Latest / Marci talks money (and life) / Understanding Credit Card Debt and Debt Management with Bill Mitchell
Transcript
- Marci Grossman (00:16) Hello, I am MoneyMarci. Welcome. I am thrilled to welcome today's guest, William Mitchell. Known for his strategic thinking, sharp intellect, and unwavering advocacy, William (Bill) Mitchell is a seasoned attorney with more than two decades of experience helping individuals and businesses find financial freedom and stability. A nationally recognized expert in debt relief and settlement, Bill has guided thousands of consumers toward reducing or eliminating their debt burdens. He is one of the few lawyers who has represented both major debt resolution companies and the consumers they serve, giving him a 360-degree understanding of the industry. Beyond debt relief, Bill is a trusted business attorney who advises small and mid-sized privately held companies on everything from business formation and financial transactions to contract negotiation and dispute resolution. Welcome Bill. William R. Mitchell (01:17) Good morning, Marci. How are you? Marci Grossman (01:19) I am great. How are you? William R. Mitchell (01:22) Good. Marci Grossman (01:23) So how did you get here? I mean, if someone goes to law school they don't say, Okay, I'm gonna end up in debt resolution. Something must have tickled your fancy to get you in that area of practice. William R. Mitchell (01:35) Marci, hate to disappoint you, but my fancy was never tickled. What happens if you are a business lawyer is that you follow your clients. And I've represented owner operators, a small, medium-sized business here in Orange County. Orange County is entrepreneurial. And ⁓ 20 years ago, a couple of my clients got in the debt relief business. And at that time it was a new business. So as with any client, I learned their business in order to solve their problems. So I learned the debt relief business. And again at that time very few people were doing it. So next thing I knew I was an expert. And so I got more clients in the business. And now it's twenty years later. So anyways, that's how it happened. Marci Grossman (02:26) Okay, fair enough. The debt relief business being new, where did this opening come from to create this opportunity for these businesses? William R. Mitchell (02:36) Nature abhors a vacuum. So like a lot of small businesses, they see an opportunity, a need that's been created. And what was happening is there has been since the mid-late 70s and really accelerating in the 90s, a growth in consumer spending and credit card debt. And years ago the banks would have a department that would assist consumers who got into too much trouble. But what happened is the number of consumers who were getting in trouble and the amount of money that they owed kept increasing. And people saw that there was a way to get into resolving these debts. In other words, negotiating with the banks, the credit card issuers, to reduce the principal balance of that debt. As you may know, businesses do this all the time. It's called a workout. It's a way to avoid bankruptcy. Businesses go to their vendors and their bank and work out a structure, often that includes a reduction of principal, so the business stays in business and doesn't have to liquidate. So that's how debt settlement started. Marci Grossman (03:57) I know there's a lot of different companies that do debt settlement nowadays. I hear stories from people who went to debt settlement and of course the advertisements are three cents on the dollar and we'll fix everything and so many of them have horror stories of what happened when they did go to a company to help them with debt settlement and then there are equally a number of people who go to companies to help them with debt settlement and it makes the hugest difference. It gets them back on track, whether they end up with a bankruptcy or not, depending on how much debt they put themselves into. How can people tell what is a good company to work with to help them if they've got debt settlement issues? William R. Mitchell (04:39) First of all, you're absolutely right. You mentioned in your introduction that I started off representing the companies. Some point I formed a law firm to represent consumers. And that's when I started. I'd heard the horror stories a little bit before, but now you know my law firm that represents consumers, we talk to you know 50 to 70 a week, and a fair percentage have maybe not horror stories, but that they had been misled, that what they were told didn't turn out to be true. They wished they had learned more or had been given more full disclosure. So I personally hear that story about four or five times a week. And my staff hears that story about ten times a week. And part of the reason I recently wrote a book called "Say Goodbye to Credit Card Debt". It's available on Amazon. You can go to a website called legaledgedebtsolutions.com. And you can download the book for free. And I say in my introduction of that book, people often get sold a solution that either isn't right for them or that they didn't fully understand what they had bought. So the horror stories you hear are real. Some of them are a little exaggerated, but a lot of them are real. People get into a solution because the debt relief