Bounding Back

is in collections, and $80,000 in school loans. April holds a bachelor’s degree in allied health services and an M.B.A. Gabriel has a certificate in industrial electrical technology and plans to get his associate’s degree in business administration this year.

Despite their challenges, the Raines family remains optimistic. “We have learned a lot,” says April. “We’ve seen the impact of not doing what we need to do.

The Advice
BLACK ENTERPRISE had financial adviser Pierre Dunagan, president of The Dunagan Group in Chicago, take a look at April and Gabriel’s situation. He says the couple’s financial future should be positive because youth is on their side, and they’ve learned from their early mistakes. Dunagan suggests the following:

Enhance credit scores. There are two steps they can take to improve their credit scores. First, because Gabriel has a limited credit history, he should open two charge accounts and consistently pay them on time. Second, April should take $1,000 of the contest winnings and pay off her medical expenses. Dunagan believes she can negotiate a reduced amount. Once the debt is paid, she can get payoff letters, send them directly to the credit bureaus, and request that they record payment and clear it from her report.

Negotiate smartly. Dunagan believes the couple will meet their targeted savings goal of a 3% down payment in short order, especially considering they will likely receive a $5,000 income tax refund this year. He adds that they may save money on the home purchase by asking their real estate agent to negotiate for the seller to pay the closing costs.

Increase savings. April and Gabriel need to get serious about saving for retirement and give their money time to work for them. Dunagan says unequivocally that they need to increase their retirement contributions to 10% of their incomes. He adds that their cash flow should not be dramatically affected if they also increase their payroll deductions.

Because Gabriel recently paid off the loan on his 1997 Grand Cherokee Jeep, the couple has an extra $250 in disposable monthly income that can be put toward building an emergency cash reserve of at least three to six months of expenses. Dunagan suggests putting the other half of the contest winnings in their emergency fund.

Fund the childrens’ college education. The couple should begin saving $150 monthly per child in a 529 plan using an index fund. They can achieve this by reducing two discretionary bills. The family currently spends $115 a month on cable TV. Going without some of the premium channels will reduce that bill by $50 a month says Dunagan. They rent multiple movies a week that they don’t have time to watch. Paring back could cut that cost in half. The couple was planning to save $75 a month in two mutual funds but Dunagan suggests they divert that money to the children’s 529 plans.

Financial Snapshot: April & Gabriel Raines