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Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions.

“Hi, Sean. My name s Virginia, and I have a lot of credit card debt. My score is , despite my debt. I keep up with all my bills. And I ve tried to apply for a personal loan. And I ve been denied because of my high percentage rate, even though I pay my bills every month on time. And I was wondering, do I have to get somebody to back up my loan? Why did they deny me? I was wondering if you could help me out. Thank you.”

Before you get swept up in the spring season, take a couple of hours to knock out three simple money tasks. First, check on your financial goals for the year. See if you are on track to accomplish what you want with your money or if you need to adjust. And if you’ve made progress on your goals, celebrate that work.

Next, reevaluate your spending plan. Inflation has likely thrown off your budget, so make sure that you know where your money is going. Last, check on your credit cards. Your shopping habits might be changing as we enter a new phase of the pandemic; try to use credit cards that reward your spending.

When it comes to debt payoff, consider different methods and their time- and cost-effectiveness. If you aren’t eligible for a personal loan or a balance transfer credit card, consider contacting a nonprofit credit counseling agency. These organizations provide free budgeting guidance and can help you determine if a debt management plan would be a good fit.

While these services can slash your interest rate and put you on a path to pay off your debt, talk to a bankruptcy attorney before signing up for one. That consultation can help you understand if bankruptcy might be the most efficient way to move past your debt.

Understand your debt-to-income ratio: Many lenders prefer DTI of % or below. This metric can also guide your debt payoff options.

Look into credit counseling and bankruptcy: You may be able to get a grip on what you owe with a debt management plan, or you may need the fresh start that bankruptcy offers.
Know which debt payoff options to avoid: Debt settlement and k loans can be particularly risky routes to resolving what you owe.
Have a money question? Text or call us at –. Or you can email us at podcastnerdwalletm. To hear previous episodes, go to the podcast homepage.

Sean Pyles: Welcome to the NerdWallet Smart Money podcast, where we answer your personal finance questions and help you feel a little smarter about what you do with your money. I m Sean Pyles.

Liz Weston: And I m Liz Weston. Let the Nerds answer your money questions. You can call or text us at –. That s –NERD. Or email us at podcastnerdwalletm. To get new episodes delivered to your devices every Monday, be sure to subscribe. And if you like what you hear, please leave us a review and tell your friends.

Sean: This episode, Liz and I answer a listener s question about alternative ways to pay off debt. But first, in our This Week in Your Money segment, Liz and I are talking about three money tasks for spring. And the first thing that I think folks should do is check in on their financial goals for the year. Remember those goals that you started out with back in early January, when the year was new, and you thought you could do anything you wanted? Well, you probably still can, but maybe it s time to see how realistic some of those goals are and tweak them potentially.

We talk a lot about SMART goals at NerdWallet, and this is an acronym for goals that are specific, measurable, attainable, relevant and time-bound. I also add an extra R on the end for goals that are rewarded, so SMARTR goals. This time of year, I think it s important to focus on the M and the T. Measure your progress, and see if you are on track to meet your goals in that time frame that you initially set.

Sean: I think if you re not on track, that s perfectly OK. That s the point of this check-in. You can do small things to set yourself up for success and get to where you wanted to be initially. So, say your goal was to invest in crypto this year, but you just haven t gotten started yet, you haven t gotten your act together — it s still a very confusing mess of an industry, which it totally is.

Maybe this month, you can make a specific goal of yourself of reading a few articles, understanding if crypto actually is the right investment for you. And then if that is the case, maybe take the next step of researching specific currencies you re interested in and see which one might align with your goals. So that way you re making progress. And then maybe by the end of the second quarter, by the end of June, you can begin to actually make that investment.

And if you are on track — which is awesome, congratulations — now is a great time to reward yourself with a little treat. Maybe have a picnic to enjoy the nice weather that we re having or have a DIY spa day with your friends. But it s important to take a moment to celebrate what you ve done so far this year.

Liz: Yes. And a lot of people right now are struggling with inflation and watching how rising gas prices, rising food prices are making real dents in their budget. So another thing we would suggest is revisit your spending plan, look at where your money s going.

Sean: Yeah, exactly. I mean, a spending plan is basically just a euphemism for the B word, which is budget. People tend to be a little bit afraid of that word. But I think spending plan is so actionable. You think about where your money is going. And if you don t really understand a good framework for how to do this, again, we also love the budget at NerdWallet. Try to fit all of your needs within % of your income; try to get all of your wants things like going out, travel in %; and then allocate % of your budget for savings and debt payments.

