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Crushed under car debt
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October 2, 2000: 11:18 a.m. ET
A Houston couple is swamped with car loans and a credit card balance
By Staff Writer Alex Frew McMillan
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NEW YORK (CNNfn) - Sharese Long and Storm Mansell have two cars, a third on the way, and a ton of debt as a result. They owe $10,000 on credit cards. The crush of payments is hampering their plans.
"My husband and I are deep in debt, and we are so young," Long, 22, stated. "We're trying to buy a house, but it seems like an impossibility at the moment."
All told, they owe around $58,000. They've financed close to $35,000 on their used Chevrolet Blazer for Mansell and a new Mitsubishi Galant for Long. They have a PT Cruiser on order, which they also plan to finance. They have $10,000 in consumer credit on their plastic.
"Our debt is our main concern," Mansell, 21, admitted.
Prospects of more income
Mansell, who was born in Guyana but whose mother moved him to the States when he was three months old, just chalked up another $14,000 obligation getting a student loan.
 He sees that as an investment - a little over half the money went to a course at Southern Methodist University's branch center so he can become a Microsoft-certified software developer.
At the moment, he is a database developer making around $35,000 at Severn Trent Services. The new degree could boost his income to $50,000-to-$70,000, the couple figures.
Long works as an accounting assistant at The Minute Maid Co. She had wanted to study for a CPA accounting certification, but she scotched that idea because it would take too long in college, and she wants to start a family soon.
Planning a proper wedding ceremony
With the rest of the student loan money, they bought a $3,000 computer system and set aside the balance to make a down payment on a house. Long doesn't like the neighborhood of Houston they're living in - a friend was mugged, an earlier car of theirs was stolen and they've had a stereo taken from their Blazer.
 She also thinks now is a good time to buy, particularly when she might want to have kids in a couple of years. Better start early, she figures.
"I want to get an early start so that we're not 60-something paying off our house," Long said.
Long and Mansell went straight to work after they graduated from high school in 1997. They got married the next year.
Because they had a civil wedding with a justice of the peace, they want to throw a full ceremony next September, for their families. The wedding ceremony will be expensive, too. "So we have a lot of factors coming up," Long admitted.
The Blazer has been a bust
Long said the car debt bothers her most. The couple financed the used Blazer at a high interest rate when they both started working. Long was a temporary worker at the time, and her husband didn't qualify for much credit. So they ended up with a loan at 18 percent interest.
The Blazer has had plenty of mechanical problems, Long said, so they'd like to trade it in. But because they've mainly paid down interest on the vehicle so far, they find themselves upside down on the loan - they owe $13,900, almost double, she said, what dealers will offer on the truck.
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They have ordered a PT Cruiser because they hope it will be more reliable.
"I'm kind of hoping we can get rid of the Blazer before the PT comes," Long said. That would be at least another $20,000. They put $1,000 down on a credit card, and the car should arrive in March. But Mansell is rethinking the deal, because he knows it will drive them further into debt.
Long and Mansell both opened Roth IRAs earlier this year. They are each paying in $100 a month. They've saved $1,300 there. Mansell also has $6,000 in his 401(k), which is invested in funds like the Janus Worldwide fund and the Magellan fund. Long hasn't started a 401(k) at her office, though she is considering it.
"What should we do? We are trying to build up our savings, our IRAs aren't making any money, and we don't know anything about stocks," Long writes. "Every day we get more and more credit-card offers, and I just can't believe how bad these companies want to get us in debt!! Please help us."
What the planners say:
"America is the ultimate consumer society," said Brian Orol, a certified financial planner in Raleigh, N.C. But, he noted, trying to avoid sermonizing, "Individual responsibility cannot be abandoned in the face of temptation."
Like many young couples, Long and Mansell have been lured by access to easy debt. Most of it is consumer debt at high interest rates. "This path may lead to many years of struggling with high-interest-rate debt and limited resources. The result is a feeling of being trapped," Orol said.
