There are many reasons that push people into debt. For some, it’s the result of an emergency expense or sudden unemployment. For others, it’s simply a matter of spending more than they earn. And sometimes, people land in debt because they just don’t know how to manage their money.
That appears to be the situation for Emily from Virginia, who recently called into the Ramsey Show feeling anxious over a $6,067 credit card balance that has her facing a lawsuit. The debt was purchased by a buyer who’s now coming after her for the money.
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With a hearing date upcoming, Emily wanted to know if there was a way out of this situation. And while hosts Dave Ramsey and George Kamel were sympathetic, they didn’t mince words when discussing how Emily can get her finances back on track.
‘Get your crap together’
When Ramsey and Kamel asked Emily how she had managed to land in debt, she responded honestly.
"We have made some bad choices, and we couldn’t make the payments,” Emily admitted of both her and her husband.
Emily’s husband runs a business that hasn’t been making much money. In fact, Emily — a stay-at-home mom who homeschools her children — isn’t even sure how much her husband makes. Emily pays her bills in cash and says her family is doing "okay," which means they can eat and pay for their monthly expenses.
However, Kamel and Ramsey did not agree that she was doing "okay." The hosts were quick to point out that, in addition to being sued, Emily and her husband have a truck that’s costing them $700 a month, and that’s a rather large car payment for a married couple that’s struggling with debt.
"How are you eating?" Ramsey asked incredulously.
Ramsey told Emily that there may be a way for her to settle her credit card debt. As he explained, debt buyers commonly purchase past-due debts for as little as five cents on the dollar. This means the buyer probably paid $300 for Emily’s debt, and that if she can scrounge up $1,500 before her hearing date, there’s a chance she’ll be able to settle for that sum.
"This is an unemotional, quick and easy lawsuit that you will automatically lose," said Ramsey, so it would be in Emily’s best interest to try to settle. However, Ramsey warned Emily to expect a battle in that regard and told her to be emotionally prepared.
He also warned Emily not to settle for a payment plan with the debt buyer, or provide them with financial information or access to her checking account.
"Keep your mouth shut as far as your personal details go," Ramsey insisted. Rather, he told Emily to be persistent and firm during her calls with the debt buyer.
Ramsey also told Emily that in addition to trying to settle the debt, she needs to make changes.
"For God’s sake, you two get your crap together,” Ramsey implored. “You don’t even know what your husband makes. A $700 truck payment when you’re calling me broke, and getting sued, is insanity!”
Ultimately, Ramsey said Emily and her husband need to get a better handle on their household income and figure out a way to make it more robust and consistent.
"This credit card debt is not your problem," Ramsey insisted. "It’s the symptom of your problem, which is an irregular, horrible income and a lot of mismanagement there."
Read more: How much cash do you plan to keep on hand after you retire? Here are 3 of the biggest reasons you’ll need a substantial stash of savings in retirement
Ways to settle your debt
During the third quarter of 2024, the average American owed $6,730 in credit card debt, according to Experian.
If you owe money on credit cards and don’t pay the debt, that can significantly affect your credit score and may even force your credit card issuer to sue you for the money. And if the issuer wins its lawsuit and you can’t pay, it could come after your assets.
Clearly, that’s not a great situation. But thankfully, there may be ways to avoid it.
One thing you can do is try to settle your debt — either on your own or with the help of a debt settlement company that negotiates on your behalf. It’s also a good idea to try to negotiate with your credit card company directly.
Once a credit card issuer sells your debt to a buyer, the issuer is taking a significant loss, so it may be willing to negotiate with you before selling your debt if it means a smaller loss. Come up with a number that’s realistic based on what you can pay, and be firm in your discussions that this is what you can afford.
You should also know that a debt settlement could have a negative impact on your credit score. However, over time, you can take steps to boost your score back up, such as paying future debts on time and keeping your credit card balances low in relation to your income.
If debt settlement isn’t an option, you can look at a debt consolidation loan, where you roll multiple debts into a single loan and make one monthly payment. Ideally, the debt consolidation loan will also be at a lower interest rate.
In Emily’s situation, it’s probably too late to consolidate her debt since she’s already at the point of being sued. However, consolidation may be an option for individuals who have not yet reached that stage.
You can also look at a debt management plan, where you pay a credit counselor (or counseling agency) a sum of money each month based on what they determine you can afford, and they then distribute the money to pay your creditors. The counselor will negotiate with your creditors at the same time to make your debt more affordable.
As is the case with debt consolidation, this option is only effective if you have money available to put toward your debt. If you don’t, a debt settlement may be a better choice. In extreme circumstances, it may make the most sense to file for bankruptcy.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.