And I do realize that for some, this budget may be aspirational, especially if they live in a high cost-of-living area, but this framework can help you understand what a sustainable spending plan might look like.

Liz: Some of us are spending more just because our life is opening up. The economy s opening up. It s easier to travel, easier to go out. And that can really catch up with us. I actually looked at our spending last month on eating out and groceries, and it doubled. It was twice what it normally is. So it s like, OK, we need to make some changes here. Maybe not go out every night of the week.

Sean: I was going to ask, what was the culprit? Was it the going out more or was it the groceries?

Liz: No, it was definitely the going out more, although I ve noticed that there s far fewer grocery deals than I m used to. It was a little bit harder to keep the spending on our normal staples within what I think of as a decent budget.

Liz: We have an idea in our head how much things can cost, and we can be outraged when that amount goes up. But part of the skill of dealing with inflation is finding out where you can substitute, where it doesn t matter, like using store brands instead of name brands, things like that. Little trims can make a huge difference.

Sean: Yeah. And as you mentioned, you looked back at your spending over the past month. It can be helpful to look back at your spending for the past three months, the beginning of this year so far. See where you actually did spend your money. And if you find that you are spending a lot more money on going out than you were maybe at the end of last year, you can try to make some adjustments. One tip that I really like is from a NerdWallet writer, Hal Bundrick. He suggested trimming % in discretionary spending to account for inflation.

And it sounds like a cliché at this point, but really do revisit those streaming services because there s probably one that you just don t use anymore. We haven t looked at Netflix in a long time. We re suddenly a Hulu family because that s where “Buffy the Vampire Slayer” is, and I m watching that nonstop.

Sean: I think that can be a good tip. And another tip I heard recently, which I think is so clever if you have the energy to do it, is rotate which streaming services you are using monthly. Maybe if you want to binge all of “Euphoria,” get HBO Max for that month, watch all of it, and then cancel it. Rotate on to whatever else you would want to watch next. You don t have to have five streaming services simultaneously.

Liz: And speaking of the world opening up and people doing more travel — might be time to take a look at your credit cards and how you re using them as well.

Sean: Yeah. Well, think about where we were two years ago. Our spending dramatically changed overnight. We weren t traveling as much anymore. We weren t going out to restaurants as much anymore. The credit cards that we had been using — that I personally had been using that were giving me all the rewards for travel, for going out to eat — didn t make sense.

Despite working at NerdWallet, I am admittedly not a huge credit card nerd. I rely on my one workhorse cash-back card for almost everything, because it rewards me at gas stations and at grocery stores. So that s where I ve been spending my money for the past two years. But much like you, Liz, I m going out a lot more. I have a lot more travel coming up. I m really beginning to reevaluate how I m using credit cards.

Liz: We just recently used a bunch of points, travel points, to get airline tickets and hotels and other travel. And I remembered how wonderful it is to have all those points stacking up.

Liz: So if you are a big travel nerd, it s something to look into. Maybe you want to switch at least one of your cards to a travel card so you can get some of those benefits.

Sean: One tip that I think is so key is timing when you get your next travel credit card. The travel Nerds at NerdWallet will recommend taking out a travel credit card about six months ahead of your trip because that gives you time to apply, get approved, earn the sign-up bonus and then actually book your trip. You can t do it all one month before your trip.

Liz: A lot of people think it s pretty instantaneous, and it s definitely not. Another thing to do is when you get a new card, and if there is a bonus, make sure that you ve spent the required amount by the time the bonus expires. I ve actually lost a huge amount of points on one card because I failed to notice the deadline.

Liz: And it drives me crazy to this day. It was like , or , points — poof — gone. So, yeah, definitely put it on your calendar.

Sean: That hurts. All right. Well, I hope this has helped folks think about some tasks that they can knock out. So, if you have any suggestions or things that you re thinking about for your money this spring, please hit us up on the Nerd hotline: –, or email us at podcastnerdwalletm.

And we have one last thing before we get into this episode s money question segment. We are running another sweepstakes ahead of our next Nerdy Book Club episode launching in a couple weeks. This time around, personal finance Nerd Kim Palmer interviews Paco de Leon, author of the book “Finance for the People: Getting a Grip on Your Finances.” This book is aimed at creative folks who don t necessarily relate to traditional money advice.

I read this book recently and thoroughly enjoyed it. The illustrations make it feel so much more engaging than a typical book that s just full of words only. Who knew picture books are super fun? So I would really recommend this. This is your chance to get it for free.

