In a recent episode of his Financial Audit podcast, YouTube personality and debt expert Caleb Hammer confronted a 40-year-old single mum and aspiring singer who spent $10,000 to release a music album despite having a $17,000 car debt. Hammer, who overcame his own financial struggles to become debt-free, now helps others navigate their financial troubles through his popular YouTube channel.
Living with Debt: The Impact on Personal Choices
The single mum, who also works as a teacher, revealed that she had accumulated significant debt in her pursuit of a music career. Despite her financial woes, she went ahead with the costly album release. During their discussion, Hammer discovered that she lives with her mother, despite earning a monthly income of $3,466. When questioned about this, she explained, "Because I can't afford it. What does it matter how old I am?"
Hammer was taken aback by her belief that her savings were insufficient to move out, despite her manageable income. The conversation became tense when she stated, "I like to spend, I like my Starbucks." She seemed fixated on the potential success of her music career, neglecting her present financial issues. This attitude highlights a common cognitive bias where individuals are overly optimistic about the future while ignoring current problems.
Lifestyle priorities and social media also play a role in unnecessary overspending. A Motley Fool Ascent survey found that most Gen Z and Millennials prioritise rewards, perks, and rates over the credibility of credit card issuers. Their engagement with social media drives impulsive spending, which averaged $754 in 2022.
The Importance of Practical Financial Planning
Hammer tried to impress upon her the low statistical chance of her music album becoming a success. He questioned whether it was wise to pursue such a costly venture while still in debt. She deflected by bringing up the price of her $17,000 car and questioned Hammer's knowledge about music.
Hammer's frustration grew as he pointed out, "How does $17,000 sound crazy when you just spent $10,000 on something that's probably not going to pay you money?" He emphasised that he would be more accepting of her risky decisions if she had an emergency fund and retirement savings. However, he was shocked to learn that she had no retirement savings at all.
The situation escalated when the mum claimed she was "manifesting" her music career's success. Hammer countered that this approach was unrealistic and damaging to her child's future. She retorted that everyone manifests their life, including Hammer, and highlighted that people have 60,000 daily thoughts, most of which are recycled.
In a moment of exasperation, Hammer agreed with her about the recycled thoughts but added, "Congratulations to the recycled thoughts, but what actually gets things done?" His point was clear: practical actions, not wishful thinking, lead to financial stability and success.
The episode also delved into the psychological aspects of debt management. Hammer explained how cognitive biases such as optimism bias and the Dunning-Kruger effect can cloud judgment and lead to poor financial decisions. He emphasised the importance of realistic planning and setting achievable financial goals.
This episode underscores the importance of prioritising financial stability and making informed decisions to secure a better future. Hammer's advice serves as a reminder that addressing current financial problems is crucial before pursuing potentially risky ventures.
Strategies for Getting Out of a Car Loan
Getting out of a car loan can be challenging, but there are several strategies you can consider. One option is to sell the car, particularly if its value is greater than the loan balance. This allows you to pay off the loan in full and avoid further interest payments. If selling isn't feasible or doesn't cover the entire loan, you might consider refinancing. Refinancing can lower your interest rate or extend the loan term, making monthly payments more manageable.
Another approach is to trade in the car for a less expensive vehicle. While this might not eliminate the debt entirely, it can reduce the loan amount and monthly payments. Additionally, you could negotiate with the lender for a loan modification or deferment. This could involve adjusting the loan terms or temporarily pausing payments to help you get back on track financially. Lastly, if you're experiencing severe financial hardship, voluntarily surrendering the car to the lender, known as a voluntary repossession, might be an option, though it can significantly impact your credit score.
