Escaping credit-card quagmire
By Deborah Adamson
Advertiser Staff Writer
|Glenn and Jennifer Foster racked up $20,000 debt on seven credit cards. The debt got so high that monthly minimum payments hit $700.
Christie Wilson The Honolulu Advertiser
First they bought a house with just $1,000 down, so they had to pay mortgage insurance. Seizing on a vision, Glenn Foster built a rock wall around the house, borrowing $15,000 from the bank.
On a roll, the Fosters splurged on a new car, furniture, computers, clothes and other personal items. Glenn Foster decided to rebuild his 1986 BMW 325, painting it himself. Everything but the new car and wall was paid for by credit cards.
"I went a little too overboard," said Glenn Foster, 42. "We went for it."
Before they realized what had happened, they had racked up $20,000 on seven credit cards. At first they easily paid the minimum required. But their debt got so high that those payments reached $700 monthly. Plus the Fosters had to cough up hundreds more for the wall and car.
The family and its situation
The couple: Glenn and Jennifer Foster, and children Moelani, 16, Tierra, 15, and Kaala, 5. Moelani, who has two children, qualifies for state assistance.
Occupation: Glenn, business owner, singer; Jennifer, retail services employee
Yearly combined income: $65,000
Credit-card debt: $20,000
Retirement plan: Life insurance policy and some mutual funds
Other assets: 1,300-square-foot house in Waiehu, Maui. Purchased for $139,000, now worth $250,000
Goals: To get out of debt, build up the business and save more for the future.
Challenge: Reining in big-item spending and paying off debt. The Fosters didn't overspend for daily needs but went overboard on credit-card charging after buying a house.
The makeover: Cut up credit cards, change tax withholding to fewer dependents, create a realistic budget and stick to it.
The credit counselor: Wendy Burkholder
Agency: Consumer Credit Counseling Service of Hawaii
Address: Offices in Hilo, Honolulu, Kailua, Kihei, Kahului, Lahaina, Lihu'e and Waikoloa
Phone: (800) 801-5999
History: A member agency of the National Foundation for Credit Counseling, the country's largest and longest-serving credit counseling network. The NFCC has more than 1,300 nonprofit offices nationwide. The Hawai'i agency is paid for through grants and credit-card firms.
Web site: www.NFCC.org
Fees: $10 monthly, which can be waived
"I gained like, 30 to 40 pounds," he said. "I just worked, worked, worked. I worked and ate."
Between them, the Fosters held four jobs. In addition to running a business, Glenn Foster sang at night at the Hyatt.
His 37-year-old wife worked at a Hawaiian quilt store and Crazy Shirts. But even working hard didn't allow the Fosters to make ends meet and bankruptcy was out of the question.
Wendy Burkholder, executive director of the Consumer Credit Counseling Service of Hawaii, said it's not unusual to see hardworking families such as the Fosters go into debt to pay for everyday things.
"That is very typical of the average American family," she said. "It could happen to anyone."
The first thing she made the Fosters do is fill out a form outlining their living expenses. The family came up with $2,800 a month.
But Burkholder said it's probably not a true reflection of what they're spending. The budget did not include money for entertainment, school expenses, gifts or personal care, such as haircuts. The Fosters probably did spend on these. It's a typical malady for many.
"We don't really have a clue what it really costs us to live," she said. "That's how we get into trouble."
Glenn Foster said the family hadn't cut back on daily spending because they were operating leanly. It was freely charging on credit cards that got them.
After reworking the budget to include all living expenses, Burkholder put the family on a $3,100 monthly budget, including car payments. With after-tax earnings of $3,600 to $3,900 a month, that left $500 to $700 for debt payments.
Consumer Credit was able to talk to the Fosters' creditors and consolidate their debt into one payment at lower interest rates. The monthly credit card payment shrank to $536. Since interest rates were lower, the monthly amount helps pay off the principal, too. Another $200 went toward paying for the rock wall.
After making the Fosters cut up their credit cards, Burkholder told them to increase the number of dependents when calculating tax withholding, which would mean more money in the couple's paychecks. The Fosters won't end up with a bigger tax bill since they usually get a refund.
Second, she told the couple to teach their children about the value of money. Turn off the TV and the lights if no one's in the room. Children who receive an income should help pay for expenses.
Finally, they should stick to their budget no matter what.
It will take the Fosters 4 1/2 years to pay off their debt, providing they don't add to it, she said. But it's a better alternative than just paying the minimum.
At 24 percent interest, $1,000 charged on a credit card takes 15 years to pay off, providing nothing else is put on the card, Burkholder said.
It was a harsh lesson for Glenn Foster, and one he will not forget.
"I'll never get a credit card and put things on it again," he said. "Now I know what it does."
To participate in Money Makeover, contact Deborah Adamson at email@example.com or 525-8064.
Correction: A previous version of this story erroneously described advice from a credit counselor. According to the advice, increasing the number of dependents when calculating tax withholding would mean more money in a couple's paychecks.