business is a sales-oriented business. And they sell people, get them in the program, and then people then realize later, again, lack of full disclosure, or two, don't have the right solution. So all of that preface was to simply answer your question. How do you know if you've got a debt problem, what's best for you? One of the things I did to try to solve that very problem, what I call suitability. Sounds like a legal term, but suitability simply means putting a human being, a consumer with a debt problem, and getting them in the right solution. There's four solutions available to them. Bankruptcy being the most extreme, loan consolidation being the least intrusive, and then credit counseling and debt settlement kind of in the middle. I developed an assessment, a financial assessment. It's about 19 questions. It's confidential, it's free, it's easy, to help consumers figure out, based on where they are, what of those four solutions work best for them. And let me just give you an example. We haven't talked about how the spending, how people get in the cycle, but typically what happens is ⁓ a consumer will have a what I call a big life event. In other words, they're just managed to pay in the monthly minimum payment, maybe they're paying a little more, but then something happens in their world. Either an unexpected expense, could be auto repair, could be a death, could be divorce, or they've had a loss of income. They lost overtime that they used to get. Or they changed jobs, they're not making more. So whatever it is, loss of income, increased expense, in today's world, a lot of times we finance that with our credit cards. People used to save money. I know you know this better than most, used to save more. We do not. And so people when they have these additional expenses, they finance them with their credit card, and then they bury themselves. So if it's a temporary problem, maybe you just need to consolidate, get a loan. Marci Grossman (08:17) Yeah. William R. Mitchell (08:34) Consolidate all your credit card debt at a lower interest rate, pay it off. But if you've really gotten sideways and you just cannot pay that debt back and you don't have equity in your home, well then chapter seven is probably the best thing. So I created this assessment to help individuals figure out, based on where they're at, what their goals are, which of those options work best for them. Marci Grossman (08:58) Yeah, I have talked to a couple of people that they've done everything they can to get it under control and then they end up filing bankruptcy anyway, which means they really lost more than they would have if they'd have started by filing bankruptcy. I know when I was in college, registering for college, there were tables and tables of credit card applications who just wanted to give you their credit card. When my sons went to college they were a little more strict on who they were giving credit cards to. You had to prove a certain amount of income even before they would give you low credit limits or anything. And yet it seems like we're still having more debt now than we did then. So it's not necessarily oh the eighteen to twenty year olds, you gave them a credit card and they went crazy. It's people who have been around a little while still not able to save and get themselves ready for the challenges that life is going to throw at them. William R. Mitchell (09:59) Yeah, to your point, every statistic tells you we're worse off. We have the highest amount of credit card debt than we've ever had, $1.25 trillion, according to Wall Street Journal. We have the highest rate of what we call credit card utilization. In other words, the percentage of usage of the credit card. In other words, if they have a credit limit of $10,000, people are using somewhere around 40-50 percent of that credit limit. Over a third of Americans or over 60, 70 percent of credit card usage. We have the highest balance. In other words, the average balance people have on credit cards is now up around $7,000. It used to be $6,300. So everything points to your with the point you just made, it not only seems worse, it's quantitatively worse on every measure. Part of it is we have a society where they've convinced us to spend more than we have, and then they've made it convenient and easy to do it. Marci Grossman (11:05) I'm gonna have to blame social media a little bit too because we each share the best part of our lives. We share our vacations. We don't share the part where we're sitting down trying to figure out how we're gonna pay the credit card bill. William R. Mitchell (11:08) Right. Marci Grossman (11:17) Everyone's taking vacations, everyone's buying new cars, everyone's redecorating their house, everyone is doing all these things and getting to spend this money. We wanna spend money too. We wanna be as cool as our friends and they're not seeing when we struggle for bills because we're not gonna post the stuff that isn't exciting. They're not gonna see that at forty or fifty years old we're still trying to pay student loans. or that we can't help our kids go to school because we didn't put any money away for that. And as the college costs get higher and higher, we're basically telling our kids we can't help you, so if you want college, you're gonna have