The Biggest Losers (of Debt): How a Family Shed $106,000 in Debt

This is an awesome article about this family.





Photo: Jeff Holmquist
Russell and Kathy Hildebrandt of New Richmond, Wis., won an award for successfully tackling $106,000 in credit card and personal debt through thrifty spending, a second job and bit-by-bit payments on their credit card balances. They're shown outside their home surrounded by their three children, 14-year-old twins Heidi (left) and Holly, and 3-year-old Joey.



The Biggest Losers (of Debt): How a Family Shed $106,000 in Debt
Karen Kroll
Friday, September 18, 2009
This article is part of a series related to being Financially Fit
Meet the Hildebrandts; their frugal ways lost debt, won an award
Five years ago, the Hildebrandt family of New Richmond, Wis., was juggling more than $100,000 in credit card and personal debt. Through frugality, determination and hard work, they are now -- other than a mortgage -- debt-free.
At the time, Russell and Kandy Hildebrandts' credit card balances totaled about $89,000, and they owed $17,000 to a family member. While they were current on all the payments, the card companies had begun raising their interest rates, adding hundreds to their minimum monthly payments. Kandy acknowledges that they presented a higher credit risk, given how their balances had ballooned. Even so, with the bump in the required payments, covering the monthly payments was a struggle. "We had to change," Kandy says.
Change they did. For their debt-fighting prowess, the Hildebrandts were on Tuesday night named the winners of the Professional Achievement and Counseling Excellence (PACE) 2009 Graduate Client of the Year Award. This national award, given by the National Foundation for Credit Counseling, recognizes the hard work and commitment they demonstrated in repaying their debts, and their willingness to become effective managers of their money and change their lifestyle. (Disclosure: CreditCards.com Senior Reporter Connie Prater served as a judge in the awards.)
Slow Decline Into Debt
Not that the Hildebrandts' lifestyle was lavish. The couple, along with their twin daughters, Heidi and Holly, lived in a rented 1,000 square foot townhome. Vacations consisted of visits to extended family members in the Midwest. Russell was a chemist with a Twin Cities-based environmental testing laboratory; Kandy was a stay-at-home mom and home-schooled their daughters.
While the Hildebrandts weren't living extravagantly, they also weren't frugal, Kandy notes. They purchased most items, such as clothes for the girls, new. In addition, they had medical expenses related to Russell's diabetes and several miscarriages that Kandy suffered. At the same time, they remained committed to tithing, or giving 10 percent of their income to their church. The accumulation of day-to-day expenses left the family going a bit more into debt each year.
Bankruptcy? No Thanks
Several family friends recommended that they file for bankruptcy. That was out of the question, Russell says. "We were committed to paying off our debts." They also resolved to continue to tithe and home-school their daughters.
To get started, Kandy met with Linda Humburg, a manager with FamilyMeans Consumer Credit Counseling Service (CCCS) in Stillwater, Minn. Linda reviewed their finances, and developed a five-year debt management plan. While the schedule was daunting, the Hildebrandts signed on. "If we didn't make it, we knew that we would go out trying," Russell says.
Several steps were key to making the plan work. Kandy and Russell eliminated discretionary spending. Kandy began buying generic food and frequenting thrift stores for clothing purchases. They stopped exchanging Christmas and birthday gifts with each other and their relatives.
Even with the drastic cutbacks, the Hildebrandts couldn't cover the $2,000 they were sending to CCCS each month to be distributed to their creditors. At that time, the sum amounted to about half of Russell's take-home pay. So Russell took on a second job cleaning a local grocery store several nights a week from midnight to 4:30 a.m. He would arrive home from his day job, eat dinner, catch a few hours of sleep and head to work. After his shift, he would go back home, sleep a few more hours and then get up for his day job.
Slow Progress
The first two years were particularly tough. Russell's work schedule was grueling, while Kandy managed just about everything at home on her own. Moreover, while their credit card balances were going down, the drop wasn't yet noticeable. For about a year, the Hildebrandts made do with one car, until they received a used van from Kandy's family.

Even so, "they didn't let anything deter them from progress," Humburg says. "If the money wasn't available, they simply did without." Equally, important the Hildebrandts kept their goal -- becoming debt-free -- in mind.

After the first few years, the Hildebrandts' efforts finally seemed to be bearing fruit. Their card balances were coming down, and some were getting paid off. As one card reached zero, CCCS would apply the money that had gone to it to the remaining balances. As a result, those cards would get paid off even more quickly.

