I just finished watching the entire season of Going From Broke on Crackle. I see their mission to transform young people’s lives around their finances. Some would call it “adulting.” No matter which episode you look at, these are college graduates all struggling to repay their student loans.
Selling assets and picking up extra jobs is great to start new habits. The show coaches young people to open up authentically about their finances and get on the path to freedom from debt. I was however quite disturbed by the family with more than $100,000 in unsecured debt after the husband was injured and wife got laid off.
They were encouraged to cut their expenses and get back to work and they did. Their cash flow generated $2,000 they could now pay towards debt. Here’s the problem, that payment wouldn’t even cover the interest on a low 25% rate. This means the work they’re doing to improve their lives isn’t enough to solve the problem. My philosophy is that if debt will take you more than 5 years to repay, you’re wasting the time value of money. That means that the amount of time you spend getting out of debt, you could have used to save for your future.
If that couple filed for Chapter 7 bankruptcy, then saved that $2,000 per month over five years they would have a nice nest egg of $96,000 instead of debt. Alternatively, if they filed for a payment plan bankruptcy they would at least stop interest from accruing during repayment.
Another issue I found was the fact that in one episode they discussed Parent Plus student loans and explained these are very speculative loans given to high risk borrowers and collateral, like a home is needed. This is simply not true. A Parent Plus Loan is a federal student loan taken by parents who feel morally obligated to pay for their kid’s college, but who haven’t saved. The student is not on the hook for this debt, though most seem to have an arrangement to repay their parents.