Latest / Success Story with Scott Clary / Lessons - Breaking Free From the Debt Cycle That's Destroying American Wealth | George Kamel - Personal Finance Educator

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Lessons - Breaking Free From the Debt Cycle That's Destroying American Wealth | George Kamel - Personal Finance Educator · Success Story with Scott Clary

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  In this lessons episode, learn why credit cards, loans, and mortgages can harm your finances,
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  though some people use them strategically, discover how avoiding credit scores can bring peace
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  and prevent overleveraging. Understand which financial products are most harmful for different
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  groups, and why taking responsibility is key to breaking free from debt.
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  If we look at all the different things that we sort of just touched on, we spoke about credit cards
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  and line of credits and mortgages and leasing your car and credit score, they're all damaging
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  to various degrees, but I think that some people would argue that there's a place for all of those
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  in people's lives as well. There's some utility to getting out a mortgage if you, or maybe there is,
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  I don't know. I know that Ramsey has a pretty hard and fast opinion on debt, right? So out of all
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  those things, is there a place for them at all in an early person's life? Is there anything they
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  can use strategically? Is there any point, for example, of trying to even focus on a credit score,
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  are all these things really just myths that are going to damage your life, your ability to
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  afford things, your ability to build wealth later on? Well, I had these fears as well. You know,
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  when you dive into the Ramsey plan and it's like, hey, cut up all of your credit cards, close them
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  down and, you know, don't worry about your credit score. Eventually, it's going to disappear and
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  you're going to live life without it just fine. These are things that, you know, when you're young,
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  you're scared. You're like, I don't know, that's not what I've heard. And then living it out,
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  personally, when I cut up my cards in that class, I closed the accounts, I paid off the cards,
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  my credit score went to indeterminable within about six or eight months. It was just gone.
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  And then I went, I'll have to rent an apartment. And they're like, oh, you'll just need a little more
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  deposit. I mean, as long as you have proof of income and you don't have a criminal history,
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  you're fine. And I went, oh, okay. So that was one myth busted. I went to rent a car without a
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  credit card or credit score. And then I went, well, yeah, we have a debit card policy. You'll
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  seem to add a little more to the deposit up front. But other than that, you're good to go. And I
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  went, oh, wow, another myth busted. And then I went to get a house to get a mortgage. And this
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  was the big kahuda. Everyone goes, well, you need a credit score to get a house to get a mortgage.
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  And I went through a process called manual underwriting to no score alone. And this is what
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  they used to do back in the 70s and 80s before credit scores were rampant. They would look at your
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  act, a real person would look at your personal financial history, look at your income. You do have
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  stable income, look at your tax returns, look at all these things to go. Do you have the ability to
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  repay this mortgage? Do you have a solid down payment? What is your debt to income ratio? And so
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  based on all those parameters, they gave me mortgage with no credit score. And so that's when I
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  realized that there really isn't a lot of hoops to jump through. And my life is actually better
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  having opted out of this system entirely. And so that takes, that's a big sort of a curve.
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  If you can make that curve, you're going to be just fine. But a lot of people, they go, no, thank
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  you. I'm going to keep living the way I'm living. Or I'm going to do it for a tax deduction.
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  Or my tax guy said, I can write this off. I'm going to do the lease. And they're trying to finesse
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  the system. And it's burning so many mental calories that could be used for, you know, more
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  beneficial things to your life. And that's what I'm saying out there. You can live a life in the
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  system and you can build wealth. But what I found is it's much more peaceful and simpler to just
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  buck the system entirely. When you look at bucking the system and getting rid of the credit score,
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  what it's forcing you to do is to not be over leveraged and to be more financially responsible
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  because now, like you're saying, they're asking you to actually just reserve a little bit more of
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  your cash for the purchase you're making, which is just smart financial sense. Anyways,
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  because how do people get into trouble? They just over leverage themselves. I'm very curious
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  in your opinion, what would be the most predatory financial product that you've seen people get
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  hooked into? Oh, man, there's so many. It's like choosing your lease favorite child.
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  You know, there's there's the most predatory for different people groups. So I'm going to I'm
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  going to say for lower income folks, the payday loan and the tote the note car a lot. Those are
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  the most predatory products out there because it puts you in an endless cycle. When you have a
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  400% interest rate, it feels impossible to climb out of that. Even if it's a low amount of debt,
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  it makes it so difficult to get out of that. And so you're left re-entering that cycle over and
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  over again. Then we look at the middle class. The biggest wealth killer is the car payment.
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  And as cars have gotten more expensive, you know, the same thing happened with student loans. We
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  saw this. The colleges said, Hey, the governments are going to back the student loan companies
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  so we can increase tuition because people will just take out more loans because the student loan
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  companies are happy to give it because the money's backed by the government. And so you saw this
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  just spiral out of control and tuition, you know, blew past the rate of inflation, the rate of
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  the housing market, everything. It just exploded. The same thing kind of happened with the car the
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  car market post COVID, you know, supply and demand issues. We got to make the chips. We got to
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  increase the supply and car manufacturers went, we could raise prices and people will still take
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  out loans because what's a $500 car payment versus a $350 car payment? And people are already
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  used to payments into the life. So we saw the average car payment increase to over $700 now.
