16 Most Misunderstood Myths About Getting Out of Debt

In this podcast, Steve Rhode and Damon Day address various
misconceptions about debt and financial decisions.


We emphasize that having debt does not make someone a loser or a
failure; it is a common occurrence that does not define one's
worth.


We discuss how social media can distort perceptions of others'
lives, as they often showcase only the positives and not the
struggles.


We debunk the myth that bankruptcy ruins one's credit for 10
years and share a personal experience of receiving a credit card
offer shortly after obtaining discharge papers.


We highlight that banks are willing to lend money and do not view
individuals as failures for having debt. Additionally, we
emphasize the importance of not making decisions solely based on
credit scores and not relying on social media for financial
comparisons.
We then share a story about a client who had a negative
experience with a Burger King drive-thru, where they were charged
$2,000 instead of $20 due to a transactional mistake. We
highlight the risks associated with using a debit card, which
essentially gives someone a blank check. We explain that banks
often push debit cards for their own profit through transaction
fees, but using a credit card is a safer option in case of any
disputes with merchants.
Moving on, we dispel the myth that payday loans are a good
option, even when struggling to pay bills. Instead, we encourage
reaching out to banks or lenders for payment forbearance or a
payment holiday, as many institutions are willing to work with
individuals and provide some leeway. Taking a payday loan only
perpetuates a cycle of debt that is difficult to escape.
We also address the misconception that only making minimum
payments on debt is sufficient. While it may be challenging to
get ahead with minimum payments alone, we discuss alternative
options such as seeking additional income or considering more
aggressive strategies like bankruptcy, debt settlement, or credit
counseling. We emphasize the importance of being proactive in
addressing debt rather than relying solely on minimum
payments.
Next, we draw a parallel between ineffective past strategies and
soldiers storming a line in war. We encourage adopting smarter
approaches and critical thinking to achieve financial success. We
address the misconception that people cannot save for the future
or retirement while paying off old debts, emphasizing the
importance of improving financial habits moving forward rather
than solely focusing on past debt.
We then discuss the question of whether taxes are owed on
forgiven debt. We explain that if debt is forgiven in bankruptcy,
no taxes are owed; however, if it is forgiven through a
settlement, taxes may be owed depending on the individual's
situation. We highlight that debt settlement companies often fail
to make this fact apparent, potentially to present a positive
image and avoid an in-depth assessment of the customer's
financial situation. We share our encounters with debt relief
salespeople who claim we don't know what we're talking about,
often providing clients with IRS forms and advising them to
consult competent tax professionals.
Understanding the tax implications of forgiven debt is vital for
making informed financial decisions. We emphasize the importance
of accurately completing IRS Form 982 and providing a snapshot of
one's financial life at the time of debt forgiveness, including
house value, outstanding loans, assets, and 401k balance. Filing
this form with the 1099 can result in a waiver of taxes owed on
forgiven debt. We stress the importance of consulting with a
competent CPA to ensure the accuracy of the form and avoid
potential trouble in case of an audit.
To learn more about preconceptions and myths, we encourage
listeners to visit damonday.com or search "Damon" on Google. We
conclude by thanking the audience for joining us and invite them
to subscribe for future podcasts.