Dancing With Debt

Credit cards, auto loans, and a mortgage had Valerie and Kenneth Robinson drowning in $50,000 worth of debt in the mid ’80s. And with interest rates at that time hovering around 12.75%,it was the worst kind of debt — the expensive kind.

Valerie, 49, had just given birth to Kenneth Jr. (who is now 19). The couple initially decided she would become a stay-at-home mom, mistakenly believing they could rely on Kenneth’s salary alone. “We reached a point where we were ‘robbing Peter to pay Paul,'” says Ken, a 50-year-old human resources director for three local colleges in Southern California. “There was a lot of worry and fear. We just couldn’t tolerate it anymore.”

A friend recommended that they seek the advice of a certified financial planner. With help, the Bakersfield, California, couple took three years to turn things around by negotiating with creditors and cutting back on frivolous spending. They turned their $50,000 debt into a surplus of about $8,000 in savings. However, the Robinsons didn’t stay in the clear; excessive debt would rear its head again.

In 1992, Valerie, who had returned to the workforce, and Ken were unexpectedly laid off from their jobs. Their unemployment checks didn’t cover their living expenses, which totaled about $2,800 a month. With only a small emergency cash reserve, the Robinsons were forced to borrow close to $20,000 from their 401(k) plans and IRAs, resulting in a hefty 10% tax penalty for early withdrawals. They depleted their investments and accumulated credit card debt.

After they secured new jobs, the Robinsons cut up their credit cards and closed the accounts. Then they obtained a home equity line of credit to pay off their $40,000 in debt. It took six months of steady income before they felt like they had stabilized their financial situation again. Today, the Robinsons have no retail credit cards at all. They also have their own ideas about how they should handle their finances, with both short- and long-term goals. The couple reviews the family’s investments, insurance policies, and financial budget regularly. “It is a common-sense approach, but it has to be practiced with discipline,” says Ken.

The Robinsons, who’ve been married for 25 years, are a living testament to Declaration of Financial Empowerment Principle No. 4: to engage in sound budget, credit, and tax management practices. By faithfully using money management fundamentals, the Robinsons now have a net worth of more than half a million dollars, which includes investments, savings, and retirement plans. Their only liabilities are a mortgage and a car note totaling about $250,000.

The turning point for the Robinsons came when they began to monitor their monthly income and expenses. That is where the growth really happened, Ken believes. The couple uses Intuit’s Quicken financial software to keep track of their bills and discretionary spending. It has been a great tool for them to not only stay on top of their finances, but also to review their understanding of their financial situation. This way, “we can see how much improvement there has