to go into this even bigger debt before you even start. William R. Mitchell (11:57) Yeah, you see it. I mean whether you go out to restaurants you see people taking pictures of their meal. If you're on vacation, you see people they go to the beautiful view, they take pictures of that. It's proliferated. And of course look how many commercials the credit card companies pump out. You know, what's in your wallet. You have the biggest, most credible celebrities, whether it's Jennifer Garner or Samuel Jackson, pitching credit cards. Kevin Hart pitching credit cards. So they again, they convince you that you can spend more than you have, and then they make it easy to do it. And here's where I think the real where I'll call it a trap. And that's the minimum monthly payment. Every credit card has a minimum monthly payment. It's right there that tells you what the amount is. And if you pay that, there's the impression that this is what you need to pay, and you're going to be good if you pay this amount. That minimum monthly payment represents 4% of the principal balance, 2-4%. So if you, owe a thousand dollars, what they're saying is all you need to do is pay forty dollars. But what you don't appreciate and understand, is when you pay that forty dollars, you're first paying the interest that you've accumulated on that thousand dollars first. So roughly, $25 is the interest on the $1,000. So in fact, when you pay $40 on the $1,000, you're paying $25 in interest and $15 on the principal. The amount of principal slowly ratchets up. The amount of interest you pay keeps mounting. Now you find in a situation for most consumers and I think Marci about thirty percent of credit card holders are in this position. That's only 70 million people by the way. 70 million, a lot of people, are in a cycle of debt. They more than likely can't get out unless they take really aggressive action. Marci Grossman (13:59) A lot of people. I can't stress enough that just because you can make your minimum payment does not mean you are paying your credit card. The minimum payment is not gonna get it gone. And if you're paying just the minimum payment then you could be paying for today's groceries for years. Whether you wanna talk about the coffee you just got or the gas you just put in your car or the movie tickets or whatever it is, you're gonna be paying for these things for years if you are not paying off your credit card or working toward getting your credit card in a paid off position. William R. Mitchell (14:30) Yeah, and I would say it is a malicious and willful trap by the banks to enslave consumers. Now that sounds a little hyperbolic, but when you really understand the math as we just talked about, that's what it's designed to do. It's designed to make you think you're operating in financial compliance and doing things that are financially sound when in fact you're slowly burying yourself into debt. And for any consumer listening to this, the credit card responsibility and accountability act requires on your credit card statement, every credit card statement says that if you only make the minimum monthly payment, how long it will take you to pay that off. It's right there in every credit card statement. It's right above where you put how much the minimum payment you may have to make in your balance. And if you look at that, it's an astounding number. And I bet you it's anywhere from most of your listeners, seven to thirteen years. Marci Grossman (15:52) Right, it's crazy. People don't really understand it. Do you think this is just an American problem or is this all over the world? William R. Mitchell (15:59) Marci in it like I've not lived all over the world, I don't know. But I do know that most western industrial countries have credit cards, but I think Americans are a little more aggressive on usage. I do know England also has a debt relief industry. Marci Grossman (16:16) What do you think caused this to start? Was there a point in time where companies just started giving away larger credit limits or people started feeling it was okay to not pay it? William R. Mitchell (16:27) It's a series of events and believe it or not, it started years and years ago with electrification. I know that's gonna be astounding, but when you started having electricity, it created a need for, a want and need for all kinds of appliances, washer, dryer, refrigerator, TV, radio, vacuum cleaner. All these items were more expensive than just buying groceries. So they needed a way to finance it. So the first really growth of credit, which initially was installment credit, was electrification. The next big wave, of course, then also then the car. How do you finance a car? The next big wave was after World War II. World War II you had all these young men go off to war when they came back, they created all these programs that made it easy to buy houses, to go to college, so debt became more prolific because when veterans came back from World War II, they had VA loans, and it was either 5% down or 0% down. So, in other words, you know, the majority of the houses financed through debt. So there you had more acceptability of debt. But a couple of things happened specifically in the credit card world. first of all, was the ability to charge interest at the high rates. That really didn't happen until the mid-late seventies. It was a court decision that allowed banks to charge higher rates. And then also they fine-tuned underwriting to figure out exactly, we were not going to just give a credit card to a student who has no assets and no income. They became better adept at deciding who they can give credit to, how much. So it became much more of a science. And they build in a loss rate. The banks know that approximately 5% of the consumers, 5%, will fail. So they plan a rate of failure. Let me just give you a couple numbers. 