The first step for the couple to free themselves is to budget, Orol said. They should start with their net take-home pay. "Then they must live within their means," he said. "They cannot spend more money than they earn."
Currently, close to 50 percent of their budget goes to credit cards and car payments. No wonder that hurts. "Ouch!" Orol said. He commends Mansell for going for the Microsoft certification, to increase his long-term earnings potential, and the couple needs to take a similar long-term view with their finances, he believes.
Scott Kahan, a certified financial planner and president of Financial Asset Management, points out that not all debt is bad. "It is how you choose to use the debt and your attitude towards debt that is important," he believes. But Long and Mansell seem to have a very loose relationship with debt, he thinks, which isn't good.
Don't buy the PT Cruiser
Next, it is glaringly obvious to Orol that Mansell and Long should not buy the PT Cruiser. "Rather, first sell the Blazer and then purchase a two- to three-year-old car," Orol said. There are a lot of cars coming off lease at the moment that are particularly attractive, the planner added.
He runs a simple sum. If they trade in the Blazer even for $6,400, they'll still owe $7,500 on that loan. But buy a $12,000 used car, and they now owe around $19,500 on the "new" car.
That's better than owing $20,000-plus on the PT Cruiser, Orol said, plus the $7,500 old debt on the Blazer. Besides the heavier debt, new cars depreciate greatly immediately after you drive them off the lot, he pointed out.
What's more, the less the couple owes, the better the rate of interest will be -- not as much risk to the lender. Negotiate the rate, Orol recommended.
"The PT Cruiser should be cancelled," Kahan agreed. He also advises them to try to sell the Blazer privately, since that sale will likely lead to a higher sale price.
If they can't come close to the loan balance on the Blazer by selling it, "they may need to bite the bullet and keep this car," Kahan said. With any luck they can keep repairs to a minimum and pay off the loan in a few years.
If they keep the Blazer, they could refinance the loan, Kahan added. "They may be able to knock a few points off the 18 percent interest rate. Granted, they may only save between $30 and $50 a month, but better in their pocket," the planner said.
Refinance existing loans
Orol also encouraged the couple to look into refinancing the lease on the Mitsubishi Galant through a credit union, probably through work. "In general, credit unions offer better rates on loans for members than car dealerships. This is worth investigating," he said.
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Orol says the plan to buy a home is a good one, but it's a three-year plan. "Do not buy a house today," the planner recommended.
Since they're keen to move out of their neighborhood now, he advises them to look to rent a home with another couple in a more desirable neighborhood. They should be able to accomplish that without seeing their $500 monthly rent check increase too much, Orol thinks.
Then, once Mansell completes his Microsoft certification and has a new higher-paying job, the couple should begin to save in a credit union money-market account, the planner said. They should shoot to build up at least a 10 percent down payment before they get serious about a house, Orol said.
Company plans come before Roth IRAs
Both planners tell Long and Mansell to check to see if they have company matches in their 401(k)s. If they do, they should plug the right amount of their salaries into their plans to take full advantage.
"The 401(k) with an employer match should be their first long-term investment," Orol advised. The Roth IRA is an excellent second choice if, but only if, they've maxed the match, he and Kahan said.
Mansell seems to have appropriate growth-oriented investments in his plan so far, Orol and Kahan think. He might consider moving 10 percent into a money market to lessen his risk level, though, Orol added.
Both of them seem to know they're suckers for credit. The only reason for accepting any new credit-card offers is if they can cut down their interest payments, Kahan said. "If they can do this, they MUST get rid of their other credit cards," he said, or they'll just build up more debt.
Orol says that in their case, it's a little like taking candy or rides from strangers - "Just because someone makes you an offer, it does NOT mean you have to accept it," he wrote.
They might want to contact the Houston office of the National Foundation of Credit Counseling, Orol said. It could help with advice on budgeting and handling credit-card debt, he said.
The planners' medicine is harsh. But "I firmly believe this couple can change now for some long-term benefits," Orol said.
* Disclaimer
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