After Their Wedding, The Spending Hit Home

Profiles by Michelle Singletary with contributions by research assistant Charity Brown
Sunday, February 17, 2008

Age: George is 52; Kim is 43.

Background: The newlyweds live in Dumfries and have been married for about six months. They share their home with Kim's 19-year-old daughter. George served in the Army for 22 years before retiring as sergeant first class. He now works as a contract manager for a security company in the District. Kim is a senior master sergeant in the Air Force. She's been in the military for almost 20 years.

Financial situation: Together the couple earn $191,000. Despite their high income, they only have about $1,000 in emergency savings.

They do, however, have three homes, including their primary residence in Virginia. George receives a pension of about $19,000 a year from his service in the Army. He has no other retirement savings. Kim has about $40,000 invested in the federal Thrift Savings Plan and $10,000 in an individual retirement account. She will be eligible for a pension once she retires.

My concern about this couple is their debt load. They owe a little more than $30,000 on eight credit accounts, including a line of credit. Kim has accumulated $40,000 in student loan debt while working on a doctorate.

The Col¿ns acquired a lot of the consumer debt after their wedding.

"My husband and I have bought a massive amount of material items since we got together, mainly for our townhome," Kim said.

The purchases started with $2,700 for blinds, then $2,800 for a washer and dryer, then $4,000 on an entertainment center. The spending got so high that Kim siphoned $8,000 from her student loan money to pay down their American Express bill.

"I am in a constant state of stress," Kim said.

Haunting George is an outstanding federal tax bill of $11,770 and a state tax debt of $3,368. The longer he has that debt, the more interest and penalties will accrue.

Their New Year's resolutions: The couple desperately want to stop living paycheck to paycheck, especially since they earn so much.

They've resolved to pay off the tax and consumer debts and build up an emergency fund. George wants to supplement his Army pension with more retirement savings. They also want to honeymoon in Puerto Rico as well as buy a home with a garage.

The plan: To say the least, there will be no honeymoon in Puerto Rico. And moving into another home, especially in the current housing market, is a very long-term goal. Most important, they need to reassess their budget. The basic housing allowance Kim gets from the Air Force nearly covers her mortgage, so I asked why the couple are in so much debt.

"We have been flying on a high-speed spending roller coaster ever since we wed," she said.

To dig themselves out of this hole, I've asked the Col¿ns to do a new budget and follow it strictly. They've tried to budget in the past but just didn't have the discipline.

I believe they are ready now.

"I'm just tired of owing money," George said, looking rather weary as we reviewed their finances.

They will start paying off the debt with the lowest balances. But with the interest ticking up on the tax debt, they also need to aggressively pay that down.

I also recommended that George sell his 2002 BMW Z3, which costs him $702 a month. The purchase price was a little more than $42,000. He already has a 2007 Ford Explorer Sport Trac, and Kim has her own car (which is paid for). The monthly payment for the sport-utility vehicle is $893. That payment is so high because George rolled into the $49,256 purchase price the $10,000 loan balance from a 2005 Mustang he traded in for the Explorer. That has put him upside down on that vehicle -- meaning he owes more than it's worth. It would be difficult to sell because he would have to come up with thousands of dollars in cash, which they don't have.

He could sell the BMW for enough to pay off the loan. At the very least, selling it would free them from that large payment, which could then be applied to their massive debt load.

He agreed to list the car for sale but is now wavering. He said he just felt in his heart that he couldn't do it.

As I tell all challengers, it's your life, but which do you want more, freedom or financial bondage?

Tough love: The Col¿ns can no longer use any credit at all.

This news was particularly tough for Kim, who likes to pay with plastic for the reward points.

"At what price are you earning those points?" I asked.

Sure, she may get some free airline tickets, but she has taken on more debt than she can handle. Again and again I tell people that studies show you spend more when you use credit, even if you pay off your balance every month. So those so-called reward points aren't really free at all.

I had Kim cut up the cards, including the American Express charge card. She hesitated at first.

"It's just hard," she said. "What am I going to do if an emergency happens? What if I need it for a car repair?"

I reached into my purse and pulled out a $20 bill. I handed it to Kim. I asked her to look at it, feel it. Far too many people have forgotten what's it's like to pay for what they want or need with cash. As I have told many people in the same predicament as the Col¿ns, a credit card shouldn't be your financial lifeline.