Bouncing back: the Raines family is working diligently to improve their credit scores and buy their first home.YOU DON'T don't 1. Contraction of do not. 2. Nonstandard Contraction of does not. n. A statement of what should not be done: a list of the dos and don'ts. HAVE TO TELL APRIL April: see month. AND Gabriel Raines that financial missteps can have a lingering lin·ger v. lin·gered, lin·ger·ing, lin·gers v.intr. 1. To be slow in leaving, especially out of reluctance; tarry. See Synonyms at stay1. 2. effect. "We've we've Contraction of we have. we've have learned the importance of how you use credit," says April. She recalls her college days, when she always paid $100 on her credit card bill. Not necessarily a bad idea, but April, now 27, would wait until she had exactly $100 to make a payment rather than pay the minimum amount due each month. Those late payments tarnished her credit rating. Her husband, Gabriel, has a different problem. At age 30, he hasn't established any real credit over the years. Having little or no credit history means that there's scant scant adj. scant·er, scant·est 1. Barely sufficient: paid scant attention to the lecture. 2. Falling short of a specific measure: a scant cup of sugar. information available to help lenders determine if he's a good risk. Such credit confusion has cost the Albany, Georgia Albany is a city located in southwest Georgia. It is the principal city of the Albany, Georgia Metropolitan Statistical Area and the county seat of Dougherty CountyGR6. Geography Albany is located at (31.582273, -84. , couple. When they began looking to purchase their first home a year ago, a mortgage broker advised them to pay off their credit card debt Credit card debt is an example of unsecured consumer debt, accessed through ISO 7810 plastic credit cards. Debt results when a client of a credit card company purchases an item or service through the card system. first in order to boost their FICO scores FICO Score A standard credit score which makes up a substantial portion of a credit report that credit bureaus sell to lenders so they can asses an applicant's credit risk and whether to extend them credit. and qualify for better financing terms. Although the couple paid off $5,000 in debt, they still have sizeable student loans, and their scores only showed minor improvement, still averaging around 550. Though there are exceptions, in general, scores below 620 mean that a borrower may be required to carry a subprime mortgage--one that carries an above-prime interest rate. The Raines family is now racing against the clock, working as fast as they can to build savings. April and Gabriel--along with sons Jordan, 6, and Justin, 3--are paying $485 a month to rent a two-bedroom apartment that's bursting at the seams. "The place has no yard and we have no equity," says April. "Getting out is critical." The couple has shopped around, and they estimate that a three- or four-bedroom home with two baths will cost them about $150,000. If they qualify for a Federal Housing Authority loan, they will need a 3% down payment of $4,500, which they hope to save within six months. April and Gabriel have already saved roughly $1,000 and are confident that they'll reach their goal because of their income: April makes $40,000 a year as a business manager at a hospital, and Gabriel earns $52,000 as a the assembly specialist. The couple is ready to make the sacrifices necessary to reach their financial goals, and together they are scrutinizing monthly spending for waste. Fortunately they've reduced one big cost: childcare. Now that their older son is in school all day, their childcare expense of $900 a month has been cut in half. Although their immediate objective is to buy a house, April and Gabriel have additional goals, including saving for an emergency fund and increasing contributions to their employer-sponsored retirement accounts, from roughly 4% of their salaries to 10%. They are also looking to beef up savings for their sons' college educations. But the couple's debt load continues to hinder hin·der 1 v. hin·dered, hin·der·ing, hin·ders v.tr. 1. To be or get in the way of. 2. To obstruct or delay the progress of. v.intr. their savings and investing plans. They still owe $1,000 in credit card debt, $6,500 on a car note for April's 2000 Honda Accord The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. , a medical debt which is in collections, and $80,000 in school loans. April holds a bachelor's degree in allied health services health services Managed care The benefits covered under a health contract and an M.B.A. Gabriel has a certificate in industrial electrical technology and plans to get his associate's degree as·so·ci·ate's degree n. An academic degree conferred by a two-year college after the prescribed course of study has been successfully completed. in business administration this year. Despite their challenges, the Raines family remains optimistic op·ti·mist n. 1. One who usually expects a favorable outcome. 2. A believer in philosophical optimism. op . "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. 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 Tax refund Money back from the government when too much tax has been paid or withheld from a salary. 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 Closing Costs The numerous expenses (over and above the price of the property) that buyers and sellers normally incur to complete a real estate transaction. Costs incurred include loan origination fee, discount points, appraisal fee, title search, title insurance, survey, taxes, . 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 disposable Nursing adjective Referring to that which is discarded or disposed of noun An item used in health care-related Pt contact which is discarded after use–eg masks, gloves, gowns, needles, paper products, syringes, wipes. See Biohazardous waste. 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. 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 di·vert v. di·vert·ed, di·vert·ing, di·verts v.tr. 1. To turn aside from a course or direction: Traffic was diverted around the scene of the accident. 2. that money to the children's 529 plans.
Financial Snapshot:
April & Gabriel Raines
HOUSEHOLD INCOME
Gross Income $92,000
ASSETS
Savings and Checking (hers) $300
Savings and Checking (his) 500
Money Market Account 75
Ariel Mutual Fund 50
403(b) Retirement Acct. (hers) 1,700
403(b) Retirement Acct. (his) 500
1997 Grand Cherokee Jeep * 3,000
2000 Honda Accord * 5,500
Total $11,625
LIABILITIES
Student Loans (hers) $50,000
Student Loans (his) 30,000
Auto Loan 3,500
Medical Collections 1,000
Credit Card Debt 1,000
Total $88,500
NET WORTH -$76,875
* ACCORDING TO KELLEY BLUE BOOK
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