucks app to purchase the coffee. [00:37:00] Reload the
Scott: card, couple of 20 here, 20 there.
Teresa: Yeah. So then when, when you use the app, you purchase coffee, they just scan your phone, coffee purchased.
That was free. And why it didn't touch my bank account, right? So
Scott: you didn't have to swipe a card. You didn't have to pull cash out of your wallet or anything. It's it's fake money. It doesn't exist. The mindset of of that, because then the ease of transferring money to that, that's the point where you need to be thinking about the money going to that location.
But now the money is over there. It's spent already. So the coffee is free.
Teresa: Yeah.
Scott: One,
Domingo: One scenario and actually a short story. I sat down with a member and they asked me, where's my money going? I make, I got a raise. I, you know, have a good job, so on and so forth. And, and she honestly said, I even budget for this stuff.[00:38:00]
And I said, okay, great. Well, let's sit down. And We did this kind of itemization of her budget. And now I call it a budget audit. Where is your money actually going to? And she said, I have this much going into this account comes out of this card. So we went through and itemize all these things of where this money was going.
And she was just amazed at how much the Starbucks budget was, how much the Apple budget was she had her family on her. Apple plan at any time her kids bought games, it came out of this line item in her budget. And so we went through and just, we just did one month of statements and she was blown away of how much money those little things cost.
And so her lifestyle had progressed. Obviously she had kids but she was not unaware of how much. Those [00:39:00] things actually added up to be every month.
Scott: So half of a budget is planning, the other half is evaluating. Correct. And going back and seeing if you're sticking with that budget. Absolutely. Like, yeah, I budgeted 100 for Starbucks for the month.
I did good, right? I don't know. Did I spend 100? Did I spend 200? If I spent 200, I did bad. If I only spent 50, then I probably still did pretty good. But not going back and auditing, as you're saying, to verify, am I sticking to my budget? Yeah, that's how, that's how these things get away. And you mentioned the games the entire video game industry has shifted back in the early two thousands.
It was, you would purchase a game, you would play that game. Then came subscription models. I'm going to play this game online. I'm going to pay this much a month to play this game. And then came microtransactions, it's going to cost me a dollar for this little outfit for my character in this game where I need to get this special currency in the game so I can, you know, [00:40:00] buy a new tractor for my FarmVille app.
And those microtransactions saw a huge impact. They were massively profitable. And now we start to see those in every different game. The fact that you see them everywhere should be a pretty good indicator that they, they work.
Teresa: Absolutely.
Scott: How much do people spend, and are they budgeting for that, or is it, it's just a dollar, it's just two dollars, no big deal, I'm just gonna do that, and I didn't budget for it.
Or, am I budgeting for this as an entertainment budget? Because there's nothing wrong with, with paying for those things if you're enjoying them, as long as you can afford it. Sure.
Domingo: Sure. One of my friends actually made that comment. She said, I'm not into nails. I'm not into makeup. I'm not into that stuff. I like playing this game.
And this is my free money. I don't know. I don't want to know how much she spent on it. But
Scott: she was on the game a lot. Hey, as long as like we said, as long as you [00:41:00] budget for it, you plan for it. then there's nothing wrong with it.
Domingo: Sure.
Scott: Yeah. Go have fun. Play your game. Buy, buy the imaginary outfit for your character.
Be the coolest looking person in the app and, and, but plan for it. She planned for it. Hey, that's all you need to do.
Teresa: Right, and be aware. So we do recommend reviewing your online banking for the transactions That are coming through on a daily basis. I personally review my account At least once a day log in just review.
Okay, this came out perfect. I used it here You know, and especially also your monthly statements going through those monthly statements by line item to verify that you're aware of the purchases that are coming out of your debit card. I was
Scott: going to say, if we start to get very comfortable in our lifestyle and we realize it's like, nope, nope, everything's still growing savings accounts going up, things are good.
I don't need to look at those things. You can quickly lose sight of the fact that you're paying for 12 different streaming services at 11 or 15 a month. And [00:42:00] you're only using two or three of them probably on a regular basis. So where is all of this money going It could be going into our savings accounts or our, or our checkings or anything else.
We could be diverting that into investments or other savings for the future or other fund money where we now we can, you know, cancel Netflix or Hulu or one of those. And now all of a sudden I've got 15 that I can spend on this mobile app for no good reason other than my enjoyment. It's just shifting that entertainment budget.
So evaluating and verifying those things regularly would, would definitely help.
Tony: Yes, and also keeping in mind any future expenses like if a major trips a new purchases of a vehicle or whatever the case may be prioritizing, you know, once again, you're wanting your needs, you know, if you are entertaining yourself now, but it's costing you money to the point where now when you go on vacation, that vacation is going to impact your months after that, you know, you didn't set yourself up.
