Credit card debt can feel overwhelming, but it doesn’t have to control your future. In this episode, Michael McAuliffe, President of Family Credit Management, shares practical strategies to lower your interest rates, reduce monthly payments, and build a realistic path to becoming debt-free.
Jeffrey Snyder, Broadcast Retirement Network
Michael, it’s so great to see you. Thanks for joining us on the program this morning.
Michael McCauliffe, President, Family Credit Management
Oh, thanks for having me.
Jeffrey Snyder, Broadcast Retirement Network
Well, we certainly appreciate you coming on and sharing a little bit of insight. I know this is a topic that you’re quite passionate about. Let me start off with what I think is a baseline question just to kind of establish for the audience the who, how, and why.
Affordability remains a big challenge for many of us, all of us watching today. And more and more Americans are charging on their credit cards, what they’re buying. So I guess my first question is, how big is this debt issue for many Americans?
Michael McCauliffe, President, Family Credit Management
Well, it’s actually big. It’s actually at a record now. And I think the biggest problem is most of us don’t track how much we owe on our credit cards.
And inflation has hit hard. And when you’ve got just $300, $400 a month, you’re putting on credit cards. After 10 months, now you got $4,000.
And you didn’t realize how fast it happened.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, that’s, I mean, it’s a large amount of money. So does this larger amount of debt fall mostly on the credit card user, the customer, the consumer? Or is it really just part that and part, everything’s gone up, groceries, gas, you name it.
It’s energy, it’s gone up.
Michael McCauliffe, President, Family Credit Management
Yeah, yeah. No, and I think that’s what’s causing people to not realize that their credit card balances are getting higher and higher. Even worse now, people are starting to use the buy now, pay laters.
And it seems like not a big deal. Sure, I can afford $30 a month, but then you have three of them. Now it’s $100 a month.
And you can’t afford that and it just kind of snowballs.
Jeffrey Snyder, Broadcast Retirement Network
So a lot of people who are watching this may have grown their debt for obvious reasons. We were just talking about that. How difficult is it to manage to pay off that debt?
I would imagine you can’t make the minimum payments because the double digit credit card interest rates will just continue to grow and grow and grow.
Michael McCauliffe, President, Family Credit Management
Yeah, and that’s where I say, you know, you just have to start. And one of the hardest things is if you’re using those cards, you’re not tracking the balances. You don’t realize that your debt’s going up.
You’re making payments every month, but you’re adding more on than you’re paying. The interest is compounded and making it worse.
Jeffrey Snyder, Broadcast Retirement Network
So let’s talk about how we get out of debt. Obviously you have to have, well, let me ask you, should you just turn off the credit card? Don’t use it?
What if you need it? I mean, how do you begin to kind of curtail that? We’re going into the holiday season.
We just did a show recently on quick candy, swipe fees and candy. We’ve got, you know, the Christmas and Hanukkah and all the other aforementioned holidays. How do you begin to curtail that behavior so that you can begin to pay that off?
Michael McCauliffe, President, Family Credit Management
Well, we don’t recommend closing the cards for a couple of different reasons, but what we do recommend is just not using them. If you’re not able to pay that card off every month, do everything you can to not use any of those cards. Take everything extra you can possibly come up with and put it towards the highest interest card and just start slowly chiseling away at that debt.
Jeffrey Snyder, Broadcast Retirement Network
And, you know, that seems like, I mean, that is the right decision, right? I mean, that’s, I think a lot of it, no offense, it’s common sense, but I would think that people are pretty reflexive, right? I mean, they reach into their pocket or they want to tap, right?
I mean, how do you curtail that human behavior? Can you?
Michael McCauliffe, President, Family Credit Management
Yeah, you know, what we do is a nonprofit debt management program. And one of the great things about it is, it’s, we call it behavior modification. And we try to teach people how to live without credit cards.
And it is habitual and it is convenient. So we also encourage people, you know, get one small credit card and pay it off every month so you can use it for gasoline and groceries and convenience items.