About this time, Kandy became pregnant with Joey, who's now 3. While recognizing that a new child would mean additional expenses, the couple was thrilled. "The joy he brought to a negative, grinding situation was the light we needed," she says.
Dream Home Appears
By the fall of 2008, the Hildebrandts had one year to go on the payment plan. Russell even started daydreaming about a new home when he saw a three-bedroom rambler for sale in New Richmond. It had all that they were looking for, including a large yard and a separate bedroom for Joey. Russell let a real estate agent know that they liked the house, but added that the family would have to pay off their debts before taking on a mortgage.
Several months later the agent called and asked if the Hildebrandts would be interested in a rent-to-own agreement. The current owner of the house had some health concerns and was eager to move. The monthly rent would be $1,000, which included $200 to be escrowed for closing costs. They could manage it.
Earlier this year, the owner wanted to accelerate the sale process. In April, using the tax credit for first-time home buyers, the Hildebrandts were able to swing the purchase and pay off the remaining balances on their credit cards about six months ahead of schedule.
Now, the Hildebrandts are content in their new home and free of debt, other than their mortgage. Russell has been able to quit his second job and spend more time with his family -- and catch up on sleep.
Frugal Habits Stick
Several things haven't changed, however. Kandy remains a dedicated bargain hunter. Shopping online, she found eight bar stools for their kitchen island and basement family room for $24; at a yard sale, she bought a $2 desk for the girls. The Hildebrandts "had to completely rethink how they spent and what was a need versus a want," Humburg says.
Both Russell and Kandy say that while bankruptcy might have seemed like an easier option at the outset, it would not have been as satisfying. They wouldn't have learned to take control over their money and spending. What's more, with a bankruptcy on their credit record, they wouldn't have been able to purchase a house when they did.
Their advice to others? "Get out of debt," Kandy says. "It's a chokehold."

