An education in investing: Linda Paul has set out to learn all the right lessons about establishing a financial plan for her future. (Family Finances).

LINDA R. PAUL'S SITUATION MIRRORS MANY AFRICAN Americans who graduate from college strapped with student loan payments and other debts. The 24-year-old financial analyst has about $15,000 in student loans, $1,500 in credit card balances, and $2,000 left on an auto loan. The good news is that she's managing everything on a $44,000 salary, which is more than a lot of college graduates her age have to work with.

One of Paul's biggest worries is the used 1995 Ford Aspire she purchased during her sophomore year in college. She has credit card debt primarily because of her charging bills from constantly repairing the car (which she says needs even more repairs).

When she bought the car, she went to a Budget dealer. Looking back, Paul says she should have gone to a Ford or Honda dealership, instead. Her monthly car payment is $228 a month, but she usually pays $250.

In terms of student loans, Paul was fortunate to get scholarship money for her first two years of college, which helped her borrow less. Most of that money covered nearly $8,000 in tuition and expenses for a semester overseas (four months in the Netherlands) and two summers. After graduating from Indiana University in May 2000, she relocated to Arlington, Texas, to work in the corporate finance department of Allegiance, a healthcare company headquartered in Waukegan, Illinois.

Dedicated to improving her fortunes, Paul recently took the exam to become a certified public accountant. The prep course cost her $1,800 and took nearly four months to complete. But it will be well worth it since passing the exam could mean a bump in her salary from $44,000 to around $54,000. Paul also hopes to pursue an M.B.A. in another two years. To help offset the cost of higher learning, she intends to apply for, and hopefully secure, funds from the Consortium for Graduate Study in Management. The Consortium is an alliance of 14 business schools in partnership with corporate America that recruits minority college graduates to compete for merit-based fellowships.

THE ADVICE

For Paul, it is simply a matter of gaining control of her finances and contributing more to her retirement savings. BLACK ENTERPRISE had Paul confer with Colin Cumberbatch, a Houston-based financial consultant with SalomonSmith-Barney. "Relatively speaking, she is not in bad shape," he says. She adheres to a budget and spends on basic necessities: her only extravagance is the $50 to $100 a month she spends on CDs and books. Cumberbatch says Paul should try buying such items on the Internet. For instance, she can buy used books at Amazon.com. and used or discounted CDs at Half.com. His other recommendations are as follows:

* PAY OFF CREDIT CARD DEBT

Use the $2,000 Financial Fitness Contest winnings to pay off the $1,500 credit card balance. Also, contact Citibank about getting a lower interest rate on her credit card, around 10% to 12% vs. 19%. If they refuse, she should close out that account and apply for a credit card from her credit union which offers a better rate, advises Cumberbatch. With the income that once went toward her monthly credit card payments, she should open a money market account and save three months of her salary for emergency needs (e.g., losing her job).

* BUY A MORE RELIABLE CAR

Since car repairs are eating up Paul's disposable income, she should buy another car. Cumberbatch recommends that she put the remaining $500 from her Financial Fitness Contest winnings toward a down payment on a more reliable car. Paul showed an interest in the Honda Civic. If she bought a new one, it would cost about $18,000. Instead, she should opt for a Civic that is 2 to 3 years old, which should cost about $12,000. She can get preapproved for a car loan from her credit union (at a rate between 7% and 8%). Cumberbatch says Paul should run a "for sale" ad in the local paper for four weeks and try to sell her current car for about $3,500. If she's unable to sell it, she should try negotiating with a dealer on a trade-in, and get the lowest-priced car possible. Her car payments could be about $287 (after sale/trade-in). This is more or less in line with the $250 a month she pays on the present car loan.

* CONTINUE PAYING STUDENT LOANS

Paul should stay the course in terms of her student loan repayment schedule. Her priorities ought to be paying off the credit card, the car note, and the student loans, in that order. Student loans generally have the lowest interest rates, and you'd want to pay off debts with the highest interest rates first. Also, she may be able to deduct the interest paid on her student loans. She would have to itemize deductions on her tax returns and there are income limitations. Paul should contact a CPA to see if she can take the write-off.

* MAX OUT HER 401(K) PLAN

Paul should gradually increase the 13% she currently contributes to her 401(k) to the maximum 20% that her employer allows. Cumberbatch also says, "She needs to be invested in aggressive growth equities because, with the length of time she has to retire, she can tolerate greater market risk." The idea is for her to save now before life changes, such as marriage, dictate more spending. Once she gets her CPA license, Paul can look for a higher paying job. She can then balance her new salary with the ability to contribute more heavily into her 401(k) plan.

* OPEN A 529 PLAN TO SAVE FOR HIGHER EDUCATION 

Paul should place any additional income she has into an Education IRA or 529 college savings plan, which will help pay the cost of her M.B.A. Although she can't receive a tax deduction on contributions to the 529 Plan, the earnings and capital gains it earns can't be taxed.

Financial Snapshot:
Linda Paul

   HOUSEHOLD INCOME

Gross Income   $44,000

        ASSETS

401(k)          $8,071
IRA              1,001

Total           $9,071

      LIABILITIES

Student loan   $15,000
Credit card      1,500
Auto loan        2,000

Total          $18,500

NET WORTH      -$9,429