Ramit Sethi’s advice to a couple with $30,000 in credit card debt

Americans owe more than $1 trillion in credit card debt in the third quarter of this year, according to Federal Reserve Data. The average consumer’s outstanding balance topped $6,000 in September, according to TransUnion.

Ron and Cristina, however, have about $30,000 in credit card debt, the couple recently told self-made millionaire Ramit Sethi on the Netflix star’s show. Podcast “I will teach you to be rich”. Only their first names were used.

That number may seem intimidating to the average consumer, but the couple doesn’t seem too worried: They even purchased a timeshare for $10,000 last year. But Sethi revealed the bigger financial issues at play.

“You were both so calm about this credit card debt, and it’s because you don’t understand the implications of this debt,” Sethi told them. “If you can’t pay off that debt quickly, it’ll stick with you for five or 10 years.”

Tackling debt will be a challenge in itself. But a lack of financial knowledge has led to habits that prevent Cristina and Ron from achieving financial freedom and creating wealth.

Here are the habits that got the couple into financial trouble and how Sethi suggests getting out of them.

Habit #1: Avoiding financial conversations altogether

When Sethi asked Ron to describe his feelings about money in one word, he responded “fear.” Cristina handles all of the couple’s budgeting and is the only one to keep an eye on their account balances.

As a result, the couple said, Ron never wants to spend money and leaves Cristina to decide everything herself, which has caused divisions in their relationship.

Ron considers himself thrifty. He is loath to spend money on things like dinner out or the occasional vacation Cristina wants to plan. But Sethi explained that there is a difference between being frugal and being cheap.

“If you spend consciously…your frugality only affects you,” Sethi said. “But if you are cheap, your cheapness affects everyone around you.”

He helped Ron realize that they earn enough income to cover their needs as well as some of the more fun things, like dining out and traveling. But they must manage their money well.

Habit #2: Managing your money through trial and error

Even though Cristina manages the couple’s finances, she doesn’t always understand what she’s doing, Sethi pointed out.

“What I’m hearing is that you both aren’t very good with money, and that’s okay, you haven’t made any huge mistakes yet,” said Sethi.

Part of the lack of awareness is how their attitude toward money affects their spending. They also struggled to come up with a financial plan that worked for them.

“Money is never just a series of numbers on a page: it is contextualized in your culture, your upbringing, your risk tolerance, even your basic understanding of money,” Sethi said.

In talking with Sethi, Ron realized that much of his hesitation to spend money came from his upbringing, since his father was afraid of spending money. Cristina, on the other hand, experienced extreme poverty growing up in the Philippines. She is therefore proud of how far she has come, but also knows the importance of intelligent money management.

Sethi encouraged the couple to learn good financial habits together and discuss any financial attitudes that could harm their long-term goals.

Habit #3: Falling into money traps

Cristina and Ron’s timeshare purchase reflects a $10,000 mistake that could have been avoided with a better understanding of common financial pitfalls and how to weigh costs versus benefits.

“Timeshares are a scam. It’s never a good decision financially,” Sethi said.

For starters, even for a money whiz like Sethi, calculating timeshare costs is “extremely complicated.” He compared them to casinos in that the dealer always has the advantage.

“It’s almost always a better decision to just spend money on your own hotel or Airbnb, or even rent someone else’s timeshare,” Sethi said. “You can tell because there are so many desperate timeshare owners that you can often get these things for a good deal.”

It is unclear whether the couple will be able to back out of the timeshare contract, leaving them with few options without suffering a loss. But Sethi said it’s no big deal, it’s a learning opportunity.

“Sometimes you have to take a loss on certain things,” Sethi said. He compared the situation to that of a couple who he had previously advised to sell a a house they couldn’t afford, even if they took a loss.

“Either you lose it now or you’re going to lose it over the next eight years and fight every day of your life,” he said.

Check out the full podcast episode here.

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