Liz: To enter for a chance to win Paco de Leon s book, all you have to do is email podcastnerdwalletm with the words “book sweepstakes” in the subject line. You want to do this by April th and include the following information: your first and last name, your email address, your ZIP code and your phone number.

And here s a brief disclosure about the sweepstakes, courtesy of the great minds on the NerdWallet legal team. The Smart Money podcast book sweepstakes is sponsored by NerdWallet. No purchase necessary. Void where prohibited. Must be a legal U.S. resident or older. Entries must be received by April th. .nerdwalletmbookclub for details.

Listener: Hi, Sean. My name s Virginia, and I have a lot of credit card debt. My score is , despite my debt. I keep up with all my bills. And I ve tried to apply for a personal loan. And I ve been denied because of my high percentage rate, even though I pay my bills every month on time. And I was wondering, do I have to get somebody to back up my loan? Why did they deny me? I was wondering if you could help me out. Thank you.

Sean: To help us answer Virginia s question on this episode of the podcast, we are joined by NerdWallet debt writer Tommy Tindall. Welcome on to the podcast, Tommy.

Sean: Sure thing. Let s start off by talking about Virginia s situation. There is a lot that we don t know, like exactly how much debt they have, what their income is, but we can postulate a little bit about why they may have been declined for this personal loan. Liz, do you have any thoughts?

Liz: Well, Virginia says it s because their percentage is too high, and that likely refers to their debt-to-income ratio. Your debt-to-income ratio is simply how your debt compares to your income. So, for the purposes of debt payoff, we look at how your monthly debt payments — your housing payment, student loans, credit card debt, etc. — compare with your gross monthly income. Lenders typically like to see a debt-to-income ratio of % or lower. The lower, the better.

Sean: They re also wondering if they need someone to back them up to get a loan. And I m assuming that means getting someone to co-sign for a loan with them. And that could help if they could find someone who s willing and able and with a credit profile that s in good enough shape.

But I also am beginning to wonder whether a personal loan is the best route for paying off this debt. One thing that we know, anecdotally, is that many people who apply for personal loans just do not get approved.

Liz: Yeah, exactly. So Virginia might want to think about a different approach to paying off their credit card debt. Tommy, let s discuss alternative ways to pay off debt beyond a personal loan.

Tommy: I think people s first tendency, when they re in debt, is that “I can do this myself” and “I want to try the DIY method.” And that s a good thought, but they re generally best if your debt-to-income ratio is around % or less. And there are a couple DIY options if you do fall into that category. We ve got debt snowball and debt avalanche. And, Sean, I know that you are a proponent of debt snowball, so you want to explain that one?

Sean: Sure. So with the debt snowball, you pay off your smallest balances first. And the idea behind this is that when you resolve your smaller balances, you are getting a psychological hit — a win, a serotonin boost that is encouraging you to continue to pay off your other debts. And Tommy, you re more a debt avalanche. You want to give us the rundown of that?

Tommy: Yeah, I am. And I totally get the merits of debt snowball. And I just have a hard time sitting tight on the money that costs more to borrow. So debt avalanche is basically the opposite. You focus squarely on paying the higher-interest loans first, and then you work your way down. Those dopamine hits will take a little longer. Those wins will take a little longer. But they can be more valuable.

Tommy: And just a little personal experience from me: When my wife and I first got married, she had a lot of debt in the form of student loans. And she s pretty smart, so there were some pretty big bills, multiple loans to contend with. The biggest of those also, of course, had the highest interest rate.

We decided we would target the biggest loans with the highest interest rates first and pay extra on the principal when we could. And eventually, we knocked them out. We had a schedule, we saved some money and minimized the sting of those high interest rates. So team avalanche here when it s possible.

Sean: Yeah. There s also, I guess, technically a third option, which is trudging through your credit card debt with the terms as is. And this is often costly and not very time efficient. So that leads me to another option, which are balance transfer cards. You roll over the balance of your current credit card debt to a new one that has a % APR promotional period. The thing is you really want to make sure that you can pay off your credit card balance before that % APR period ends, because after that your interest rate could go back up pretty high, maybe around where it was before.

Sean: Yes, in general. And you might also need to have a low DTI debt-to-income ratio which could be an issue for Virginia, based on what we ve been talking about so far. So let s go into another option for resolving debt, and this is credit counseling.

Tommy: I think credit counseling is a good place to turn when some of the options we just discussed aren t available or aren t an option to you. And I think a lot of people might be surprised to learn that they can get free money advice from a nonprofit credit counseling agency. And these are generally trustworthy, accredited organizations, not for profit, that are really there to help people work through challenges and financial crises.