There's been many times [00:43:00] where I've gone to a place and I assumed that I was only going to spend a specific amount. I had a budget for it and come back just like, how did I get myself into this type of thing. So yes, those are great things to always keep in mind. You have to go back and see what impact.
I love accounting. On their simplicity of debits and credits, you know, money coming in, money going out, credit, you know, are you crediting yourself? Are you debiting? Are you, what is it that you're doing?
Teresa: Mm-Hmm, ,
Tony: Every little thing counts, you know? $5, you know, gift card that you're purchasing to make logic of this purchase, yet you never use them.
And then they're just adding up, you know, money's just sitting there that you could be using for a savings for. something major that you're planning in your future. So yes, always going thinking of the present and the future is always one thing that I should always have in mind when I'm trying to budget.
Scott: All right. We've talked about how generally speaking, [00:44:00] we would avoid getting into this planning ahead, budgeting, structuring your accounts so that you can get those savings into places where you won't just pull the money out and spend it. But now we're talking about having 20, 30, 000 worth of credit card debt.
Making minimum payments is only going to get worse. How do we then shift our lifestyle? Obviously, going back and budgeting is going to be a big factor in that to get ourselves out of that debt. And what tools do we have at our disposal to work through this massive pile of debt that we picked up?
Because I've got all the outfits in the game. As well as other random things I have spent my money on all of the streaming services and it's just built up and built up and built up. And all of that has just been going into this other pile of, of debt that I'm not looking at because I'm not evaluating my, my monthly balances and whatnot.
What tools do we have to get ourselves [00:45:00] out of that? What can feel like crushing level of debt?
Teresa: So we do have our certified financial coaches that can help you set a budget. Maybe the budget, we didn't stick to it, right? Now we're in this situation. We do have we spoke a little bit about balance transfer promotions.
If you find yourself in a plethora of credit card debt and we have a balance transfer promotion, consolidate. Consolidate is going to be key to get everything in one place at a lower rate. And similar to what we also spoke previously, if you know, home equity to consolidate, if maybe it's, it's too much.
Leverage those assets. Yeah. Yeah. Levering those out and just consolidation is going to be best key. And then once you do that, be disciplined, be disciplined with how you're spending you know, maybe instead of getting a coffee every day of the week, Monday through Friday, maybe just, you know, treat yourself to one coffee on a Friday.
Scott: Yeah.
Teresa: Yeah,
Scott: we know that in general, the [00:46:00] conversation about let's skip the avocado toast and the coffee is, I think going to be helpful because we're talking five, 6 a shot here. We're talking 20 a week. It's going to make an impact, but it's not going to be the only thing that you have to do that discipline figuring out.
what you do need or want what you can afford and what you can't in order to divert some of those. Maybe, maybe you literally take a look at the fact that I don't need any streaming entertainment services. I can live without those. Let's take those and funnel that money into paying off that debt, finding ways to kind of shift some of those income streams.
My last question for you guys is things are effectively catastrophic. What are our last ditch efforts that people can be looking at when they feel like they're under this enormous crushing debt? They don't have assets that they can leverage bad scenarios for us to be [00:47:00] in. How can we get out of this scenario without taking ridiculously drastic measures of assuming a fake identity and fleeing to a new country or something along those lines?
What other tools are available? The generally speaking, we don't want to tell people you should absolutely go do this, but if you need it, here it is.
Tony: So. It's a nice partnership that we have with Greenpath. Okay. And that's a company that deals with last case scenarios. You know, you definitely just don't want to keep track, be responsible for the things that you've taken on upon yourself, but you just don't know how to get out.
And so the nice thing about them is that they do offer products and services that are free to our members. Some of them have costs and, you know, obviously they're, depending on what you work out with them, but they have a lot of solutions that can really ease the pain of trying to figure this, these things out.
We first try to do something in house, you know, and try to offer consolidation options, promotions clear titles using your home, but when all [00:48:00] that's not an option, It's good that we have this other option to supplier our members.
Scott: So if kind of going out and talking with the creditors the people that you owe and negotiating and working things out and be like, I can't make this payment.
What can we do? Because I don't want to default on this. I need my car to get me to and from work without that. I won't be able to make any money to pay off this. How do we work with those type of things? So working with creditors talking about we had an episode with our asset recovery team where we talked about that people calling in and saying, Hey, I'm going to be late this month, or I'm not going to be able to get this payment.
And what can we do? And they stressed very much. So communicating before it becomes an issue, because once it's an issue, it's a lot harder to work through.
Domingo: One thing I like about Greenpath is that they can initiate a debt consolidation program, like Tony said [00:49:00] earlier, education. Part of education, the other part of education is also a plan, and that's what Greenpath can do for you is give you the education and set you up with a plan to help you get out out of that crushing debt that is hard for some people to handle.
