Digging out of debt
The Great Recession is officially over, but for a huge number of Americans, serious debt lives on.
U.S. households owe a combined $11.5 trillion on credit cards, car loans, mortgages and other consumer debt, according to the Federal Reserve Bank of New York.
In households across the country, big debt is causing sleepless nights, troubled relationships and uncertain futures. The good news: There are ways out. And you don’t have to file for bankruptcy.
Here’s how four Southern California households took control of their finances and found more happiness with less debt.
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Dan and Cheree Griffith
Debt: $680,000
Solution: Smaller home. Fixing own meals.
As successful Realtors during the boom years of Southern California’s housing market, Dan and Cheree Griffith seemed to have it all.
The Rancho Cucamonga couple lived in a five-bedroom house landscaped with waterfalls. They frequently dined out, spending $300 on meals. A wine connoisseur, Dan, 61, collected nearly 2,500 bottles of fine wine. They owned part of a major real estate firm in the Inland Empire.
Then, financial catastrophe struck. The housing market collapsed and to make matters worse, the firm filed for bankruptcy in the wake of their business partner’s arrest in 2007 on embezzlement charges. (The partner was later convicted for grand theft and sentenced to three years in prison.)
The Griffiths tried to stay afloat, selling Dan’s wine collection for $40,000 to bring in cash.
“It was a very humbling and depressing time,” Dan said.
All the more so, because they had amassed nearly $680,000 in personal debt, most of which was their mortgage.
The mortgage eventually went away, but not because of a good reason. Unable to keep up the payments on the house, the couple lost it to foreclosure.
Then the Griffiths were down to $80,000 in credit card debt and car payments.
Their son gave them a book by Dave Ramsey — whose radio show and personal appearances about handling debt are widely renowned — to show them how they could track their spending. Out came the envelopes (see the Fabuliches for details on the method) and they began paying for things with cash as much as possible. “Before the month begins, every dollar has a name,” Dan said.
It became almost a game to find ways to save. Instead of buying $30 bottles of wine, Dan used his know-how to discover decent wines for $6.99. After they stopped dining at fancy restaurants, they went to chains such as El Pollo Loco. But then they realized they could save more by having chicken and a salad at home.
Fixing their own meals had another major benefit — they ate more healthfully. Dan, who had a pronounced paunch, lost nearly 100 pounds, and Cheree, 51, lost close to 60.
They still have a real estate business, and almost all the money they save from their income goes toward paying off debt. Only about $3,000 of it remains, and they are on track to be debt free in June.
At times, the Griffiths, who now live in a rented condo, miss the high life. But they’ve learned that what really matters to them is their family and friends.
“In the end, it is just stuff,” Dan said. “There is a life after debt and it can be better.”
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Cheryl Karinen and Patrick Wong
Debt: $170,000
Strategy: Left California. Gave up the dog.
Cheryl Karinen and Patrick Wong were “Real Housewives of Orange County”-adjacent — one of the regulars on the upscale reality show lived in the same neighborhood.
Cheryl, Patrick and their daughter lived in a four-bedroom home in Dove Canyon, a gated community with its own golf course and tennis courts in the rolling hills in south Orange County. They had four cars, including a Jaguar and a Mercedes.
They vacationed in the Caribbean, and Cheryl, a stay-at-home mom, bought $220 designer jeans.
All of that changed in 2008 when Patrick, 57, lost his job as a marketing manager for a high-tech firm.
Given the neighborhood where they lived, they were lucky to owe only $100,000 on their mortgage. Car loans and time-share properties added $70,000 more to their debt.
Looming expenses made controlling their debt more difficult. In addition to the mortgage, the house was costing them $15,000 a year in property taxes, to say nothing of maintenance. And college tuition bills would soon be rolling in.
Cheryl and Patrick searched for somewhere cheaper to live, and that led them to Sahuarita, Ariz., about 15 miles south of Tucson. They found a house for $320,000. Property taxes on the new place: $2,000 annually.
They sold the Orange County home for $840,000 and used the proceeds to pay for the new house and to pay off loans.
To face an uncertain future, the family radically changed how they handled finances.
Their daughter gave up summer breaks while attending UC Irvine. She graduated in three years, saving nearly $25,000 in tuition and expenses.
They gave up extravagant vacations, and Cheryl bought designer clothes only if she could find them in secondhand stores.
