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Digging out of debt

Couples show there are many ways — some easy, others not — to get back on track

March 25, 2012|By Kelly Barron
  • Cuts by Mark and Rachel Fabulich included slashing their dining out expenses from $800 a month to $80.
Cuts by Mark and Rachel Fabulich included slashing their dining out expenses… (Gary Friedman, Los Angeles…)

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.

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