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Money Make-Overs : Putting our personal finances in order is something most of us vow to do--about once a year. To help three households fulfill their New Year's resolutions, The Times put them together with area financial planners, who recommended fresh courses of action for 1994. : They Took Plastic Debt by the Horns


WESTMINSTER — Autumn and Mike Wilson have successfully dug out of the debt-happy 1980s.

When they met three years ago, they had $24,000 in credit card debt between them. Next month, they will pay off the last of it.

"We were behind," Autumn said. "Now we're even and moving forward."

The Wilsons take brown-bag lunches to work everyday. They buy clothes on sale, wait for movies to come to the video stores and clip coupons for groceries, restaurants and almost everything else.

Mike, 43, teaches high school government and economics in the Anaheim Union High School District and works four nights a week teaching English as a second language. Autumn, 36, is a meeting planner with California Leisure Consultants in Long Beach.

Their goal is to learn how to live differently--maybe have more fun--while staying within a budget.

For Mike, especially, such matters weigh heavily. His lawyer father's spending left the family destitute when he died, and Mike doesn't want to fall into the same trap. Autumn understands, but figures they could loosen up a little even as they save for retirement and emergencies.

"My goal in life is balance," Mike said. "I don't want to be a miser, saving everything for the future. I want to be comfortable saying, 'Autumn, let's go to dinner,' and blow $60 knowing we're within our budget."

Maureen Tsu, a certified financial planner with Professional Financial Advisors Inc. in San Juan Capistrano, said the Wilsons have overcome a major hurdle to future security: They have changed the spending habits that sunk them into debt in the first place.

Their strategy now, she said, should be to take the money they formerly used to pay credit card bills and budget it for needed home repairs and furnishings.

Also, she said, they should shift $20,000--part of an inheritance from Mike's mother--from stock holdings to savings accounts and other safer, more readily available investments. The stock was purchased with money borrowed from a brokerage.

The couple's assets total more than $200,000 and include their home, tax-sheltered annuities, gold coins and other investments. This year, the couple earned $78,000, including interest and gains of $6,000 from the margin account.

Their liabilities are a $148,000 mortgage debt, $1,200 remaining to pay on their credit cards and $5,900 in loans and $30,000 they borrowed to pay for stock.

The Wilsons whittled their credit card debt with the help of a consumer credit counselor, paying as much as $900 a month to reduce it. Recently, they applied for credit cards with low interest rates of 8% and plan to use them sparingly for such special items as airline tickets.

Tsu said too many people who have run up high credit card bills have wiped out the debts by declaring personal bankruptcy, only to fall into debt again within months.

The Wilsons are "more astute than most," Tsu said, probably because they have been through difficult times.

Their payment of their credit card debt, their high income and their willingness to buy mortgage insurance helped them qualify for a home loan last July.

The monthly mortgage payment is $400 more than their rent had been. By June, though, the couple will have paid off debts that now consume $500 in monthly payments.


Tsu counseled them to spend sensibly on furnishings for their home. The Wilsons now have little more than a refrigerator, stove and couch. Tsu believes that when people feel deprived of a basic need, such as furniture, they are tempted to splurge.

In 18 months to two years, after the home is fully furnished, the Wilsons should begin putting $300 to $500 a month into an emergency cash fund until it reaches a level with which they feel comfortable, Tsu said.

She also advised a safer investment portfolio. Currently, the Wilsons have a margin account, which involves money borrowed from a brokerage to be invested in corporate stocks. Typically, a customer puts a minimum of 30% down and the broker lends the rest.

If the value of the investment dips lower than the purchase price, the broker could require the Wilsons to make up the difference. That is known as a margin call, and the Wilsons don't have the cash to cover the $30,000 they owe.

"This is very, very risky," Tsu said. "I advise people to build from the foundation up: cash reserve, retirement fund and liquid assets," such as mutual funds, bonds and stocks that aren't purchased on margin accounts.

For retirement, the Wilsons are setting aside about $720 each month--near the minimum of 10% of income that Tsu recommends for a couple with at least 20 more earning years ahead.

The process of looking squarely at their finances helped clear up some differences between the couple, Mike said. Their financial picture, he said, was "not as bleak as I thought it was--nor as good as Autumn thought it was."

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