One of the most painful family decisions was to give away their beloved bichon frise dog that was costing them about $1,500 a year in vet bills, grooming and boarding.
“It was terrible,” Cheryl said. “I still feel bad.”
Eventually, Patrick landed a new job that enables him to work from home, earning close to his previous salary. But the family stayed on a budget.
Cheryl said choices that initially seemed sacrificial turned out to have silver linings. She said her daughter became less spoiled and grew more independent because she had to make choices in her life to fit a tough budget.
“Sometimes when you think something is going to be terrible you shut yourself off to other options,” Cheryl advised. “Stay open. Do what is necessary.”
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David and Debra Blaine
Debt: $65,000
Strategy: Talked it out. He colors her hair.
When Thousand Oaks resident David Blaine’s father became ill, he and his wife, Debra, ran up $65,000 on half a dozen credit cards to shoulder some of the costs.
Before that, the Blaines didn’t have major money issues. But they also never talked about their finances.
“People say communication is so important,” said Debra, 52. “But no one likes to talk about sex or money.”
But with credit card debt hanging over them, the couple were getting anxious. When the phone rang, David, 66, worried whether it was a creditor. Separately, Debra fretted whether creditors might one day garnish her wages.
The couple finally had a heart-to-heart talk.
“A good marriage is equal parts love, romance, friendship and administration,” David said.
They bought a $50 Quicken software program to organize their finances and create a budget. David became fastidious about inputting the couple’s expenses into the program. On the weekends, they reviewed their budget and planned further cuts in expenses.
The couple stopped traveling to San Francisco and staying in five-star hotels. Debra skipped visits to the salon, instead relying on David to color her hair. He brought tuna fish sandwiches to Debra’s workplace, where they ate lunch together.
“If we were about to buy something, we asked ourselves: ‘Do we really need it?’ If we didn’t, we didn’t buy it,” David said.
The couple, who after David’s retirement made about $100,000 annually from Debra’s salary and his Social Security benefits, squeezed about $1,500 from their monthly budget to apply to their debt.
For an unfortunate reason, the debt was paid off more quickly than expected. David injured his back in a car accident, which resulted in his receiving an insurance settlement of about $240,000. On bad days, David’s back still hurts. But with the windfall, the couple paid off all their debt.
Still, the teamwork and closeness they developed solving money issues remains. The Blaines now talk openly about money and plan financial goals together.
“It was the final piece for our marriage,” David said. “Working on the difficulties in your finances is a gift you can give each other.”
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Mark and Rachel Fabulich
Debt: $106,000
Strategy: Got out the envelopes
The debt habit started early for the Fabuliches. Before either of them reached age 30, the pair had racked up $106,000 in student loans, car loans and credit card debt.
The Pasadena couple, making a combined $60,000 a year, didn’t think much about their financial burden.
“Our loans were like pets,” Mark said. “It was just something we thought we’d have to take care of for the rest of our lives.”
Their aha moment came in 2008 when they splurged on a trip to Las Vegas. Before heading home, they bought a time share for $12,000. Days later, the Fabuliches panicked and got out of the deal.
“We realized we had no idea what we were doing with our finances,” said Mark, 35, who works as a music librarian.
Debt guru Dave Ramsey, who has a popular radio talk show and attracts thousands to personal appearances, said that such a moment is often necessary before people take debt seriously.
“I used to think becoming debt free was about the debt-to-income ratio,” Ramsey said. “It’s not. It’s about the debt-to-disgust ratio.”
Following a method in one of Ramsey’s books, the couple began tracking every expense.
To get feedback on spending, the Fabuliches used the time-honored envelop budgeting system. Taking an envelope for each category — such as groceries, gasoline and entertainment — they inserted enough cash to cover monthly budgeted expenses. Each time they took money out, they noted what it was for (if a debit card was used, they noted the amount).
They dramatically slashed their dining-out expenses from $800 a month to $80. They did away with cable, nixing $70 a month, when a friend built them an antenna capable of picking up digital signals.
Meanwhile, they freelanced to earn more money. Rachel, 29, a violin and viola teacher, took on more students. In four years, the couple paid off nearly all they owed, with just $1,000 left on their student loans. They expect to pay that off by the end of this month.
“There’s a calm and serenity in our lives that I didn’t know was missing,” Rachel said.
