NerdWallet's Smart Money Podcast - Budget Rehab: How to Stop Paying Only Interest and Make Real Progress on Credit Card Debt

Episode Date: May 18, 2026

Learn how to tackle $25,000 in credit card debt and which payoff strategy could work best for your situation. How do you get out of $25,000 in credit card debt when minimum payments aren't making a dent? In this episode, hosts Sean Pyles, CFP®, and Elizabeth Ayoola sit down with listener Jessica, a Bay Area mom carrying three maxed-out credit cards with interest rates ranging from 11% to 24%. They walk through her real budget, including nearly $2,000 in rent, close to $1,200 in monthly transportation costs, and significant childcare expenses, to understand why her spending outpaces her income. They also explore what options could realistically help her make progress, from nonprofit credit counseling and debt management plans to whether a free bankruptcy consultation might be worth her time before committing to any path. Read through NerdWallet's guide to the best strategies for whittling down what you owe, depending on how much debt you have: https://www.nerdwallet.com/personal-loans/learn/pay-off-debt  Want us to review your budget? Fill out this form — completely anonymously if you want — and we might feature your budget in a future segment! https://docs.google.com/forms/d/e/1FAIpQLScK53yAufsc4v5UpghhVfxtk2MoyooHzlSIRBnRxUPl3hKBig/viewform?usp=header To send the Nerds your money questions, call or text the Nerd hotline at 901-730-6373 or email [e-mail]. Like what you hear? Please leave us a review and tell a friend. Learn more about your ad choices. Visit megaphone.fm/adchoices

Hey, Elizabeth, we have to talk about the newsletter. What newsletter are you talking about, Sean? You mean the new, free, smart money email newsletter? Yes, and I have to say it is so good. It really is. It has clips, episode roundups, and behind the scenes takes from me, you, and our producer, the stuff that makes you feel like you're really part of the show. And listeners, for the record, you actually are part of the show.

I'm going to be sharing personal stuff. You know, I love sharing my business, and I'm going to be sharing parenting tips from an eight-year-old. a single mom perspective. And I am loading up the newsletter with my favorite gardening tips and lots of cute photos from my garden, including my pets, just napping among my flower beds. It's kind of adorable. And the best part is that this newsletter is totally free. So head to nerdwollet.com slash podcast to sign up. For the record, that's nerdwollet.com slash podcast. Come hang out with us. Imagine opening your account and seeing the same thing month after month. You're making payments, but the balance is barely moving.

That's where today's listener is with $25,000 in debt and a big question. How do I pay it down and get ahead? Welcome to Nerd Wallet's Smart Money Podcast, where you send us your money questions and we answer them with the help of our genius nerds. I'm Sean Piles. And I'm Elizabeth Ayola. Now we have another listener question today. We heard from the great brand that you guys love listener questions.

This episode's one comes from Jessica and she's actually joining us today. and she has a question about debt recovery. So we're going to be doing a little bit of a debt rehab episode and looking at her budget and also looking at her debt paydown options. Hello, Jessica. Hi, thanks for having me, guys. Jessica, welcome to smart money.

So we like to start often with an icebreaker. Since you live in California, where I used to live in the Bay Area, I would love to hear what's maybe your favorite thing about living in California. Oh, I am a Bay Area girl through and through. So I would probably have to say all of the diversity that we have, all of the great food I can eat Burmese one day and eat Mexican the next day and Thai the next day. That's the really cool thing about living up here. And are you a native? How long have you been there?

I am. I'm born and raised, Bay Area. My family, everybody's here. Tell us a bit about your family structure right now. What's going on? Do you have kids? Tell us a bit about that. I have two daughters.

They are seven and four. And they're really, really fun to play with. And they are really, really expensive. But they're fun. My seven-year-olds in the first grade, and she's really, really smart. And she has a lot of friends. And I'm really proud of her because she's the best friend that you could ever ask for. She's really sweet.

My four-year-old is just coming out of her shell, and she's got so many friends. And she used to be a little shy. Now she's out seeing. and making new friends, and she's going to TK in August, so I'm really proud of her and that. I got divorced two years ago, and now I am with my partner, who I love very much, and we've been friends for almost 20 years, so it's kind of set in stone. It was meant to be, and then I have a cat and a dog, and my cat is crazy. Sean can relate.

I can relate, yeah, my cat, he has a mind of his own. he really likes to get things his way. And if he doesn't, he'll let you know by biting you. Oh my God. I'm not coming over, Sean. What? You will. You will definitely come over when you're in Portland.

