By TESS VIGELAND
Seattle
TWELVE-STEP programs often talk about the moment of clarity, when an
addict starts to understand just how dire the situation has become.
For Karawynn Long, 42, and Jak Koke, 47, it arrived in 2005, when they
crossed the $40,000 mark on their credit card bills. “For some reason
that was a scary number, over some internal threshold,” Ms. Long said.
Their pledge to fix the problem came a couple of years before the
economy turned, giving them a head start on all the other people who
buckled down once disaster become clear. Ms. Long and Mr. Koke, who live
here, paid off the debt, earned more money and changed their spending
habits — all of the things you’re supposed to do when plotting a
financial turnaround.
But in the end, their best efforts were not enough to avoid being
dragged down by the one asset that they thought would protect them —
their home, which they will have to shed before they can complete their
comeback.
Their story begins in early 2002, when they moved in together. A year
later, they began a publishing start-up — Per Aspera Press — that they
hoped would become their own science fiction and fantasy imprint. The
business name is taken from the Latin phrase “ad astra per aspera,”
which means “to the stars through difficulties.” But the effort
generated more difficulties than stars, and they struggled to finance it
with ever-more credit card debt.
Ms. Long, an author herself, also acknowledged that half of that
$40,000-plus debt load was from living beyond their means.
She always assumed she would share the upper-middle-class lifestyle of
her childhood. She went out to eat — a lot — something that continued
during her relationship with Mr. Koke. They took vacations. And when
money was tight? “Basically I just put it on credit cards to keep that
level of lifestyle no matter the actual situation,” she said. “Like I
was entitled to that.”
Mr. Koke grew up in what he describes as an average middle-class family.
Both his parents worked. His money philosophy has always been to try to
arrange his expenses and his life so that he could live on part-time
employment, with the rest of his time devoted to writing novels.
“I did pick up the responsibility gene in the sense that up until we had
our business where we ran up this huge debt, I didn’t have much debt on
my cards,” he said. And the pair were sure the publishing imprint would
succeed. “It always seemed like at some point it will break through and
pay for itself and our lives, too,” Mr. Koke said. “But it never
actually did.”
The credit cards had also seen them through periods of unemployment.
Both have spent the bulk of their careers in the technology industry,
mostly as contract employees. She has worked as a Web designer at
various start-ups, and he has had jobs as a biotech researcher at
several universities, as well as on-and-off work doing technical and
marketing writing and editing at Microsoft.
He has two daughters from a previous marriage: Michaela, 19, who rents a room from a great-aunt in Portland, Ore., while saving for college, and Claire, 13, who lives half-time with her father and Ms. Long.
By late 2005, Ms. Long started to worry about the ballooning debt. Early
in 2006 they began household austerity measures, including few or no
meals in restaurants, no vacations and the suspension of contributions
to their retirement funds.
The couple also shut down the publishing effort and found full-time
jobs. She worked for a brokerage firm, and he got what he thought was a
long-term contract writing for Microsoft. That raised their combined
annual income to around $150,000.
Then, they threw every extra penny at the credit card debt, around
$2,000 a month. Soon the older daughter, Michaela, noticed that the
formerly automatic answer of “Sure, honey, here’s the money” started to
change. “If you wanted to get a sports sweatshirt or something we would
work something out where I paid half if I really wanted it,” Michaela
said.
Claire, who was 7 at the time, said she noted the drop-off in vacations
and meals out. And Christmas changed. “I did think I used to want to
have lots of stuff under the tree,” she said. “But then I kind of got
more excited about people opening the presents that I got them and
making them happy. You don’t need to have all the things.”
The couple first took aim at the credit cards with the highest interest
rates and wiped out the entire balance within two years. To celebrate,
they took vacations to Sea World and Mexico. But the family had mere
months to enjoy the accomplishment before the nation spiraled into
financial crisis.
By October 2008, Ms. Long was unemployed. Mr. Koke’s hours at Microsoft
were slashed in half, and his wages for the time he did work dropped by
10 percent. Both have lived off contract work in the three years since,
and their annual income is less than half of its peak. What saved them
from utter financial devastation was the fact that they had rid
themselves of the credit card debt.
But then there was that one remaining troubled debt lurking: their home.
The green, single-story house sits among fragrant pine trees in a quiet
neighborhood of north Seattle, near Haller Lake. Inside, the
furnishings are sparse and tend toward Native American arts and Pacific
Northwest décor.
They bought it in 2006, just as their family austerity measures began.
It measures 1,800 square feet and cost just over $400,000. They had not
saved enough for a down payment, so they did what many Americans did at
the time: they took out a second mortgage, also known as a piggyback loan.
The first mortgage was a 30-year fixed rate loan for $303,750. The
second mortgage was for $101,250 with a 15-year fixed rate and a balloon
payment at the end. This meant they had no equity in the home from the
outset. Based on estimates at Zillow.com, they now owe $82,000 more on
the mortgage than the property is worth.
Given their severely diminished household income, the two mortgage
payments ended up being about 65 percent of the couple’s take-home pay
each month. “We were killing ourselves to pay this mortgage,” Ms. Long
said.
So in January 2011, they stopped paying.
They said they had tried to work with their bank, to no avail. So they are squatting in their own home, waiting for a foreclosure notice to tell them when they must leave. Ms. Long, who now writes her own personal finance blog called Pocketmint, was blunt. “I’m C.F.O. of this household,” she said. “It’s a business decision for us.”
The mortgage payments that have not gone to the bank have instead gone
into an emergency fund and will also help with an eventual apartment
rental.
The family also took a vacation last fall, their first in at least two
years. The four of them flew to Washington, D.C., for less than $250
each, according to Ms. Long, who did dogged airfare research. They
stayed with a relative, prepared most of their own meals (including
lunches to eat outside the Smithsonian museums), and spent less than
$1,800 for nine days, she said.
Those who would look askance at that expense when they are not paying
the mortgage, Ms. Long said it was money well spent. “We took a vacation
to the Smithsonian because we’ve learned that experiences, rather than
possessions, are the way to happiness,” she said. “And we wanted to
share that with our kids.”
Claire says she learned even more over the last few years by watching
her parents work their way through their financial problems. “I
learned,” she said, “a lot about not getting trapped.”
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