Jeffrey Snyder, Broadcast Retirement Network
So let me ask you, I know that you help clients, or I believe you help clients kind of negotiate and lower the fees. I see a lot of commercials on TV, not that I watch TV all day long, I don’t want to give that impression, but I see a lot of commercials about debt management. Is there a difference between the for-profit debt management company that will help you and an organization like yours, which is a not-for-profit?
Michael McCauliffe, President, Family Credit Management
Yeah, and now a lot of these firms are getting, you know, interchanged with each other. And, you know, a debt settlement is something that is relatively new. It’s appropriate for a small percentage of people.
Some people it’s absolutely appropriate for. Some people we assist with that, but there’s also giant risks. If you don’t pay your creditors, they do want to get repaid.
We’re seeing litigation is increasing. We’re seeing creditors become more aggressive legally than they were in previous years. So it’s something that certainly a consumer can do, but they need to be really careful about it.
Jeffrey Snyder, Broadcast Retirement Network
So what are some of the ramifications if I don’t pay off the credit card debt and I let it, well, one, we know that if we just make the minimums, it’s going to grow in perpetuity based on the double-digit interest rate, usually in the 20s. But what are some of the other ramifications? Do I take hits in other parts of my financial portfolio?
Michael McCauliffe, President, Family Credit Management
Yeah, you know, if you’re not, if you’re not able to make your payments on your credit cards, you know, our credit score is important for so many more things other than just getting loans. Employers still use them. Utility companies use them.
Rental housing uses them. So your score means a lot. It can go down very fast, and fortunately it rises very slowly.
Jeffrey Snyder, Broadcast Retirement Network
So in terms of rehabilitating your credit, I guess the first thing is you start to make larger payments or negotiate, I guess, consolidate your credit cards, right? I mean, wouldn’t that help you? That’s, I think, one of the areas that you focus on is kind of bringing it all together and negotiating a lower rate on behalf of the customer.
Michael McCauliffe, President, Family Credit Management
Yeah, with nonprofit debt management, credit counseling, what we do is we go to the credit card companies and we say, you want to get out of debt. You don’t want to default, or, you know, you want to get in broad current. You don’t want to file bankruptcy.
We ask them to help. Most of the major creditors are great. We get the average interest rates down to single digits.
Most of our clients are out of debt in five years or less. Often the accounts will be brought current, fees will stop. It’s a real good alternative for a lot of people, and they also learn to live without those credit cards.
Jeffrey Snyder, Broadcast Retirement Network
And are you seeing the insurance companies? I would think that it’s unsecured debt, meaning there’s no collateral, right, against the credit card, and so anybody can take it. If you don’t pay it off, I guess you’re less likely.
You could see your credit score go down. You could see your credit limit go down. And could they take a credit card away from you if you don’t?
Michael McCauliffe, President, Family Credit Management
Sure. You know, I was a collector, you know, my previous life, and, you know, it’s one of the levers that a collector has. They’re going to tell you, hey, if you don’t get this broad current, I’m going to close your credit card.
I’m going to lower your credit limit. And then the last lever is, you know, we’re going to sue you. And that does happen.
Like I said, we are seeing litigation on unsecured debt increasing.
Jeffrey Snyder, Broadcast Retirement Network
So let’s talk a little bit more about that because you are seeing more of that. So if someone gets sued by their credit card company because they haven’t made enough payments or whatever the case, maybe they have too much debt, can they garnish and you lose? Because presumably, you’re not going to, if you have the debt and you haven’t made payments, I mean, the chances are you’re going to lose the case, I would imagine.
Maybe I’m wrong, I’m not an attorney, but could they garnish your wages or take from your social security or other retirement accounts if you don’t make those payments?
Michael McCauliffe, President, Family Credit Management
Yeah, one of the things we’ve tried to do over the 30 years I’ve been doing this is figure out a rhyme or reason for when creditors sue and when they don’t. And the only thing I can tell you is, is that they only sue if they think they’re going to be able to collect because they’re not going to spend money on attorneys if they don’t think they’re going to collect. So if you’re working and they look at your credit and they think they’re going to collect, they’re going to file a suit, they’re going to get a judgment, the next step is garnishments.
And once they get a garnishment, the only way I know of stopping that is bankruptcy.
