is encouraged by their accomplishments, but says they are far from finished. “We have to continue on the path we are on in reducing debt, begin to increase our savings, and then focus on the children’s college fund.”
She and David have taken steps to teach their children the value of money management. For instance, they started giving their 9-year-old an allowance this year, requiring that 10% go to tithes, 10% in savings, and the rest where he wants. Says Aleas: “We want our children to have smart financial management skills before they get credit cards.”
THE ADVICE:
Refinance the mortgage
Refinance the mortgage from a 7% fixed rate to 5.75%, saving $153 a month.
Renegotiate debt consolidation loan
Renegotiate the 12.75% interest loan to 9% or lower, and include the $10,000 credit card debt in the consolidation.
Set up college savings funds
Stop investing in Series E savings bonds and a 3% interest savings account and put that money into a 529 College Savings Plan instead.
Contribute more to employee plans
Increase contribution to Aleas’ 401(k) from 6% to 15%.
Invest contest winnings in Roth IRAs
Convert two traditional IRAs into Roth IRAs, and invest $1,000 from the contest winnings in each account.
THE FOLLOW-THROUGH:
- The Hammetts refinanced earlier this year, getting a new rate of 6%.
- They secured a new 11% rate and have reduced this debt by $25,000. The credit card debt is down to $5,500.
- They have not made any of the suggested changes regarding the children’s college educations.
- Aleas increased her 401(k) contribution from 6% to 10%.
- They converted both traditional IRAs into Roth IRAs, and split the contest winnings between the two.
MAY WINNERS:
MARY AND CARLTON WARNER, WASHINGTON, D.C.
When we covered the Warners in our May 2002 issue, the couple was feeling “the squeeze.” Carlton, 43, a postal worker, and Mary, 49, who works part time processing print order contracts, were trying to finance their children’s college education, prepare for expenses associated with their aging parents, and save for a comfortable retirement. At the same time, they were trying to eliminate some $22,000 in short-term debt.
Today, things are also looking up for the Warners. “We aren’t living paycheck to paycheck anymore,” says Mary. “We’ve gotten some debt off our plates, and by the end of 2004 things are going to be even better.”
The Warners took some of the advice of financial planner Walt Clark. For example, they used their home equity line of credit to reduce debt payments, taking advantage of the low 7% rate and gaining tax savings since the interest is deductible. By doing so, they retired $3,000 in credit card debt. As for the remaining $2,800 on their Visa card, they renegotiated the rate with the issuer and reduced it from 11% to 6.9%.
A major priority for the Warners has been education. They used $11,000 of the credit line for the college tuition of their 20-year-old daughter, Carla. Although she received $5,000 in financial assistance, Carla still needed her parents’ help. In fact, the couple chose to finance Carla’s education instead of paying off the $13,000 car loan as