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  And people are just going, well, you got to have a car payment, you got to drive something
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  reliable, you got to drive something safe. And I'm like, dude, a 2003 Honda Accord is safer than
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  some of the cars that are out there on the road to the, okay, that thing's a beast. You cannot
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  take it down. And so we also have justified a lot of these purchases emotionally and psychologically,
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  truthfully, because we just want them. We want the nicer car, we want the nicer house,
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  we don't want to have to budget and save up and pay for things with money we actually have.
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  We'll just put it on the card. And then as you look at the younger generations,
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  they've really gone away from credit cards, but now they're addicted to buy now, pay later,
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  a firm and clarinet, all these services because they go, well, credit card equals bad. I know that
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  25% interest, that's not good. But with buy now, pay later, I can still have all the things I want now
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  without having to need the money right now upfront. And so that's another addiction for the younger
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  generations. And then of course, the credit cards one are the kind of the overarching
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  nemesis from, you know, people in their 30s to people in their 60s were just so used to it. You
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  have 16 cards in your wallet now that you've justified for different purposes. Maybe it was a,
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  there was a bonus with points. And then we see this new credit card actor trying to pass that
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  basically will crush credit card rewards. And so now people are petitioning against this. I don't
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  know if you've seen no, what is this? And there, there's a, so basically visa and master card have
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  had the monopoly as the processors in its crushing business owners. You know, when you look at the fees
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  they're charging business owners, the extra 3% or 3.5% if it's an MX card. That's why a lot of
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  businesses say we don't take MX because they're not going to take a 4% hit on every purchase
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  for the pleasure of you swiping your MX. So what they're saying is, hey, there's going to be other
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  processors that are going to enter the space. You're not going to have the monopoly on it. And
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  that's going to hurt all of the reward systems that are tied to that. So capital one, discover all
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  of these places that have the visa master card logo on it. And so when you look at how they're
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  able to devalue points at any time, the fact that people don't even redeem them, the black
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  outdates, the mental psychology of what is 100,000 points? Oh, it's a $10 gift card. I didn't realize
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  that. It just felt good to be at Chuck E. Cheese getting more points and more points. So that one
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  overall is, is I wouldn't say it's as predatory as the others, but it's definitely one of the
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  biggest killers because it's sort of a silent killer because the payment is low. You're,
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  it's a $200 monthly payment on my credit card. The problem is you're never going to pay that
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  thing off, making that minimum payment. You've got to be putting a thousand bucks on that balance
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  in order to make it go away forever. And so there's, there's a lot out there. And the first two-thirds
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  of my book breaking free from broke, I systematically am going after the credit score, the credit card,
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  the auto loan, investing traps, mortgage traps to help people go, hey, I know this is what we have
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  all believed, but there's a different path. And here's what you need to know. And I do it with a
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  lot of research and also a lot of humor because this stuff can get heavy if you're not making jokes
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  about it. I think it's stressful because what you do is you're, you're really just reeducating
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  people on how to look at finance. And it's really a paradigm shift from everything they've known
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  their entire young and adult life. People know this, but everybody buys a house with a mortgage,
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  a majority of people buy a house with a mortgage. And when you start to do the math and you start
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  to figure out how much extra this house is costing me over 25 or 30 years, it hurts. Like it really,
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  really hurts. It's a very uncomfortable conversation because then it forces people to understand
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  that the financial system is not there to benefit them. So they kind of have to take their own
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  financial future into their own hands, which is an uncomfortable thought. I mean, you have stats and
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  you have data, but if you don't use your credit cards, if you have nothing on your credit cards,
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  there are credit card companies that will just shut your card down. You're doing all the right
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  things. You open a line of credit. You open a credit card. You're not using it because you're not
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  using it. They're not making money off of you so then they shut it down. Oh, exactly. Well,
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  they're always offering you, well, hey, if you do good, we'll give you more line of credit or,
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  hey, your credit score could be higher. If you opened up more lines, here you go. That's the
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  marketing we hear. The marketing is never, hey, before you make that purchase, is it in the budget?
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  Did you save up? Do you actually have the money in savings? Is it going to derail other financial
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  goals? Have you invested in your Roth IRA yet? Nobody's marketing. Do you like that? They're going,
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  hey, buddy, over here, I got some candy in the van. You want some more line of credit?
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  And we're falling for it. As adults, we're going, sure, absolutely. And it's not because we're dumb.
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  It's because we've been led to believe all these things in society, misguided guidance counselors,
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  well-meaning parents. They're all complicit in this crime of leading us to the source of pain and
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  frustration. And as I talk about in the book, the inflection point is realizing that it's not
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  all your fault, but it is your responsibility. So if you just say it's not your fault,
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  then that says, well, I'm just a victim of life. Life happened to me, but it's not all your fault,
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  meaning there were other things, there were other sources, there were other influences, forces
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  at play here, but you're still the one who signed the dotted line for that credit card. You need to
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  take responsibility, because if you're the problem, you can be part of the solution. Thanks for tuning
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  in. If you found this valuable, don't forget to hit that subscribe button so you never miss an
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  episode. And if you want to dive deeper into this conversation, check out the links in the
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  description to watch the full episode. See you in the next one.