I will make it happen. Oh, my God. Oh, my God. All right, Jessica, let's get into your finances. Thanks for giving us a little bit of background there. You wrote to us because you wanted to talk about strategies for your debt. So let's talk about how much debt that you currently have. So I have three credit cards and a car payment.

My three credit cards, I think, add up to about $25,000, mostly from losing or being laid off from jobs and having to take low-paying jobs. Previously, I was a stay-at-home mom for five years, and I didn't have any retirement or anything. So I did leave that divorce with a bit of a settlement, but most of that money went to my living expenses and kind of acclimating myself back into not being in a marriage. not being supported. And then I will say, like, I did spend some frivolously. And I'm not very proud of that. So most of it just kind of came from not preparing for, you know, for the future, like, preparing for something bad to happen.

I think that is if I got into the debt as well. I needed to get a new car after my divorce because the car I had gotten in the divorce wouldn't have lasted me too much longer. That's because I'm a commuter. So I did get a car. I was able to put $12,000 down on that car, $6,000 from a trade in, and then I put $6,000 of my own money. So I got a really good deal. At the time, the interest rates were not great, but I had really good credit at the time. So they gave me 6.0%. That's the best that they could do in 2024. Interest rates were just kind of wonky. But I did get a pretty good deal. I only pay $434 a month. on my car note.

For a current car payment, that's not horrible because cars are so expensive nowadays. I'm proud of that. Jessica, I'd like to hear when you began to realize that your debt was becoming a problem that was not as easy to get out of as you maybe thought it was going to be. I think when I started realizing like I wasn't able to pay more than my minimum payment. Previously, when I had my credit cards, like I would pay the balance off. or I would pay way more than the minimum payment just to make sure my payments were going down. But because I had that laid off, the little bit of savings that I did have,

I used that for my major expenses like rent, child care, daycare, and my car insurance. I had about three, three and a half months worth of savings for that. And so the rest of my money that I was getting in unemployment, I was using to pay down some of my credit card debt. But I also had to use my credit card to buy groceries and gas and such. And then I took a job that was paying me $25 an hour. I went from $60 an hour to $40 an hour to $25 an hour. It was really, really stressful. And so my savings went down because I used most of that.

to kind of help me pay for things for my rent and my bigger expenses, like I said, for my childcare and such. And then Jessica, how long would you say in terms of the timeline did it take you to accumulate that debt or when did you notice it start snowballing? Because I know you said you lost your job. Was it three times that you lost your job? So how long did it take? I started accumulating the debt where I couldn't pay six months or so, six, seven months.

Yeah. because when I lost my job, I had pretty low credit card debt, so I was able to still pay it. But again, I was trying to save my savings for my big expenses. So at that point, I was just kind of paying the minimum payments because I was getting unemployment. It's a little scary how quickly credit card debt can rack up, in part because the interest rates are so high. So we're going to talk through some ways we can get out of it. but I'd like to hear to start how you've been paying off your debt so far. Do you have a payoff strategy or what's been your tactics so far?

My Chase card and my Citibank card, they offer like payment plans, but really it's just me paying the interest. I'm not making any kind of dent in the actual principle of the credit card debt. What are the interest rates on these debts, if you can recall? Chase is about 18%. I believe city banks the highest 24%. And then my capital one is 11%. And they're all maxed out.

And with these credit card payment plans that you're doing as well, Jessica, have the lenders offered you, for example, lower interest rates or to waive any fees? No. They just offered for me to do the payment plan so that it doesn't put a dent in my credit. And then I'm not like, it's not sure. showing that I'm like making late payments. Do you know your credit score? The last time I checked it was 630, but that's probably because I pay my credit. I mean, I pay my car note on time and I am making payments on my credit card. But then, you know, it's just. Just your utilization is like

almost 100%. Exactly. All right, Jessica, before we go into debt repayment options, let's look at your budget because that's going to determine what the best debt repayment option is for you. So thank you for sending in your numbers and being vulnerable and sharing your finances with us. Correct me if I'm wrong, but with you recently got a new job. That's correct. Congratulations. We love to hear that. And after tax, you're making around $3,800. Is that right? Yes. Yes. Okay. So I noticed that you are paying almost $2,000 on rent. Does that feel comfortable for you right now? No. But unfortunately, where we live at, it's pretty expensive. When I moved in here, here was 1850 and then after a year they raised the rent $100.

