Profile : Double Income Over $70,000, Debt-Ridden : Living Above Their Means
The Subject
* Names: Lynn Johnston, 38, and James Jax Jr., 35
* Occupations: Car salespeople
* Assets: Condominium valued at $145,900; 1992 Toyota Camry valued at $14,440; 1991 Dodge Colt valued at $5,125. Total: $165,465
* Liabilities: About $116,000 owed on a home loan; $23,853 owed on car loans; $20,000 owed on credit-card accounts; $132 owed on personal loans from relatives. Total: $159,985 * Financial goals: Pay off credit-card debt, sell the condo, move to Michigan and buy a house.
Lynn Johnston was in a state of panic until she froze her credit cards.
The icicles gathering on the American Express in her freezer at home keep her from using the card while she browses at shopping malls, where she might be tempted to buy something frivolous. But putting her plastic on ice was not good enough, she said.
So Johnston, 38, and her roommate, James Jax Jr., 35, sat down with a financial planner to try to figure out how to pay off $20,000 in credit card debt and get their financial lives in order.
The couple work as salespeople at the South County Volkswagen and Isuzu dealership in Huntington Beach. Because they work on commission, their incomes are not steady, but together they have earned more than $70,000 this year.
Malcolm I. Campbell, a certified financial planner at Grant Nelson Group in Newport Beach, advised them to stop buying on credit. He also recommended that they keep a detailed account for 30 days of where every penny goes, then figure out what they can do without and where they can spend less.
“If you see where you actually spend your money, you can control your spending and identify ways that money could be spent more efficiently,” Campbell said.
With state-of-the-art gym equipment, leather couches, a mini-playground for the cat and other expensive extras adorning the condominium Johnston owns in Fountain Valley, Johnston and Jax acknowledge that they spend on impulse, and Johnston admits that she is mostly to blame for the buying.
“If you’re nice to me, I’ll buy from you,” she said. “That’s why we’re in debt.”
Campbell advised her to cancel all the credit cards except for the one with the lowest interest rate, which she should keep in case of emergencies. Furthermore, he counseled the couple to stop buying unnecessary items. “No more extra entertainment, no more gym machines and no more fancy stuff for the cat,” he advised.
After dealing with their No. 1 concern--getting rid of the credit card debt--Johnston and Jax want to move back to Michigan, where they grew up. They are not sure that would be wise, though, considering that the resale market for condos is bleak.
“I wonder if I’m kind of silly to sell now,” Johnston said, noting that a recent appraisal of the property valued it at $10,000 less than what she paid three years ago.
Pat Neal, a real estate broker and president-elect of the California Assn. of Realtors, suggested that the couple hold on to the condo unless they can sell it without losing any money.
“They should try to sell in January,” Neal advised. “We always find that January is a good month to sell no matter how the economy or the real estate market is doing. That’s how it’s been the last couple of years.”
“I say they have a good chance of selling. If not, then I recommend keeping the property and renting,” said Neal, who owns Pat Neal & Associates, a real estate company in Garden Grove. “Even if they live out of state, they could inexpensively hire a management company.”
Campbell suggested putting off the move until the credit card debt is gone. If the couple dedicate $520 a month to paying off the debt, they will be free of it in three years and two months. Anticipating that the couple will continue to earn the same amount of money next year, Campbell further suggested that they pay at least double that amount when they can.
The sooner the debt is reduced the better, all three agree.
Campbell drew up a budget for the couple that would set aside $1,600 a month to pay off the credit card bills. At that pace, they could be free of the burden in 16 months. Other top priorities, he said, are to buy health insurance, which neither has, and to start a savings program.
Those two things are a must, Campbell told them, as protection against the unknown and unexpected. He also suggested that they have wills drawn up and start retirement plans. His recommendation was that each contribute $166 a month to an individual retirement account. If they do that, he said, by retirement age they could be drawing as much as $1,500 a month each from such an investment.
Considering the couple’s income and obligations, Campbell said, they should be able to find $1,500 a month that was being frittered away.
“Their situation is not nearly as bleak as they thought it was,” he said.
Johnston said that she and Jax will follow Campbell’s plan to the letter. “Now we don’t feel as overwhelmed as we did before,” she said.
Advisers to Johnston, Jax Name: Malcolm I. Campbell, 58 Title: Certified financial planner Company: Grant Nelson Group, Newport Beach Background: Planner with Berglund Co. in Anaheim from 1979 until last month. Stockbroker at PaineWebber in Long Beach. Certified as a financial planner by the College for Financial Planning in Denver in 1979. Licensed as a stockbroker in 1976. Name: Pat Neal, 62 Title: Real estate broker, business owner Company: Pat Neal & Associates, Garden Grove Background: In the real estate business for more than 20 years; broker for 16 years. Received California real estate license in 1972. President-elect of the California Assn. of Realtors; member and past president of the Western Orange County Board of Realtors.
Researched by MIMI KO / For The Times
