Born-Again Budgeters Help Those in Need of Fiscal Redemption

Stan Gordon, Mary Hunt and Dave Ramsey have never met. They live in different states, pursue different careers and have vastly disparate interests. Yet they all shared one devastating experience that changed their lives: They all were crushed by debt.

Yet, at a time when personal bankruptcies are at an all-time high, and many Americans are struggling with post-holiday debt hangovers, Gordon, Hunt and Ramsey have a consistent--and inspiring--message: No matter how bad your finances have become, no matter how much you owe and how much you earn, you can fix it. You can get out of debt. You can learn to save. And you can achieve a lasting sense of financial health.

Admittedly, it won’t be easy. It requires serious commitment and may drastically change the way you live. But recovering from even the heaviest debts is possible--maybe more quickly and painlessly than you expect.

“Most people think it’s going to take forever to get out of debt, but it doesn’t,” says Ramsey, author of “Financial Peace: Restoring Financial Hope to You and Your Family.” “If they are willing to get mad at debt and change their behavior, they can do it.”

All three of these born-again budgeters and authors of books about their personal battles with debt, say the financial healing started with a near-religious awakening--a moment of truth. While staring at unpaid bills, collection and foreclosure notices, each came to the conclusion that the patterns they had established for their lives were ruining them. Then, with the zeal of true converts, they changed.

Gordon, a Tucson resident who is self-employed, had established a pattern of spending every dime he earned--no matter how much that was. Once, after a particularly good year, he found himself with $40,000 in the bank. But within 14 months, he frittered it all away. Still, everything was fine until his business had a few lean years and he ran up about $25,000 in credit card debts. Unpaid bills began to pile up. The government filed a lien against his home for back taxes. His life began to pull apart at the seams.

“I finally looked at it and said, ‘I don’t want to keep living like this,’ ” he says.

Ramsey was putting gas in his Jaguar, desperately hoping that the station attendant wouldn’t check the limit on his credit card and turn him away. Banks that had previously allowed him to borrow freely were accelerating his debt repayment. His $4-million Nashville-based rental real estate empire was in shambles, with foreclosure notices flying in like swallows to Capistrano. By the time he filed for personal bankruptcy, he’d already dedicated himself to setting out on a new way of life.

“I ended up losing everything I owned,” he says. “I decided I would learn how money really works.”

Hunt’s moment of truth started at the kitchen table, as she was staring at a pile of unpaid bills. In a state of near hysteria, she ran into the yard and burned the notices before starting to sob.

“It was in 1982, and I was face-to-face with my future,” says the Paramount-based mother of two. “I realized that if I didn’t make changes, I was going to lose everything that was important with me--not only the house and the cars, but my family. It took 13 years, but in 1995 we paid off that last debt.”

Debt is an addiction, these experts agree, and it must be addressed with a comprehensive program of behavior modification. Like an alcoholic, overspenders must recognize the problem, educate themselves about what’s causing it, and then launch into a step-by-step lifetime plan to health.

In this case, the first step is getting rid of temptation, Gordon says.

“If you keep a credit card around, you might as well be an alcoholic with a bottle in the closet or an overeater with a cake in the freezer. You can’t do it,” he says. “I strongly urge people to get rid of all their credit cards. Cut them up and send them back.”

Don’t you need one card just to handle hotel reservations or to buy things over the phone? Hunt says yes. But you shouldn’t take it out with you because you’ll be tempted to use it. Gordon says no. If you need to order something over the phone, ask a more credit-worthy friend to put it on his card and you pay the friend for the item in cash--in advance.

The second step is to address your spending by establishing a budget, says Ramsey. A current budget, based on your spending patterns over the last year, shows you where your money is going. That’s pivotal in determining how best to cut back.

However, if many of your expenses are cash--lunches, movies, gas for your car--you may have to do what Gordon did and compile a daily expense log. To this day, Gordon keeps a notebook in his car, where he writes down every dime he spends--from 25 cents in a parking meter to the $5 lunch. Then, when he knows he has an extraordinary expense coming up--be it car insurance or a tax payment--he simply spends less each day so he’ll have the money when he needs it.

Finally, you must simplify your life. Vow not to keep up with your neighbors by buying fancy cars, entertaining yourself with gourmet dinners or buying expensive clothes. There is dignity in living within your means, says Hunt, who adds that she drives a 12-year-old car and loves it because it’s paid off.

In the long run, you also need to save for emergencies and retirement, says Ramsey. So, ultimately, you want to live on less than you earn.

Does this mean you’ll have to accept privation for the rest of your life? Not at all, chorus the born-again budgeters. Once you’ve paid your bills, maximized your retirement plan contributions and given a bit to charity, buy whatever you like--as long as you can pay cash, says Ramsey.

“Once you don’t have debt payments, you have a ton of money that you can use, he says. “You are able to save, you are able to give like you always wanted to give, and you are able to buy the things you need.

“Most of us make enough money; we just have this addiction to stuff,” he adds. “I’m kind of like your grandmother. I’m going to tell you that--with the exception of a house--you should [wait to] buy things until you can pay for them in cash.”

*

Kathy M. Kristof welcomes your comments and suggestions. Write to her in care of Personal Finance, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053, or e-mail [email protected]