New frugality is the new normal, by necessity

New frugality is the new normal, by necessity
By ASHLEY M. HEHER, AP Retail Writer Ashley M. Heher, Ap Retail Writer Mon Sep 7, 1:23 pm ET
CHICAGO – A year after "shop 'til you drop" stopped, the nation fixates on this question: Will consumer spending ever return to pre-recession levels?
Increasingly, the answer appears to be no. Belt-tightening in bad times is normal. And after every other recession since World War II, penny-pinching quickly fell out of fashion and Americans resumed their demand for houses, cars and everything else.
This time it's different. Like the Great Depression in the 1930s, the Great Recession seems destined to turn many Americans into lasting coupon-cutters, scrimpers and savers. Consumers dug a debt hole over the past decade from which there's no easy climb out. The population segment that drives spending the most — baby boomers — faces special pressure: Boomers are running out of time.
A study by research firm AlixPartners concluded that once a new normal sets in after this recession ends, Americans will spend at about 86 percent of their pre-downturn level.
In an economy driven by consumption, the implications are far-reaching if that forecast proves correct:
• For every kitchen not remodeled, there will be lost sales of appliances and supplies, and fewer jobs for designers and contractors. As homeowners do work around the house themselves, there will be less work for gardeners, plumbers and handymen.
• For every shopper who trades down from luxury stores to discount stores, it will mean less profit for retailers and manufacturers. Retailers will continue to offer few product choices and leaner inventories, and they'll reassess store locations and advertising.
• If sales of cars and trucks average closer to the recession level of 10 million a year than the 16 million in boom times, more suppliers will fail and further consolidation among automakers could occur. Taxes not paid on lost vehicle sales will continue to stress budgets of state and local governments.
Frugality may be good for family budgets, but it's bad for the national economy. And that has the potential to reinforce and continue the miserly mood. A Gallup survey last month found seven in 10 Americans are cutting weekly expenses — a number that has been consistent through the summer.
A year after last fall's financial meltdown turned a garden-variety recession into the worst downturn since the Depression, thriftiness is still driven by the twin engines of necessity and fear. Unemployment, now at 9.7 percent, is still rising and expected to reach double digits before year's end for the first time since 1982. Many who still have jobs are getting paid less, and investments have a long way to go before they return to pre-meltdown levels.
Kathy Haney, 46, of Orland Park, Ill., has a job but is scaling back her shopping and packing her lunch.
"You put your priorities in different places because you never know if you're going to have a job tomorrow," the legal secretary says. "You think twice now. I have six TVs in the house. Do I really need a new flat screen?"
For her and many other Americans, the answer is no. The underlying causes of the meltdown and where it left millions financially suggests a fundamental change is under way. Personal spending has fallen in four of the last six quarters — the only time that's happened since quarterly records were first compiled in 1947.
In a normal recession, a vicious downward cycle of reduced spending by consumers and layoffs by employers finally eases and a virtuous cycle begins. Consumers start spending again. Factories ramp back up to meet the demand and hire workers. Incomes rise, fueling greater spending, more production and more jobs.
Until the Great Recession, the worst recession since World War II was in 1981-82. Unemployment peaked at 10.8 percent in December 1982, a month after the recession had ended.
The recovery that followed was powered by baby boomers, they were mostly in their 20s and early 30s then. Their careers were taking off, they were starting families, and they were spending freely. On homes, furniture, cars — and everything else. Saving for retirement was the last thing on their minds.
Fueled by boomers, when the recession ended, growth was explosive. Consumer spending rose 5.7 percent in 1983. GDP rose 4.5 percent in '83 and 7.2 percent in 1984.
"If someone gets more comfortable, they spend a little more," says Erik Hurst, an economist at the University of Chicago's Booth School of Business. "As they spend a little more, someone else spends more."
Jump to today. For most of this decade, Americans enjoyed a credit-fueled binge that allowed them to spend more than they made. They snatched up everything from gadgets to houses.
Those houses soared in value and became as valuable a source of cash as a bank ATM. Home equity was tapped to pay for vacations, new cars and kitchen renovations. The rising stock market gave people an inflated sense of wealth as they watched their retirement accounts grow.
Not unlike the Roaring '20s, which preceded the Great Depression three generations ago, people believed the good times would never end. Per capita personal spending ballooned 25 percent from 2003 to 2005, according to data from Euromonitor International.
When the party ended, the nation was left with more than just a hangover. Personal debt had doubled in a decade. As of July, it stood at $13.8 trillion, or about $124,000 per household. Despite months of frugality, that was only slightly below its 2008 peak.
It will take years to work down the debt, which will prolong people's thriftiness. Paying it down will be harder because of the layoffs, pay cuts, freezes and furloughs. Personal income has fallen or been flat eight of the past 10 months.
On the asset side of their balance sheets, plunging stock prices and home values have made Americans feel poorer. Their net worth — the difference between the value of what they own and what they owe — has taken a staggering $12.2 trillion hit in the Great Recession. Net worth fell from $62.6 trillion at the end of 2007 to $50.4 trillion at the end of this year's first quarter, figures from the Federal Reserve show.
The result: Consumer spending adjusted for inflation fell 0.2 percent in 2008 — the first annual drop since 1980. Hardest hit from the first half of last year to the first half of this year: Motor vehicles and parts (down 17.2 percent); furnishings and durable household equipment (down 8.8 percent); clothing and footwear (down 5.8 percent).
"There will be a fundamental shift in the kind of cars we buy, a fundamental shift in the homes we buy, and a fundamental shift in consumption generally," says Matt Murray, an economist at the University of Tennessee. "And that is not something that took place in the 1980s."
As in the 1980s, much of that shift will be driven by baby boomers. For the 78 million people born from 1946 through 1964, the Great Recession hit at a particularly inopportune time — during peak years of earning and saving before retirement. Boomers range from 44 to 63 today — the youngest is nearly 10 years older than the oldest was in 1982. They are running out of time and are most likely to remain cautious spenders and become aggressive savers even as the economy improves.
The housing bubble mistakenly led boomers and millions of others to believe their home was their retirement nest egg. If they left their home equity alone during the boom, they've taken a hit the last couple years but are still ahead. But many treated their home like a personal bank and spent the gains by tapping a home equity line of credit.
Some now feel disgusted with the great national buying binge and are reacting against it. Last month, Chicago playwright Maureen Riley began giving away what she amassed.
"I felt this tremendous clarity as I looked around and saw my space emptying out and my closet emptying out," the 55-year-old says.
Despite all the battered personal balance sheets, thriftiness will abate somewhat as the economy continues to recover. There will still be vacations and home remodeling. But there will be caution, too.
Sanda Schramm, 63, a second-grade school teacher from Florham Park, N.J., and her husband Rob, 64, made changes after their retirement funds fell 20 percent below their peak. They considered themselves frugal before the recession. Now, they are even more tightfisted.
Instead of scouring for 40 percent discounts at Macy's and other department stores, she looks for 75 percent markdowns and shops more at consignment stores. They go out to dinner once a month instead of twice a week. And most everything they buy is paid for in cash, not with a credit card.
When the economy bounces back and her retirement accounts recover, Schramm says she'll continue to shop at consignment shops but will probably go to restaurants more.
"When the housing market and stocks were booming, everybody felt wealthy," she says. "But when everything goes down, you feel you're vulnerable ... I have always been careful, but now I am even more careful."
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AP Retail Writer Anne D'Innocenzio contributed to this report from New York.