Scott: And of course, if then you stick to that plan and can faithfully follow it, you should in time make your way out of that. But kind of like the, the car situation earlier, two years feels like a long time, but at the same time, it'll, it'll pass and you'll get to a point of being able to get out from that.
Tony: So that's one thing that I liked that you just pointed out. I've actually sat there and helped members call Green Path and listen to the plan that's being given out. One, because they wanted me in the room and, and two, just, you know I was curious as to, you know, how they work. One of the things that they do offer is that they actually do give you a plan of time of how long it's gonna be before you finally get yourself out of whatever, you know, scenario you're [00:50:00] in.
And When they deliver that, the relief on the faces of these members is like awesome.
Scott: You've got a, you've got a, a view of what it's going to take. And light at the end of the tunnel effectively. That's what I was looking for. I was trying to remember.
Teresa: Also with that, I do want to mention that in situations like this your credit really does take a hit.
Oh, yeah. So you know, we could see those credit scores declining. And I just want to mention that HAPO does also help with like rebuilding your credit. We offer shared secured loans, shared secured credit cards, and we also have a credit builder loan that can help someone that maybe, you know, didn't start off on the right foot.
And
Scott: so coming out of this debt, being able to rebuild. Right. The last thing that I looked up before coming in here was what a lot of people have kind of very, very negative connotations about which would be filing bankruptcy. This is an avenue that, that people could [00:51:00] look at. This is not legal advice by any means, anybody listening definitely if this is where you're at, you need to go consolidate with or, or consult with a, a lawyer about this situation.
But in the end, being able to use that, it's a a federal procedure for the courts. to determine. There is a lot of accounting that goes into it. There is a lot of evaluation of assets and debts to determine if you can file for bankruptcy. And like you mentioned, the credit hit the fact that it stays on your credit for years after filing you don't necessarily go free and clear when you file bankruptcy.
It's not a get out of jail free card. It's just, yay, all my debt. I walk away. There's a lot that goes into that potentially liquidating the assets that you have court proceedings people that are assessing the debt collection itself, potentially much like we talked about with the green path coming up with a repayment plan, but [00:52:00] I would personally say go green path well before you go a bankruptcy lawyer and set up that because that debt repayment plan has a lot more impact to you than say working with the creditors or other things.
There's a lot of avenues to go through before going to that legal one. But if you need that, if you feel like you are drowning in, in this debt, there's nothing else that you can do. You've tried all the other things before. I would tell people don't be afraid to evaluate that just because of the stigma associated with it.
If your life is going to be better, that relief that you talked about, Tony I would assume that they're going to feel the same thing once they get that proceeding underway and complete it. There might be some, some, you know, personal feelings about it that you've still got to work through. But being out of that debt and not knowing and having a plan, I think could be a major, a major factor for people.
But again, probably your last resort type of a move.
Teresa: Right, and if that is the last resort, and you have to resort [00:53:00] to that, like I mentioned, you can climb back out of that, you know, you can start with shared secured credit card, and we will help you to rebuild, and I've seen, you know, members that maybe have had to resort to that, and we've seen them rebuild their credit, and, you know, now they have a really good credit score.
score and they learned their lesson of, you know, what happened previously and are taking the measures to prevent it in the future.
Scott: I think that's actually a perfect statement. Learn their lessons from it. Like we talked about earlier, sometimes telling people or showing people isn't enough. They have to live through it to really get the impact of, of what it is.
And of course, our goal here today is to help prevent you from having to live through it. Learn from examples and from visualizations and everything else about. What you can do to avoid these scenarios as well as what tools are available to get out. A lot of people don't know what they don't know.
And I think getting in touch, talking to financial coaches, talking to the creditors, being [00:54:00] ahead of that scenario tends to be the answer that I keep hearing from everybody on all of these things. Plan ahead, talk to people early, make a plan, follow your plan, should be able to make your way through it.
Yes. Do we have any final comments or thoughts before we sign off today?
Tony: Well, I just like the way you said that talking money is one of the things that is crucial. You know, if you never bring it up, you just put it in the back back burner and you don't really consider it. So Apple is very good about advertising, you know, whatever is going on currently, you know, so I think that up to this point, we've done pretty good about educating our communities and.
that we've been getting back has been that, you know, thank you. So I'm happy to be working for this company for that reason that we do get a lot of satisfied members that can benefit from the education that we provide. And cause we bring up these topics. So thank you for having this podcast.
Scott: Absolutely. Thanks
Domingo: [00:55:00] for having us.
Scott: Of course. Thank you guys for joining us and everybody out there listening. This has been Dollars and Cents, HAPO Community Credit Union's financial literacy podcast. Until next time.