And so I live in a one bedroom apartment. It's getting really, really crowded. We have two kids and two animals. So ideally I would like to get a bigger place, but that's really all that I can find in a decent neighborhood for that price. Housing in the Bay Area is so challenging to find at all. And then if you do find something that fits what your family needs,

it's going to be expensive. Yes, yes. unfortunately. Do you pay $0 for medical care? How does that work? Because I was going between jobs, I just didn't have any medical care. And so I wasn't paying on it. They're taking about $130 out of my paycheck for medical care. So I'm paying that. And then my ex-wife, she provides the medical care for our two daughters, which is helpful through her job. So yeah, I wasn't paying anything for a while. and I probably won't be paying after I accept the different position that doesn't offer benefits, but offers more money. I give you some financial relief.

Something else that's good out to me is your transportation costs. It looks like you're paying almost $1,200 a month on total transportation costs, including your car note, gas, all things. Yeah, car notes and gas. Gas is really, really expensive right now, you know. And insurance, my insurance, about $250 a month for full coverage. My car note is $436 a month. And then I also cross the bridge every day. The bridge tolls in the Bay Area are seriously expensive.

$8 a day. Wow. That's high. Yeah. It's crazy. Yeah. So it's pretty high just to travel around every day. Okay.

I also noticed in your budget that you have about a thousand. dollars a month in legal obligations? What is that? I just put that as like for my kids child care services. So like my daughter's preschool, I pay $725 a month. That's just my portion. And then we also have a lovely woman that picks our daughters up and they stay with her for a couple hours while we're in between work. And that's about $400, $350. a month there. So that's, that's what I meant by legal. I didn't know how to like, yeah, I wasn't sure if you had like a judgment or no, no, no, sort of alimony or anything. Okay. No. That's a relief. Yes. Be grateful to not have that. Yes. But there's still a sort of

fundamental tension in your budget, which is that your base needs expenses are greater than your income. Yes. And so that's a really challenging place to be. And I assume this is in part because you're paying so much in your debts on an ongoing basis. Is that right? Yes, yes. But one thing that I will say, I did accept a position that I'll be making more money. So that's a really helpful thing. I'll be making $37 an hour instead of $30 an hour. Okay. And then I also, my daughter, my youngest daughter, will be leaving preschool next month. So that- Oh, congratulations. You get money back. I do have to pay during the summer for summer care. I think that will probably be around $500, so $200 less.

And then after August, no more preschool. I'll just pay for their aftercare, which will probably be about $350 a month. So I'm getting $400 something dollars back plus I'm getting more money and salary. So I think that might give me a little bit more cushion there. Yeah, that'll give you some. reading room because I imagine right now that you aren't really able to save anything, are you? No, not at all. And I mean, I barely can save $50 here and there if I can. And it's really stressful for me because I need to have some kind of cushion in case I, you know, I just had to

borrow money from my parents to get new tires for my car. So, yeah, so that's, it's been a really, like stressful time for me and yeah jessica how much of your budget if you could estimate right now is going towards paying down your debt do you have like a dollar amount you can think of about 550 a month across all three credit cards yeah and the only one that really kind of knocks the principal down is my capital one that's more of like a starter credit card and they don't charge overdraft fees they don't charge overcharging fees. I took that off because they kept letting charges go through, like reoccurring charges go through. So I took that off because it was like building. But that minimum payment has stayed the same. It hasn't gone any higher. So I've been able to make that

payment. But the other two are kind of like closed at the moment until I make the actual minimum payment that I owe, which is like 500 for the for the city bank. And I think like 385 for the chase. I don't know if I should like do that consolidation program or I don't know. We're back in a minute. Stay tuned. Instacart makes grocery shopping easier. And just because you're not doing the shopping yourself doesn't mean you don't care how it's done. With Instacart shopper notes, you can get particular about what you want right in the app. Like rotissory chicken that's extra crispy, cheddar that's sharp as your skates, and lettuce you to actually pick yourself.

Just leave a note for your shopper so they can get it right for you without having to ask. That way, you can get groceries just how you like. Download the Instacart app and shop today. Okay. Well, so here's where I have a lot of thoughts. Jessica, Sean used to write all about debt. So he is definitely an expert in this area. Yeah, on top of being a financial planner, although caveat I'm not your financial planner.

