Guest: Brad Stroh, co-CEO & co-Founder of Bills.com
Transcript:
Host: Welcome to Episode 2 of the Bills.com Podcast Show. Todayâs program features an interview with Brad Stroh, co-CEO and co-founder of Bills.com. Brad will address the issue of credit management and the growing crisis facing many consumers who have overextended themselves with revolving debt. Brad is a personal finance expert with extensive experience in consumer finance. Heâs a graduate of Stanford University's Graduate Business School, where he was an Arjay Miller Scholar. In addition to Bills.com, Brad is also the co-CEO and co-founder of Freedom Financial Network, a debt resolution service company. Along with his partner, Andrew Housser, Brad was a Northern California finalist in Ernst & Young's 2006 Entrepreneur of the Year Awards. Today, he joins us from his companyâs headquarters in San Mateo, California. Brad, thanks for being on the program today.
Brad Stroh: Great to be with you, thanks very much.
Host: Can you give an overview of the current crisis facing credit consumers and some background on how we got to where we are?
Brad Stroh: Yeah, absolutely. The unfortunate reality is the credit crunch is worse than ever before. The aggregate amount of debt out there, if you look from a high level, is more than ever before â about two and a half trillion of revolving credit card debt and unsecured debt, and almost thirteen trillion if youâre aggregating in mortgage debt. The unfortunate situation is that amountâs grown at the same time that consumerâs incomes have stagnated or even declined, which means that the burden to consumerâs pocketbooks is certainly worse than itâs ever been before.
Host: And what are some immediate steps consumers can take to ease the burden of credit card debt that theyâve incurred?
Brad Stroh: Well, you know, we use the analogy just like a diet. The first step is to get a good assessment, so we think you should first essentially step on the scale. Pull your credit report, also do some honest assessment of your cash flows. Look at each month. Is your bank account increasing or decreasing? Do you essentially bring in more than you spend or do you spend more than you bring in? If your creditâs bad, if you have delinquencies or collection accounts, or if youâre in a negative cash flow situation -- thatâs really the first step to honestly assessing and figuring out do you need help? And then you got a lot of opportunities, from figuring out ways to consolidate loans, or look for third-party help or just to try to cut back on your own expenses and get a few fewer lattes to try to increase your monthly cash flow so that you can pay down your bills faster.
Host: In the long-term, what are some strategies consumers can implement to help pay down their debt over a reasonable amount of time, so they donât end up carrying this debt for the rest of their lives?
Brad Stroh: Yeah, well a scary stat, that Iâm not sure too many people are aware of, but on average, Americans who are revolving their credit card debt pay at least $4,000 in annual interest. And if youâre just paying the minimum payments, it takes you about 16 years to get debt free, so obviously, we strongly advocate to deal with the problem today and get aggressive. Getting aggressive can mean a couple of things. The first is if you want to self manage your budget, is, cut your expenses, try to get a second job or increase your income, so that your personal cash flow increases. If that alone wonât help you make more than the minimum payments and pay off debt, look to things like a roll-up strategy where you pay off your highest interest credit card and trade lines first and then roll up that money until youâve got all of your debts paid off. And if you that think itâs something you canât handle on your own, you certainly should go out and seek third party counsel from debt management plans, debt consolidation firms or debt settlement or negotiation firms to help you accelerate the process of getting debt free.
Host: And that was going to be my next question -- when should someone consider a credit counseling agency or debt resolution company? Is there a specific tipping point that should trigger the need for help?
Brad Stroh: I think itâs a little idiosyncratic and unique to each individual consumer, but certainly if youâre facing emotional stress as a result of your debts, if youâre only making your minimum payments or if youâre even further behind and youâre facing collection calls or aggressive tactics by the creditors, you really should be seeking third-party help. On average, we tell people if youâre carrying more than $10,000 in credit card debt and are only making the minimum payments, you probably should get more aggressive and look for third party help. That means youâre gonna look for some of the non-profit credit counseling guys to try and lower your monthly payment or a much more aggressive approach like negotiated debt settlement to try to settle your debts for a big discount of what you owe and get debt free in a really short amount of time.
Host: There seems to be some misconceptions about the debt resolution industry, one of which includes the fear that someoneâs credit score will be ruined if they seek help from a counseling agency. Can you help clarify the misinformation that may exist as it relates to these types of services?
Brad Stroh: Well credit can be a confusing topic and there are some debt resolution strategies that can negatively impact your credit. Negotiated debt settlement, for example, will certainly impact your credit in the short term -- negatively. The trade off there is the savings, the low monthly payment and getting debt free in a short amount of time relative to trading off your credit. Credit counseling, that doesnât impact your fico score, but most lenders would look at a credit counseling program as if youâd filed Chapter 13 bankruptcy, so I wouldnât expect to get a loan in the program. But frankly, most debt resolution strategies are really there to help people get out of debt, not protect their credit. If your primary goal is to sustain your fico score, your credit score, we tell people if youâre carrying a lot of debt, whatâs the purpose there, because a credit score is only going to keep you in debt or get you more debt. If your goal really is to get out of debt fast, thereâs a lot of third party alternatives that can help you out, save a lot of money, but you would typically be sacrificing your credit score in the short-term.
Host: And how has the bankruptcy overhaul law implemented in 2005 affected the credit card industry? Do you think that law passing has contributed to the credit crisis weâre currently in?
Brad Stroh: I think no question it has. Unfortunately, what it did, it made it very difficult for consumers to file for Chapter 7 bankruptcy, which is liquidation -- itâs what most people think of as a bankruptcy. What is does, it pushes people into Chapter 13, which is a repayment plan. It essentially keeps consumers in this financial purgatory for five plus years, where they canât deal with the burden of their debts but they canât get a clean slate and start over, so theyâre forced to sort of spin their wheels and become indentured servants to their creditors, where a big chunk of their monthly cash flow is just going to paying their bills. And the inability to file for a Chapter 7 for a lot of consumers now means that burden drags on longer than ever. No question itâs great for the credit card industry and theyâre the ones who lobbied for it and got it to pass, but there is also no question, itâs really continuing to hurt American consumers, unfortunately.
Host: Finally, and we touched upon this earlier, but what are some available resources for credit card consumers to assist them with their credit card debt and other revolving debt as well?
Brad Stroh: Sure, so weâd advise people if youâre looking for third party help, to evaluate all your alternatives. Certainly Bills.com is there to help you out. We have many free tools, tips, calculators and advice for consumers to learn about all of their alternatives and how to deal with debt and then if they need third party help, to get debt management or debt relief or debt settlement providers. And in fact, they can apply right at Bills.com for our pre-approved list of debt resolution partners that we work with and have vetted and think are the right solutions for consumers. If youâre looking for a debt settlement program, a company named Freedom Debt Relief is a great company that we partner with as well for the debt resolution side. But most importantly, weâd say do your homework, find a company thatâs a member of the Better Business Bureau thatâs been around for awhile and frankly, we think Bills.com is a great resource for consumers to do their homework at.
Host: Great! Today weâve been on the line with Brad Stroh, co-CEO and co-founder of Bills.com. Brad, thanks for taking the time to help educate our visitors about this topic and we hope you can contribute to the program again in the near future.
Brad Stroh: Thanks very much.