Jeffrey Snyder, Broadcast Retirement Network
Okay, so then you’d have to go to bankruptcy, but there are implications or ramifications if you declare bankruptcy. I mean, that is not a panacea. A lot of people talk about, you know, chapter, what is it, chapter seven and chapter 11, bankruptcy, there’s a 13 as well.
So, but there were ramifications. If you declare bankruptcy, personal bankruptcy, doesn’t that impact your ability to get credit or a loan or anything else? Yeah, absolutely it does.
Michael McCauliffe, President, Family Credit Management
And, you know, they did refine the bankruptcy laws about 20 years ago, and it’s a lot harder to file now. You know, so a lot of clients that we talk to, they say, well, I’m just going to go bankrupt. They meet with an attorney, they do the means test, and they realize that it’s not a good option for them.
They’re going to be put in the chapter 13. They’re going to have to make repayments. And they’re like, well, I don’t want to repay it and file bankruptcy.
So then they’re back to trying to work something out.
Jeffrey Snyder, Broadcast Retirement Network
Do you recommend, you know, obviously you help your customers, people can reach out to you and other organizations like you, but if you can’t make a payment, do you recommend calling up the credit card company and trying to negotiate on your own behalf? Obviously you’re not going to have as much clout as someone like yourself who has multiple customers, you’re a not-for-profit, but can you broach that conversation with, and will the credit card company be receptive? Because as you said, ultimately they want to get paid back.
I mean, they don’t want the debt to just go, you know, be wiped off the book.
Michael McCauliffe, President, Family Credit Management
Yeah, no, absolutely. Most of the credit card companies will work things out with clients on a one-on-one basis. One of the problems that we see is sometimes clients do that, and then once they get locked in, there’s no changing it, and we could have gotten a better deal for them.
Sometimes they can get the same exact deal on their own that we get. Sometimes they can’t. But, you know, talk to someone like this.
You know, I like to say that whenever you have trouble, medical, legal, financial, you find an expert, and it doesn’t cost anything to call and talk to somebody.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, a really good point. Let me ask you, I don’t want to sound morose here, but what happens if you have a large amount of credit card debt and you pass on? Does it, does it, you know, I just want to make sure the audience knows, like if you pass away, does that credit card get absolved and it’s uncollectible, or does it kind of pass on to the estate and the estate, the people who inherit the money?
Michael McCauliffe, President, Family Credit Management
Yeah, well, the one thing, unless you’re in a community property state like Wisconsin or California, if your spouse didn’t sign for the debt with you, they’re not responsible for it.
Jeffrey Snyder, Broadcast Retirement Network
Okay.
Michael McCauliffe, President, Family Credit Management
Now, however, if there is probate and there’s an estate, then the estate is usually responsible for repayment on that debt. But it’s not your kid’s responsibility. They don’t have to repay it with their own money or anything like that, which a lot of people do think they do.
Jeffrey Snyder, Broadcast Retirement Network
So, and I’m not trying to go against your interests, but, you know, helping people, do you think there’s ever a point where we eat into, collectively eat into this credit card debt, communal credit card debt, and people get ahead, or are we going to continue to see people, it’s just going to be different people. It’s going to be 1.6 or 1.7 trillion dollars. We’ll continue to grow, I guess, is my question.
Michael McCauliffe, President, Family Credit Management
I’m not seeing any signs that it’s not going to continue to grow. You know, right now we’ve got the holidays coming up and I can’t tell you how many people are telling us, yeah, I want to start your program, but I don’t want to close my cards until after the holidays. And we’re like, the problem is just going to get worse.
Yeah. Let’s do it now. And they, it’s hard.
Jeffrey Snyder, Broadcast Retirement Network
It’s kind of like going on a diet, right? Let’s just wait till after, that’s why January 1st is really big for gym memberships, because everyone wants to wait till after the holidays in order to start trimming the fat, so to speak. Michael, we’re going to have to leave it there.
Great conversation. Keep up the good work. And look, we look forward to having you back on the program again very soon.
Michael McCauliffe, President, Family Credit Management
I love talking about it, Jeff. Thank you.