Just my legal team wants me to say that. So there's this term debt consolidation that gets thrown around a lot and that can mean different things to different people. There are debt settlement companies where you just stop making payments to your credit card companies and you divert all of your money to them. And then they negotiate directly with your credit card company. And that can be really, really risky and really expensive because you can be sued by your credit card company. So I'm really not a fan of debt settlement. And this is their companies like national debt relief. I strongly recommend not engaging with them at all.

On the other side, there's another form of debt consolidation. and this is beyond, you know, loans or credit cards. That's actually called nonprofit credit counseling. And with that, you would get into something that's called a debt management plan. And these nonprofit organizations were actually started by the credit card companies back in the 70s because people couldn't afford their payment. So it's a way for you to have your debt be more affordable while still be in good standing with your credit card companies.

The reason why I think you might be a good candidate for this is because they want you to have a stable income. Yes. Because you need to make regular payments when you're on this plan, which will last between three and five years or so. And if you miss a payment, that can derail the plan. But why I really like them is that they can often cut your credit card interest rate in half or more. And that makes it so you can actually get some traction and pay off your debt faster instead

of only putting money toward the interest, which is where you are right now. One organization that I'm a fan of is called Money Management International. They've been around for a while. They help a lot of clients. they can make it so that, again, you are actually making progress on your debt instead of just spinning your wheels and feeling like you're not getting anywhere with your debt payoff. And if you want to choose your own agency, Jessica, you should choose one that's accredited by the National Foundation for Credit Counseling or the Financial Counseling Association of America. So you can kind of look through the one Sean is recommending and those to see where you land. And also, I do want to say something to not beware of because I agree with Sean that credit counseling is very helpful.

I used to work for a credit counseling agency. But you want to keep in mind that these agencies will sometimes ask you to discontinue the use of your credit cards. So that's sometimes what puts people off of using them. And you can also may have to close some of your accounts. And obviously that may temporarily impact your credit score because it can affect your credit history, your credit utilization. It's an option to help you get out of debt in a structured way. And as Sean said, help you to pay less in your overall debt because the interest rates are cut. Yeah.

And you're at a place right now. now where your debt is just accumulating and you're not able to go forward with anything. So I'd like to maybe hear from you how you might want to get out of this and whether you've explored any other options, including like maybe a balanced transfer credit card or talking with a bankruptcy attorney. I haven't talked to a bankruptcy attorney just because, well, I can't really afford to file for bankruptcy, number one. And number two.

That's a common challenge. Yeah. Yeah. I was leaning towards some kind of. like debt management program, but I'm glad that you have strayed me away from the national debt relief. I had reached out to them just to inquire and then of course they kept calling me, but I never went with them. And so I'm glad that I know now that it'll be a bad idea. I was trying to really kind of see if I could just pay it myself, pay it off, but it's just becoming really

becoming too hard. And I have this issue where, like, I have these goals. I want to get these things done quickly. But with my situation and being a stay-at-home mom for five years and not being able to have retirement and not working, I'm really kind of starting from scratch. And I have to be patient with myself in that regard. And know, like, okay, I might not really start doing what I want to do till I'm 45.

And that kind of is like, oh, man, And it sucks, but it's also like some people don't get their dream job to their 50. Like it doesn't matter your age. It's about, you know, the hard work that you put in. So for me, I'm just trying to be graceful with myself. And like instead of putting my head down in the sand and not doing anything about it, I just want to get it done so that I can start doing things that I want to do. So two good next steps for you, Jessica, would be to call a debt management nonprofit,

credit counseling agency to help you get an evaluation and see if they might be able to help you with your current situation. It's also often recommended before you sign on to one of these programs to get a free consultation from a bankruptcy attorney just so they can talk through what your path might look like if you went with them because people can often discharge their debts in just a few months. And yes, getting the filing money up front can be a little challenging, but they often have ways to work with clients to get that done. Because if you are on a debt management plan or doing debt settlement or paying it off on your own. It's going to be a few years before you're fully out of this debt. And just understanding what might be the best, fastest, least expensive, lowest interest

way to get out of your debt is probably going to be the smartest thing to do just to do your research before you jump into one path or another. Okay. Good to know. Thank you. My partner just had to file for bankruptcy. So I know that there's information I can gather from her in that regard. So it's good that I have some options to look into. Yeah. The one thing I'll say after you file for bankruptcy is that your credit score can actually rebound pretty quickly, and that's a common concern from people. In fact, it's actually quite predatory.