I ve spent a lot of time poring over these organizations’ websites because of my job. But if I didn t write about debt, I don t think I d know these options existed either. So I imagine there are others in the same boat. So it s worth a look. And it s easy to get in touch with a credit counselor and get help over the phone. In many cases, these organizations have local offices in various states, so you get in-person help as well. And much of the support and the resources they offer are free or low cost.

Sean: I think people hear that and they wonder, “Why haven t I heard about this if it s so good? What s the deal? Why is it free? What s going on here?” And the fact is that they just don t have the marketing budgets that a lot of other debt resolution options, especially debt settlement companies, have. So they can t really get the word out, which is part of what we try to do with our jobs.

But it s true. You can call up these agencies. They can give you free budgeting advice. They can walk you through everything from what you re paying for rent to toothpaste and help you get a better grip on your finances. And if it s a good idea, they can set you up with something that s called a debt management plan that can help you pay off your credit card debt much faster and cheaper than the standard way of doing it.

Tommy: In its essence, it s a way to consolidate credit card debt from multiple cards into a single monthly payment, and often at a reduced interest rate with waived fees. And that s kind of the kicker there. When you go through a credit counseling agency, the rates can be cut significantly, talking by half or more. Picture % down to %. In exchange for that lower rate, you ll agree to a monthly payment that fits your budget. And the cool thing is the credit counseling agency will facilitate the process. You pay the agency, they distribute it to your credit card company.

Tommy: Yeah. The rate cuts are standardized across the counseling agencies by the creditors through agreements that they have together.

Tommy: It depends on the amount of debt you have, but it usually takes between three and five years to complete. So there s definitely a commitment there, but the reduced interest can save you thousands or knock years off what you would pay if you were going at it yourself.

Tommy: Yeah. Well, as the saying goes, there s no such thing as a free lunch, but it s close. There s typically a small cost to start the plan. From the reviews we ve done, we ve seen an average of around $, then a monthly charge, which averages around $.

If you re considering this, I recommend checking out NerdWallet s debt payoff calculator. You can simply plug in the numbers as they are now with the interest rate you have, and then plug in the same amount of debt with a reduced interest rate. And I think you ll be pleasantly surprised to see how much money and time can be saved.

Liz: Virginia will have to live without credit cards for a while if she s on this plan, right? And how does it affect her credit scores?

Tommy: Yeah, that s right. She ll have to live without credit cards. But yeah, and as for credit score, I think this is a good way to not impact her credit score so drastically since you are paying the debt that you owe.

Sean: Sometimes agencies may ask you to close your accounts. And if that happens, you might take a hit to your credit score, but that doesn t happen every time.

Tommy: You want to take a look at it when your debt to income is approaching about %. And again, these plans are really designed for dealing with credit card debt, which is a form of unsecured debt. There are other types of unsecured debt, like medical bills and personal loans, but these plans are generally for credit card debt. And again, worth considering when you re at that % debt-to-income area.

And just to keep in mind, you re agreeing to a monthly payment for an extended period of time. So it s important to have room in your budget to make that payment, because missing one can derail the plan and end access to the lower rates that the agencies have through the agreements with the creditors.

Liz: I think credit counseling agencies are awesome. And I think debt management plans can really work. But all too often, by the time people realize they re in trouble, it s way too late, and they really should be looking at bankruptcy instead. So I always say if you re going to look at credit counseling and talk to a credit counseling agency, also make an appointment with an experienced bankruptcy attorney, so that you can get the whole picture of your options.

Sean: Bankruptcy may be best if your monthly debt payments consume more than half of your monthly gross income. It could also be a good option if you re being sued for debt andor see no way to resolve what you owe within three to five years.

And Liz, a lot of folks are still pretty freaked out by the idea of bankruptcy. They can see it as a moral failing. Let us know, tell us your thoughts on why it s better than just trudging through this debt for the rest of your life.

Liz: Well, the reality is, a lot of times you re facing unpayable debt. You could keep trudging for years and years, still not pay off this debt, and wind up in bankruptcy court anyway. And I ve talked to people who, heartbreakingly, have spent all their home equity, they ve spent all their retirement funds. And those two things would be protected in bankruptcy court. So they just kept trying when there was really no hope. And sometimes you need that outside person, that attorney, to take a look at your situation and go, you know what? You really need to look at this.

I know that most of us have the desire to pay off what we owe, and we don t want to file for bankruptcy. But if you are really far gone, it can help you get that fresh start that you re guaranteed under law, and help you start rebuilding your credit. Because as long as you continue struggling, your credit s going to suffer.

