Teacher needs financial education

Gayla Baker teaches special education to troubled young people at a state correctional facility, and she expects her students to be disciplined about their studies and their behavior.

Now she’s finding out that she needs quite a bit of discipline herself when it comes to her own finances. The divorced mother of two boys has piled debt upon debt, usually as last-ditch efforts to pay bills. And that has cost her dearly.

“When I am in desperation, I don’t make good choices,” she admitted.

Baker only recently realized that her credit card debt was four times what she thought it was, and both her car and her car loan were too much for her pocketbook.

But her biggest blunder -- “my greatest embarrassment,” she said -- was to fall for the TV advertising hype of CashCall Inc. by taking out a $2,400 loan that carries an interest rate of 99.25%.

“She does have a head-in-the-sand mentality,” said Sandra C. Field, a financial planner with Asset Planning Inc. in Los Alamitos.

Field met recently with her to sort out Baker’s fiscal fiasco and figure out whether the 38-year-old teacher can reach some of her goals.

Baker, who has studied gang psychology and teaches many gang members, wants to earn a doctorate in education to teach at the university level. She also wants to pay for her sons’ schooling, buy the tiny home she’s living in from her mother and secure her retirement.

But going back to school to earn a doctorate must be put on the shelf for a decade because it would be too costly, Field said. And to reach any of her financial goals, the planner said, Baker is going to have to adhere to a strict budget, maintain a diligent review of all bills and steadily repay debts.

In two years, Baker might be ready to buy her mother’s Los Angeles County house for $250,000, Field said. She’s now paying her mother $1,000 a month in rent for the home.

“This could be a 40th birthday present to yourself to say, ‘I’m financially sound,’ ” Field told her.

As a state employee, Baker should have a pension worth $6,808 a month by the time she turns 55, the planner estimated.

Baker takes in $111,000 a year from her full-time job, child support and a part-time night-school gig teaching English to adults. But she has only $200 in savings.

Worse, her debts total $104,300. They consist of $67,000 in student loans for her master’s degree, $24,200 for her car, $8,000 in CashCall and credit card bills and $5,100 owed to the Internal Revenue Service for back taxes. Baker has been using current income to pay tuition and expenses for her children’s private-school education. The oldest, 18, is now in college, while the youngest, 11, is in elementary school.

Ever since her own college days, Baker has found it tough to say no to the easy credit that companies offered her. She filled out credit card applications heedlessly -- “I was, like, where do I sign?”

Since then, she has sought help for her debt through credit counseling services, but not before it damaged her financially. Her credit report shows multiple accounts with long strings of late payments of 60, 90, 120 days and more.

Her credit score is 550, better than Baker thought it would be but “horrible” enough, Field said, to make her a risky borrower and subject to higher interest rates.

Field told her to look for errors in her credit report, and Baker found five accounts she had paid off that were still showing delinquencies. By correcting those errors and paying down her debt, Field said, Baker can begin cleaning up her credit. The planner advised Baker to check her credit report twice a year online at www.freecreditreport.com.

Field also urged Baker to put as many bills as possible on automatic payment plans through her bank to make sure they are paid on time. Her student loans, Macy’s card and Target card showed perfect payment records.

“Guard those,” Field said. “Just paying everything on time will change your credit score.”

Baker’s low score means she pays much more than she would otherwise for loans.

One budget buster is her $30,000 Lexus GS300, which costs Baker $659 a month. The car loan carries a 16.9% interest rate, requiring her to pay almost $18,000 in finance charges over the life of the loan. Baker needs to buy a cheaper car and keep her monthly payment below $300, Field said.

Baker also can do a few other things to ease the burden, such as cutting her monthly cellphone bill to $50 or $60 from $250, Field said. But her sons’ schooling is her single largest ongoing expense.

Last year, Baker spent $14,890 for her older son, Dwayne, to attend a Louisiana college. She pays $6,420 annually to send her younger son, Bryne, to a private Catholic school.

This year, Dwayne is living at home and attending Fullerton City College, where tuition is $2,000 a year. Baker won’t let him take out student loans because she doesn’t want him to build up debt as she has. But Field said Baker needed to let him do so.

“You are sacrificing your future for your kids,” Field told her. Once Baker is on stable ground, “you can always help him make payments later.”

As for Bryne, Field urged Baker to enroll him in one of several high-quality public schools in the neighborhood.

If she brings her expenses down, Baker might be able to buy her mother’s home. Field figures that Baker would end up paying about $1,400 a month on a mortgage, including insurance and taxes. That’s $400 more than her rent.

Field suggested that Baker soon start putting $400 a month into a savings account. “I want to see if you can do that and just not touch it,” Field said. “You have to pretend it just disappeared.”

But other priorities may interfere. Field said Baker should pay down the CashCall loan first, then the IRS debt, credit cards and finally her student loans, which have a relatively low interest rate of 5.375%.

Baker already has cut her living expenses. She ate out only twice last month. For fun, she used to travel to jazz festivals around the country, but she’s going to local ones this summer and bringing all her food and drinks.

She has a steady boyfriend, but they are not engaged.

“As soon as I’m married, then just all of my financial woes will go away,” Baker said, sweeping her arms in a circle with a huge laugh. “I told him I just want to have myself together so that I can bring something to the table.”

But by that time, she said, “I may not even want a husband.”

Before meeting Field, Baker was so afraid of finances that she avoided any mention of the subject. Now she’s paying attention. A recent garage sale at her home netted $400, which will go to paying for her eldest son’s books at college.

“I’ve had an epiphany,” Baker said. “I am becoming more disciplined, which is what I expect from my students.”

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Begin text of infobox

Learning experience

Who: Gayla Baker

Income: $111,000

Goals: Put her sons through school; get a doctorate in education; buy her mother’s home for $250,000; pay down debt and retire comfortably

Assets: $200 in savings; pension income expected to be $6,808 a month by age 55

Debts: $104,300, consisting of $67,000 in student loans, $24,200 for a car loan, $5,100 owed to the Internal Revenue Service and $8,000 in credit card bills and a CashCall Inc. loan that carries a 99.25% interest rate

Recommendations: Put as many bills as possible on automatic payment to avoid late payments; trade in Lexus for less expensive car to cut monthly car payment by half; reduce cellphone bill as much as 80%; pay down most expensive and important debts first; save $400 a month to prepare to buy mother’s home, which would require payments of that much over current rent; allow older son to take out student loans for his college education; send younger son to a public school instead of a private school.

About the planner: Sandra Field is a fee-only financial planner with Asset Planning Inc. in Los Alamitos.