A lot of credit card companies will mail people who just file bankruptcy a bunch of offers for new credit cards because they know that you can't file for another seven to 10 years depending on what type of bankruptcy you're pursuing. So just be really careful with those credit card offers that are coming in the mail. you're probably receiving them right now if your partner disfiled. So just throw them away and just kind of rethink your habits around credit cards too. It sounds like you were just putting life necessities on your credit cards and you weren't spending frivolously, but they can be a really tempting financial crutch where you, you know, yes, you're buying necessities, but then you can

use it for something else. It's maybe not so necessary. Yeah, absolutely. And then, yeah, the debt racks up. So just reorienting your attitude around what this financial tool is can be helpful because as you're seeing they can be pretty dangerous too. Absolutely. On a positive note, Jessica, thinking to the future, when you do pay down this debt, as Sean is saying, it's so important to maybe think about financial habits that you can start putting in place that will help you to stay out of debt. You're already on a great path thinking about having an emergency fund.

That's one great way to stay out of debt, making sure that you are developing your skills when it comes to budgeting. Ensuring you're living within your means and all these other things can just help you to stay out of debt. Because another thing that people don't talk about enough is that you can pay off all the debt and find yourself right back in that same credit card debt if you don't adjust the habits that got you there. And so Jessica, I mean, we've covered a few different ways that you can get out of your debt. But one thing I really want to focus on is what it'll mean to you

to be out of this debt, how it'll feel and what you might be able to do with all the money that you're putting toward your debt on a regular basis. So can you picture what your life will be like once you're out of debt? Yes, I can breathe. And I can finally like put money towards a condo or a single family home for my little family and I and possibly an engagement ring or something like that, you know, like those are big goals of mine. I can picture it. That's why I'm like, I have to get it done. Well, having that image in your mind is such a strong motivator. So even though they're going to be ups and downs, no matter which path you take, whether you're doing credit counseling or you are doing bankruptcy, just focusing on why you're doing

this hard thing is going to make it worth it. So Jessica, we've talked about so many different options, which one is pulling you the most? And then also, it could be that you say none and you want to DIY, but yeah, what are your thoughts? I'm definitely thinking about the debt program that you mentioned, Sean. The credit counseling. The thing I think that's holding me up for bankruptcy is like I would like to be able to get an apartment that's bigger. And I'm afraid that that would deter me from being able to get a two-bedroom apartment, like the place that I'm living in now, they don't accept people that have had bankruptcy. So that is something that I'm a little apprehensive

about because I just want to make sure that I can do that at least. You know, if that is something that will be better for me, you know, then I might have to. I'm not sure. But For now, I think the counseling one is a better option at the moment. It's worth having a conversation, again, with both a credit counselor at one of these nonprofit credit counseling agencies and a bankruptcy attorney, too. I really want to emphasize that because the credit counselor, at the end of the day, they kind of have an incentive to get you into one of their programs, right? And it does take a while to fully get through it.

Whereas with bankruptcy, you probably saw this with your partner. It can be resolved in just a few months. So thinking about time, you were mentioned. that you feel that time is kind of slipping by. As a way to reclaim some of that time, this might be a good option for you, but then you do have to weigh the practical reality of, yeah, it might make finding an apartment

that's a little bigger, more of a challenge. So that's just a tradeoff there. Yeah. Mm-hmm. Mm-hmm. Well, thank you for those options. I really didn't know where to go, to be honest. Yeah.

We're so happy to help you. I think I'm going to do some really hard thinking about what would be best for me and my little family. And I'm really grateful that you guys have given me some tools on what I can do to make this a less stressful time in my life or to just kind of like put my head forward and do something about it. If you haven't seen it already, we have an article on different debt paydown strategies for 2026 that you can read through. And it should include the credit counseling option as well. And of course, we'll include that in the episode description. Awesome. Thank you guys. All right, Jessica, will you please read

us out? Remember, listener, that we're here to answer your money questions. So turn to the nerds and call or text us your questions at 901-730-6373. That's 901-730 N-E-R-D. You can also email us at podcast at nerdwilet.com. Join us next time to hear about what happens after you've reached a perfect credit score. According to a listener, you do not get a toaster. Follow smart money on your favorite podcast app that includes Spotify, Apple Podcasts, and IHeartRadio to automatically download new episodes. Here's our brief disclaimer. We are not your financial or investment advisors. This nerdy info is just for educational and entertainment purposes and may not apply to your specific circumstances. This episode is produced by Tess Vigland, Hillary Georgie helped with editing, Eve Cromen, Halmar

audio, and our video production. And a big thank you to NerdWallis editors for all of their help. With that said, until next time, turn to the nerds.