Sean: Right. Well, with Chapter bankruptcy, you can resolve your debt in a matter of months, sometimes around three to four months. And that s instead of the years it would take you to typically pay off a lot of credit card debt.

Liz: Most people do file for Chapter . That s the one that essentially erases most of your debt. Chapter is much harder to get through, and it typically is if you re trying to protect some kind of asset like equity in a home, for example.

Tommy: Liz, I agree with you. You know, before writing about this topic and learning more about it, it just sort of sounds like a negative thing. And it s not ideal, but it s an option that exists and it can be something worth considering to get out of debt.

Sean: Right. And what we re laying out are a number of different tools that are available to be deployed given your personal situation. Sometimes bankruptcy is the best tool to resolve what you owe.

Sean: But, on the other hand, there are some tools that you should try to avoid because they might do more harm than good. One of them I want to talk about is debt settlement. And these companies have huge advertising budgets, so you ve probably heard about them on the radio. But with them, you divert your monthly payments to a third-party company that then basically sets up a game of chicken with your creditors hoping that they will make a deal to cut how much you owe. This can leave you vulnerable to debt collection efforts and lawsuits.

And all the while, while you re waiting months and months for your creditor to potentially cave, which they might not even do, your credit score is getting trashed as you rack up missed payments.

Liz: Yeah. I could see some very limited use cases for debt settlement. But again, I think most people should talk to a bankruptcy attorney before they sign up for something like that.

Sean: Yeah. One of my friends actually went through a debt settlement company to resolve her credit card debt. And I had to really bite my tongue before saying, “Why did you do this?” But I ended up kind of coming to peace with it, because it was what worked for her in a way.

Sean: It wasn t the best solution. But at the end of the day, it was a solution. It helped her get past her credit card debt. It took her a lot longer than other options. It cost her a lot more. It did a lot more damage to her credit score than other options would ve done. But she took care of it. So I guess that s what matters sometimes. I don t know.

Liz: Well, and k loans are kind of the same. People turn to them a lot to pay off credit card debt. And we at NerdWallet don t think that s a great idea.

Sean: Yeah. Well, you re borrowing against your retirement savings. And it s true, the rates are generally lower than what a credit card will have you paying. But you re derailing your retirement savings. And then if you get fired or quit the job that you borrowed the k loan from, you ll have to pony up that loan amount pretty quickly.

Liz: And you ve had experience with this, didn t you? Somebody recommended one of these to you.

Sean: Yeah. Oh my goodness. I had a financial advisor recommend a k loan to me just to ease my cash flow after I had some major expenses. And it was actually a red flag for me, which helped me know that I did not want this person to be my financial advisor, because I didn t want to derail my retirement just so I could have a little bit more cash in the short term.

Tommy: I have a little experience with this one, too. The consequences weren t huge, but I did take a small loan out of my k to help with the down payment on our house about five years ago. And I m still paying it back, and it was small. Upside on that one was the interest is low, and I m paying it back to my own account. But the downside is that I m missing out on that compound interest. And I will note, though, that I was fully vested in that company, so I was able to leave that company and keep my k. But I have not been able to roll it into my k here at NerdWallet because I have to get that loan paid back.

Tommy: I got to pay it back in a lump sum to do that, or I can continue making the payments. And as I mentioned, I like to keep borrowing the cheaper money.

Liz: Yeah, understandably. Well, most people do manage to pay off their k loans. But if you lose your job, that s when it really gets difficult because not every company is as accommodating as your former company and letting you pay off that loan.

Sean: Well, Tommy, thank you so much for chatting with us. It was great to have you on the podcast.

Sean: Now let s get into our takeaway tips. First up, understand your debt-to-income ratio. Many lenders prefer DTIs of % or below. This metric can also help guide your debt payoff options.

Liz: Look into credit counseling and bankruptcy. A debt management plan can help you get a grip on your debt, or you may need the fresh start that bankruptcy offers.

Sean: Lastly, know which debt payoff options to avoid. Debt settlement and k loans can be particularly risky routes to resolving what you owe.

And that is all we have for this episode. Do you have a money question of your own? Turn to the Nerds and call or text us your questions at –. That s –NERD. You can also email us at podcastnerdwalletm. Also, remember to subscribe, rate and review us wherever you re getting this podcast.

Liz: Here s our brief disclaimer thoughtfully crafted by NerdWallet s legal team. Your questions are answered by knowledgeable and talented finance writers, but we are not financial or investment advisors. This Nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.