When MeLissa Horseman was laid off in September 2011 from Bank of America because it was closing its Wichita call center, the $54,000 debt she and her husband, Shawn, were carrying seemed to weigh more heavily.
“A combination of having that and not having a job … really makes you rethink how you are doing things,” said MeLissa Horseman, 35.
With that, the Horsemans set out to eliminate that debt. Thirteen months later they paid off the $54,000 – a combination of student and car loans, a second mortgage and medical bills.
“When we wrote that last check it was like, ‘Wow, this is great,’ ” Shawn Horseman, 39, said. “It just took this stress away.”
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While there’s a segment of Americans, like the Horsemans, working to get rid of debt, the overall trend is going the other direction: After falling during the recession, consumer debt now is rising, according to the Federal Reserve.
As of March, the most recent data available from the Fed, consumer credit outstanding in the U.S. was $3.14 trillion. That’s a nearly 24 percent, or $603 billion, increase from March 2010. And compared with 10 years ago, in March 2005, the increase is greater: 42 percent, or $921 billion.
“During expansions, a growth in consumer debt feeds consumption (in the economy), but it could also feed so much consumption that it leaves consumers with a hangover, and makes the next recession even worse,” said Malcolm Harris, a Friends University finance professor and economist, on the effects of growing consumer debt and how too much debt saddles consumer spending long term.
The Horsemans said it wasn’t easy to pay all that debt off in a little more than a year. With their only income coming from Shawn, a supervisor chef at Via Christi Hospitals, they had to change their spending and the way they lived.
But they said getting to a point where their only debt is their home was important for a number of reasons. Today, they’ve managed to build up an “emergency fund” that has enough cash to cover all of their living expenses for six months.
“When my wife had been laid off, we’ve got two kids (at the time) and you’re thinking, ‘What do you do?’ ” Shawn Horseman said. “You feel trapped.”
With all but a mortgage remaining and a fully funded emergency fund, “We’ve got a buffer between us and Murphy’s law,” he added.
Budgeting, cutting back
Chelsea Phillips said she doesn’t like to be in debt, either. It’s why the 29-year-old speech therapist set out to pay off $20,000 in student loans in about three years.
“I don’t like to be in debt,” she said. “It’s just my personality. My dad is the same way. I think I learned from him.”
Phillips said she was able to pay off her student loans quickly by taking on extra jobs working as a speech therapist in nursing homes. She said she has since paid off her car loan, and the only debt she has now is a mortgage.
Phillips’ biggest sacrifice in paying off her student loans early was giving up the free time she would have had from her full-time job as a Wichita public schools speech therapist – and watching her spending.
“I had a lot of friends who always went on big trips that I decided I shouldn’t do,” she said.
For the Horsemans, paying off their debt didn’t involve extra employment.
In their case, they sought help from a program at their church called Financial Peace University. Financial Peace is a nine-week long personal finance program created by talk radio host Dave Ramsey that emphasizes eliminating nearly all debt, increasing savings and paying for all purchases with cash, including cars.
“It’s a very practical plan that helps (people) get their financial life back in control,” said Mark Posson, executive pastor of business at Central Christian Church and a Financial Peace University Coordinator at the church, which has offered the program for more than five years.
“You can’t say it’s easy because … the hard part comes in actually doing it.”
Posson said Central Christian offers the program – which costs $109 – to its members and the general public three times a year. He said class sizes average from 20 to 40 people in the summer, which typically are its smallest classes, to 80 to 100 people in the winter classes. Central Christian is among several churches that offer Financial Peace throughout the year in Wichita.
The Horsemans said once they started the class, they started implementing the program, which required them to live a lot more frugally. Shawn Horseman said they cut out cable TV and Internet service – they used Internet-connected computers at Park City’s library to pay their bills online – and cut dining out.
He said when they analyzed their household spending before developing a budget, they assumed they were spending $50 to $60 a month dining out. In reality, he said, they were spending $300 a month dining out.
After analyzing their expenses and making decisions about where they could cut back, they developed a budget and followed it consistently.
They also switched to cheaper home and auto insurance policies, cashed out their whole life insurance policies and used the proceeds after taxes to pay on their debt. And they received a small inheritance from the death of a family member, which was used to pay down their debt.
MeLissa Horseman said the structure of a program such as Financial Peace, as well as attending a program with other people interested in eliminating debt, gave her motivation to stay with it.
Consumer Credit Counseling Service Inc., a nonprofit member organization of the National Foundation for Credit Counseling, also helps people who want to reduce personal debt, said Ryan Deitchler. It has an office in Wichita at 105 S. Broadway.
Deitchler, a certified credit and housing counselor in Wichita, said his organization provides free counseling to consumers to pay down or eliminate their debt. Other services, such as debt settlement, come with a fee.
In almost every instance, the first question he said he asks is what happened to create the situation. How did the client become overwhelmed by debt?
“For some people that’s easy: a major medical expense, a lost job,” Deitchler said. “For a lot of people the debt buildup is gradual. And a lot of that is behavior.
“That is the biggest hurdle for people to get out of debt: They are unwilling to change that behavior.”
He said he generally advises his clients to do a lot of the things that the Horsemans did: analyze expenses and find ways to cut back on them, using that extra money to pay down debt. He also advises clients to develop and follow a budget.
“It’s about prioritizing,” he said, “figuring out areas where you can reduce (expenses). It’s not about eliminating expenses. … Too often people make dramatic changes to their budgets that they can’t stick with and they go right back to that bad behavior.”
For instance, some expenses such as dining out can be cut by eating at home, instead. In other instances, he said, bills such as cable television can be cut back by switching to a cheaper package with fewer channels, but they don’t have to be entirely eliminated.
“It’s approaching those expenses in a realistic way,” he said.
Deitchler said reducing or eliminating personal debt usually comes with a lot of pain.
“We get a lot of push back” on our advice, he said.
Shawn Horseman said a couple of years ago he probably would have been one to push back when it came to personal spending. He said it used to be that if he saw something he wanted, he’d buy it, even if he didn’t have the cash for it.
“Now that we’re out of debt, I don’t ever want to go back into debt,” Shawn Horseman said. “ … We worked so hard and there’s a lot less stress in our marriage.
“It’s very freeing, for sure.”