In sea of debt, he needs a raft

Five years ago, at the tender age of 25, Nathan Drake of Whittier found himself separated from his wife and starting life over, but with an anvil around his neck.

Drake was nearly $25,000 in debt after spending got out of control in the emotionally rocky marriage, which ended in divorce. With just a car and a computer to his name, he moved on and into an apartment, buying everything anew from a shower curtain to a couch.

Drake eventually mended his heart, and he remarried last July. But his finances are still broken, and that anvil got much heavier.

The Canadian transplant, who nets $36,000 a year, is $54,000 in debt and considering bankruptcy.

“I’m at my wits’ end,” said Drake, 30, who works as a product manager for a Whittier microfiche storage and industrial furniture company. “My paycheck is spent before I get it.”

Starting over -- and buying a truck and a sparkling wedding ring for his new wife -- put Drake further in the hole.

He dug it even deeper, splurging as a newlywed to show his Canadian wife, Jodi, 23, around Southern California. He and Jodi dined out on $100 seafood dinners, took trips to Las Vegas and, on weekends, went out to dinner and a movie.

All of it added up. Drake carries $29,000 in debt on six credit cards. He owes an additional $16,000 at his bank. And he has borrowed $9,000 from his 401(k) retirement plan, which is worth $14,000 and was his only unencumbered asset.

Each month, he spends nearly $2,000 more than he earns. Any financial mishap and he’s further in the hole. Recently, Jodi needed a root canal, forcing him to put $900 more on plastic.

“He’s in terrible shape,” said Linda Barlow, a certified financial planner in Santa Ana who reviewed Drake’s situation.

His credit score, a numerical value that ranks a borrower’s credit risk, has plummeted to 593 out of a possible 850, making it impossible to get a loan without a co-signer. The interest rates on his credit cards are as high as 30% -- among the steepest Barlow has seen. And twice in the last month, he has invoked his bank’s overdraft protection.

Only recently has frugality entered Drake’s budget. He moved from San Dimas to Whittier to cut his commute and save on gas. Because most of his cellphone use is for work, his employer agreed to cover his cellphone bills. And he and Jodi no longer dine out on crab legs.

But until a few months ago, Drake was spending as much as $225 a month on gas and $300 a month on restaurant meals.

“Even I don’t spend $300 a month eating at restaurants, and I can afford it,” Barlow said.

Drake’s rent is reasonable at $975 a month. But other recurring costs are high.

He pays about $6,800 a year in loan, insurance and gas bills for his Chevy Silverado truck. Drake said he needs the gas guzzler so he can tow a motorboat to vacations along the Colorado River. He paid $2,300 for a one-third interest in the boat; his buddies own the rest.

“People who are $54,000 in debt don’t go on vacation,” Barlow countered. “The whole picture here is one of denial.”

She estimates that Drake needs to slash his expenses by at least $3,000 a month and stop piling on new debt. If he does -- and Barlow believes that’s a big “if,” given his spending habits -- Drake could dig himself out of debt in a little more than three years.

To start, she advises ditching the boat and pocketing the $1,500 that Drake estimates his share is now worth. Getting cheaper wheels would cut his expenses too.

Other savings can be found by reducing 401(k) contributions from 10% to 4% annually. Barlow, a big fan of saving early for retirement, gritted her teeth in making that recommendation. But in Drake’s case, doing so would free up $3,000 a year before taxes.

She recommended that Drake contact his credit card companies and renegotiate his sky-high interest rates. He also should transfer some of his credit card balances to a card that offers low or 0% interest rates for a year. After that term is up, Barlow said, Drake could transfer the balance to another similar card, avoiding high rates altogether.

Some of her clients have gotten entirely out of debt while using that strategy, she said.

She also wants Drake to see a debt counselor at a consumer credit counseling agency affiliated with the National Foundation for Credit Counseling, a nonprofit that helps educate people about their finances. There, for a nominal fee, an advisor could help Drake renegotiate his debt, devise a debt reduction plan and create a household budget.

There are some glimmers of hope in Drake’s otherwise dreary financial future.

If the division he manages reaches its sales targets, he’ll receive a portion of the commissions earned from furniture sales. He said that could add $1,000 a month to his income.

The income tax rebate Congress is working on would give him up to $600, and that, Drake said, “would go straight toward reducing one of my high-interest-rate credit cards.”

And when Jodi changes her immigration status and becomes a permanent U.S. resident, she’ll start working too. Drake, a permanent resident, is awaiting his U.S. citizenship. It could take as long as a year for him to become a citizen and six months more for his wife to get her residency, said Louis Piscopo, an immigration attorney in Anaheim.

For now, though, Jodi must return to Canada while seeking residency. There, she plans to work for her sister’s clothing company and to send most of her monthly paycheck to Drake.

Every little bit helps. If his finances don’t improve within the next six months, Barlow doesn’t rule out bankruptcy. Because of the psychological stigma and negative credit implications of a filing, she views it as a last resort.

Drake nonetheless could be a good candidate, said Marc Forsythe, a bankruptcy attorney in Newport Beach. Bankruptcy liquidation would discharge his debts and compel him to go to credit counseling. But the bankruptcy would remain on his credit report for a decade, which might make it difficult to get credit cards and loans in the future.

Drake never thought he would be in this position. Raised in a middle-class family in Nova Scotia where his father ran a sandblasting business, he grew up knowing the value of a dollar. As a teenager, he pumped gasoline to earn extra cash.

But in college, he discovered that credit card companies, whose salespeople marketed cards in the lobby of a school building, were more than willing to extend him credit.

“I had never had any debt before,” Drake said. “But all of a sudden I had all these credit cards.”

Now, he’s desperate to rein them in. No longer trusting himself, he recently phoned his credit card companies to put ceilings on his spending limits. He couldn’t get any 0% interest credit cards. But he did land one with a 3.9% rate and transferred some of his higher-interest debt. He said he was open to seeing a debt counselor.

Jodi also is cutting back, clipping coupons and cooking inexpensive meals of chicken and potatoes.

As for the boat, Drake won’t sell. Because he and Jodi stay at his uncle’s house when they go boating, Drake insists it’s a cheap getaway. Nevertheless, he’ll have to forget about motoring down the Colorado River for quite a while.

Barlow said she would continue to check in on him over the next six months to help him get on firmer financial ground. Drake, meanwhile, is hopeful about a financial turnaround.

“There’s a lot of work to be done,” he said, “but the pieces are falling into place.”

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(BEGIN TEXT OF INFOBOX)

In need of help

Who: Nathan Drake, 30

Income: $36,000 (net)

Goals: Get out of debt and create a plan to secure his financial future.

Assets: $14,000 in a 401(k) account

Liabilities: $54,000

Recommendations: Slash expenses by $3,000 a month and reduce 401(k) contributions from 10% to 4% annually. See a counselor to get help renegotiating debt with creditors, create a debt reduction plan and a household budget. Apply for low- or no-interest credit cards and transfer high-interest debt. If finances don’t improve in six months, consult a reputable bankruptcy attorney.

About the planner: Linda Barlow is a certified financial planner in Santa Ana with more than 30 years of experience in financial planning. She is a registered investment advisor, a certified employee benefits specialist, a certified tax specialist and a former chairwoman of the Orange County chapter of the National Planning Assn.