pitfalls. The resolution is learning how to turn a financial setback into a comeback. To assist with this undertaking, BLACK ENTERPRISE matched Stewart with Gwendolyn Kirkland CFP, managing principal of Kirkland, Turnbo & Associates in Matteson, Illinois.
Here, Kirkland outlines her recommendations:
Track monthly expenses. Because she isn’t recording transactions and tracking her spending, Stewart thought she was in a perpetual cash crunch. But writing out a budget revealed she has a $500 monthly surplus. Stewart should jot down all her expenditures in a journal for three months in order to get an accurate picture of her financial situation. “When you have real numbers, you can evaluate your expenses and determine whether you will keep spending in those areas and reduce or eliminate that spending totally,” Kirkland explains. Once Stewart has an assessment of her cash flow, she should save one half of the surplus, currently an estimated $250, and apply the other half — the remaining $250 — toward the reduction of her outstanding credit card debt.
Use a structured approach to reduce debts. Write down all balances starting with the smallest and progressing to the largest. Stewart has seven credit and store charge cards, plus two other school-related debts that total $2,000 in addition to the $32,000 in student loans. The smallest outstanding balance currently is Dell at $250. Stewart should make her normal $50 monthly payment and add the cash surplus to pay off that debt immediately. By continuing this practice of applying the current payment and adding the $250 surplus, she can eliminate the next smallest balance — a $600 Governors State University bill quickly. By using this approach of systematically paying off each balance and wisely using credit cards, Stewart can pay off her debts in three years.
Apply for a lower interest rate. Stewart’s cards have annual fees and double-digit interest rates averaging 21%. She should apply for a lower, single digit interest rate credit card and transfer the balances if possible. She needs to be diligent about making payments on time over the next six months so she is able to get a better rate. Kirkland says a good consideration for credit card purchases is to remember the three-month strategy. “If you can’t pay off the bill in three months, re-evaluate the purchase, and perhaps delay or dismiss it as not being appropriate for you at this time.”
Exercise discipline. Stewart should continue tithing 10% of the $2,000 winnings, or $200, and then open an ING Direct money market saving account, which has a 3% annual rate of return with the $1,800 balance. This fund will serve as the basis of building her reserve fund and she can add half of her surplus to it on a monthly basis.
Obtain a personal liability umbrella insurance policy. Because of her exposure as a landlord, Stewart needs to cover this area of risk. Kirkland says this type of policy is crucial for property owners. For about $400 a year, Stewart can get a $2 million policy that provides excess liability coverage should anyone