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1 in 4 Americans with debt are in collections, survey reveals

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Rachel Cruze, Personal Finance Expert with Ramsey Solutions, joins the Yahoo Finance Live panel to discuss a new survey shedding light on the state of personal finance for Americans during COVID-19.

Video Transcript

ZACK GUZMAN: As much as we talk about the unemployment rate coming back down here in America and more and more stories of Americans recovering financially in the post-pandemic recovery, a new survey is out, revealing just how many Americans think that they will never recover from the financial impacts of the coronavirus pandemic. And a surprising number in that survey from personal finance education company Ramsey Solutions saying about 34% say they'll never recover. 23% say they're worse off following COVID.

And for more on that, I want to bring on Rachel Cruze, personal finance expert with Ramsey Solutions, joins us now. And Rachel, it's kind of surprising because we talk so much about how this recovery is gaining strength right now. But when you dug into this, talk to me about what you found when you talked to people out there who are still struggling.

RACHEL CRUZE: Yeah, a lot of Americans still have not recovered because of this-- because of 2020. And so when we looked to see this recent survey that we just published today, one in four Americans that have debt have at least one of their debts in collection. And then one out of five that have credit cards, they've maxed out at least one last month. So for me, this just shows that we're still dependent upon debts to help us in our lives.

So I want Americans to shake that up and say, no, I want to put you back in control of your money and not depend on debt to take care of your life, that you can do this. You can choose to get out of debt. I do teach people how to do that. But also to say you can put yourself back in the driver's seat of your own life.

AKIKO FUJITA: Rachel, I'm thinking about the conversations we had sort of midway through the pandemic when there seemed to be this thinking that a lot of Americans used those stimulus checks to actually pay down their debt, especially their credit card debt. And since then, we've gotten additional checks that have been sent out. So how have those been put to use? And has that actually helped improve the credit picture for a lot of these Americans?

RACHEL CRUZE: Well, that's what I'm hoping. I'm hoping when you get the stimulus check, that you're using it for your life and your money, you know, not to go back and just spend it all to stimulate the economy. I want you to use it for you. So paying down debt with that check is a great option. And the way to get out of debt effectively is to do what we call the debt snowball. So this is we're going to pay the smallest debt off first. And you're going to work your way to the largest debt, regardless of the interest rate.

And doing this is going to put you in a position, again, when your income comes in, you get to keep it. And I did find that 44% of Americans that have debt are losing sleep. And so, this debt is a huge weight on Americans. And to be able to get it out of your life and to say, OK, I'm going to take control of my largest wealth building tool, which is my income, versus it going out to 80 different payments-- it's actually going to come to me and I get to decide what to do with it-- it just puts you back in the power play.

ZACK GUZMAN: Yeah, you know, it's interesting, too, over the weekend, we heard Charlie Munger talking about how it's going to be difficult for the millennial generation to build wealth the same way that his generation did. And I think about low interest rates right now and how traditional kind of advice here to be saving isn't necessarily winning as much in interest. And right now, too, when you think about planning for retirement, the other thing that stood out to me, 42% not currently saving for retirement. So when you think about the financial health, planning for the future, something that's very often overlooked for younger Americans, where do you think that that impact is being felt when it comes to this pandemic?

RACHEL CRUZE: Well, that 42% is very strong. But where I want people to do before they even invest into retirement is to get to a place where they're completely out of debt, like we just talked about, and have at least three to six months' worth of expenses saved in the bank. And that account specifically, that three to six months of expenses, a lot of people say, oh, but I'm not making a ton of money on it in a money market account or a high yield savings account. But for that purpose specifically, it is like insurance. It's not an investment.

And then beyond that is where you can go and invest. And the market has done great. I mean, it's kind of up and down, but you look back even in 2019, 2020, the way it did, I mean, it was kind of incredible to see it continue to stay strong. But that's where I want to look for the younger people to go and invest. But again, having them in a financial position where it's wise, where they're out of debt, and they have an emergency fund in place.

ZACK GUZMAN: All right, Rachel Cruze, personal finance expert and author with Ramsey Solutions, appreciate you coming on here to chat all of that with us. Be--