2024, 500,000 Americans filed bankruptcy, and another five million were sued by their creditors. So that's 5.5 million Americans literally have their lives blown up annually because of this problem. Marci Grossman (18:53) That's crazy. That's crazy. William R. Mitchell (18:56) It is. And we're having this conversation in this country about affordability because by every measure, as you know, because you talk to people every week on subjects like this, costs are exceeding wages. Cost growth, expense growth, has been growing faster than wages. So there's a compression. You can look at the savings rate. In the 70s, the savings rate was between 10 and 12%. In the fourth quarter of 2005, our national savings rate for individuals was 3.6%. That's an 8% swing. That means that compression is measured almost right then and there is that's one place. So eventually my hope is that there's more conversation about this very issue, not just affordability in generally, but the nature of credit cards and how the banks really exploit consumers. Marci Grossman (20:46) So more and more places are starting to charge a fee, usually around three percent if you're going to use your credit card. So I find myself, I know I'm going to a certain restaurant and they're gonna give me, well, either a fee for using a credit card or a discount for using cash, however you want to look at it. And so I'll find myself bringing cash to those places. Do you think that places charging that fee for using credit cards, so they're charging the consumer rather than the business effectively, is going to impact how people use their credit cards? William R. Mitchell (21:19) I would hope so, but the positive thing is it makes people conscious that there's a price for using a credit card. On the other side, so many businesses only use credit card or and I use my debit card just to reduce the pain. But a lot of places you go, they only want you to use the credit card or only accept the credit card. They've just made it so convenient. Marci Grossman (21:53) Right, right. It is convenient. And from the bookkeeping side of and the security side of things, if you've got a credit card statements it all gets deposited in one deposit. You don't have to sit there counting bills, rolling coins, whatever else, but you do have that fee at the end and the processing and if something doesn't go through then there becomes other issues. so there's a positive and negative no matter which you do. William R. Mitchell (22:18) Yeah, there's no friction on the use. All the friction is on the payment side. All the pain. Marci Grossman (22:24) Right. Right. And people don't they don't equate that. They say, I want that whatever. They pull out the credit card. It feels good. They get the whatever it was they needed. And the bill comes a month later. You can't even tie the two together anymore. That pain is not related to that joy of the hamburger that you got. William R. Mitchell (22:47) Correct. Marci Grossman (22:49) Are there different solutions that people could see that maybe they aren't considering? I mean, they can go on your website and take your test and say, Okay, I should be looking at bankruptcy or I should be look at consolidation Are there things they can do, baby steps to get them to realize they've got a problem? William R. Mitchell (23:07) Yeah, and I'm not trying to be oversimplistic here. But if you're taking my assessment, you have driven past the David Ramsey, Suzie Orman off ramp for finance, which is budgeting, and you're now in trouble and you're looking for a solution to get out of trouble. The better place is to when you perceive the issue is to go to the basic fundamentals that I'm sure a lot of your guests talk about, which is getting a handle of what's your income, what's your expenses, how to manage it. And if you have a little bit of a credit card problem, there's some simple solutions prior to going on my website and taking my assessment and figuring out whether bankruptcy or credit counseling is the best solution. And Dave Ramsey talks about it, I'm stealing other people's great ideas, which is the snowball method, the avalanche method. There's a way to get your credit cards paid off without having to resort to bankruptcy or credit counseling or debt settlement. But if you've gone past again, that place where you say, I just can't solve this problem by paying a little extra each month because there is no little extra. Then that's why I have the assessment. So you figure out which of those four options are best for you. And again, that's at Legal Edge Debt Solutions. And ⁓ if you want to get into the weeds, you can download my book. Marci Grossman (24:38) You mentioned about how things became more expensive after World War two with the electricity. I would say, absolutely because you can't imagine not having a refrigerator now. Unless you live in one of the cities that has great public transportation, you can't go without a car. I would say the same thing with a computer or a cellphone and the internet and all of these other things that that as time goes on there become more and more necessities and these necessities are never cheap. And can get beyond inexpensive into really expensive for some of these cell phones and other things. You really have to pay attention as you're spending your money and decide, hey, do I really need to upgrade that? Do I really need to, is it worth the debt that I'm going to get into that preventing me from paying more than my minimum payment. William R. Mitchell (25:31) Yeah. Well one of the other things that changed is early consumer finance was installment-based. In other words, when you buy a house or a car, it's essentially an installment loan. Fixed price, fixed interest, fixed monthly payments. And when you're done making that payment term, whether it's a four-year, five-year on a car loan, or twenty, thirty years on a on a mortgage, you're done making payments. The credit card system is revolving credit. Now that sounds like it's more freedom, and it does allow you to pay it off at the end of the month, but it has this trap that if you don't pay it all off, and you start having a principal balance that grows over time, eventually you become buried. And that was a real it's not so subtle because the banks figure out how to make more interest. And at the end of the day, keep in mind banks make money on interest. So the more games they can play to get you to pay more interest, the better off they are. And that's why you have not only the minimum monthly payment, but Interest rates on credit cards have really jumped. it was only four or five years ago that the interest rates on credit card were 14 and 15 percent. They're now 21, 22, 23 percent. It's been a big jump. Marci Grossman (26:56) Well, that's how they make up for the various expenses they have, in addition to the fees they charge to vendors, plus the fact they've got to cover the people who declare bankruptcy and don't have to pay them off 'cause they don't wanna pay your bills in the end, so they just charge it out of essentially to everybody else. William R. Mitchell (27:14) Correct, correct. And also a dirty little secret is the banks often carry insurance against those losses. So they kind of score both ways. They get insurance proceeds for those consumers that go bad, plus they spread the pain to everybody else who pays off their credit cards on time. Marci Grossman (27:36) You make me want to cut all my credit cards up. William R. Mitchell (27:39) Ha ha ha Marci Grossman (27:42) Bill, before we close up, do you have anything else you'd like to mention that maybe we haven't covered? William R. Mitchell (27:48) First of all, so many people who get into financial trouble sometimes don't act quickly to solve it because they feel responsible that they got themselves in this problem. And it's not it's not unlike a lot of human issues the first reaction is avoidance. Waiting doesn't solve the problem. Every month that interest is growing and growing. The problem only gets worse. So the sooner you take action, the better off you are. Second, you realize that this is a common problem. I think I what we talked about just a few minutes ago. 5.5 million Americans every year either file bankruptcy or get sued by a creditor. So it's a common problem. And somewhere around 25 to 30% of Americans have a credit card issue. Currently, 13% of Americans are more than 90 days late on the payment of at least one credit card. So you've got to get out of this is my problem, learn to take action, and realize there are four options: well-known options, tried and true options, debt settlement, credit counseling, loan consolidation, bankruptcy. So there are tried and true options, and just need to figure out which option is best for you. Don't be sold an option. Somebody sends you a mailer with a loan offer or some slick salesman calls you. The internet's a wonderful tool. Those options are out there, figure out which one's best for you. Legal Edge Debt Solutions has information. There's other sources of information. Figure out which option's best for you. Take action and then start to implement that option. Marci Grossman (29:34) All great ideas. Bill, thank you so much for being my guest today. We appreciate you taking the time to join us here. William R. Mitchell (29:42) Well, thank you, Marci, for having me. I know it's not fun or exciting to talk about credit card debt, but as we've talked about, it really affects a large number of people and if you're not careful, you can get yourself really in trouble. Marci Grossman (29:58) We certainly don't want people to get in trouble, so get out of trouble, people. Come on, let's use our credit cards responsibly. To my listeners, I will be sharing a link to Bill's information in the show notes. Please check him out. He has a lot of interesting information. And don't forget to subscribe, leave us a review, and stay tuned. I'll see you next time. This has been MoneyMarci on Marci Talks Money (and Life).