From debt do you part: Aleas Hammett and her husband, David, are beginning the long, hard process of eliminating the debt that clouds their future. (Family Finances).THE SEPTEMBER 11 TRAGEDY AND SUBSEQUENT declaration of war by President George W. Bush affected many American families, For Aleas and David Hammett of Upper Marlboro, Maryland Greater Upper Marlboro, Maryland Upper Marlboro is a town in Prince George's County, Maryland, United States. The live-in population of the town core proper was only 648 at the 2000 census, although Greater Upper Marlboro is many times larger. , it meant that they had to be ready to serve their country at a moment's notice. David, 40, a full-time master sergeant in the Air Force, received a "call for duty" in September (which meant he had to be ready within 24 hours); and Aleas, 34, a petty officer second class in the Navy Reserves, was on standby (as of press time). Married seven years, the Years, The the seven decades of Eleanor Pargiter’s life. [Br. Lit.: Benét, 1109] See : Time Hammetts accumulated $70,000 in debt, then arranged a debt-consolidation loan through Navy Federal Credit Union Navy Federal Credit Union (or Navy Federal) is a Federal credit union headquartered in Vienna, Virginia, chartered and regulated under the authority of the National Credit Union Administration (NCUA). . This way they would have one payment instead of separately dealing with two car notes and school loans (Aleas completed three years of college). The couple pays $800 a month on the $70.000 Navy Federal Credit Union loan at 12.75% interest. Aleas explains that much of the debt accrued came from spending on "things that we really didn't need to have--more wants than anything else." Like most parents, the couple is concerned about the physical safety as well as the financial well-being of their children. The couple has two sons, Julian, 7. and Alexander, 2. (David also has three boys from a previous marriage: David Jr., 22, Maurice, 16, and Brandon, 12.) The Hammetts are also trying to secure their own financial future. "We are your typical American family living from paycheck to paycheck," says Aleas "We are trying to move in the direction of getting this debt from under us so that we can start to invest more money." Aleas has been in the service for 12 years, and David a little more than 20 years, Their combined household income is $108,000, which includes base pay with basic allowances and Aleas' full-time job with Navy Federal Credit Union. The couple has minimal investment capital, about $400 in IRAs, $3,000 in bonds, and $6,000 in her 401(k) plan. (She also belongs to an investment club; her share of the pot equals $4,000.) "Growing up, my parents taught me the importance of paying your bills on time, but not the significance of investing and paying yourself first," says Aleas. "Now I am thinking about generational wealth. I want to teach my children to invest." THE ADVICE The Hammetts have a monthly net income of $5,500 and about $5,300 in household expenses, monthly child support payments, private school tuition, and daycare. The couple's biggest challenge is reducing their debt so that they will have more to contribute on a regular basis to their savings and investments. BLACK ENTERPRISE had the couple consult with Walt Clark, president and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. of Clark Capital Investments in Columbia, Maryland Columbia is a census-designated place and planned community in Howard County, Maryland, United States. It is a suburb of Baltimore, and, to a lesser degree, Washington, DC. It began with the idea that a city could enhance its residents' quality of life. . Here are his recommendations based on current market conditions and the couple's financial objectives and time horizon. * REFINANCE THE MORTGAGE The Hammetts purchased their home in June 2001: they have no appreciation in the house. With the recent decline in interest rates, they should refinance their current 7% fixed rate on the 30-year $187,000 loan to 5.75%. In doing so, they would save $153 a month on their original mortgage payment of $1,495. They would, however, have to come up with about $2,000 to $3,000 to pay for closing on the refinanced mortgage loan. * RENEGOTIATE re·ne·go·ti·ate tr.v. re·ne·go·ti·at·ed, re·ne·go·ti·at·ing, re·ne·go·ti·ates 1. To negotiate anew. 2. To revise the terms of (a contract) so as to limit or regain excess profits gained by the contractor. DEBT CONSOLIDATION LOAN In addition to the $70,000 consolidated loan at 12.75% interest, the couple has $10,000 in 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. at 11.5%. They should renegotiate the loan with their credit union to get a lower rate, 9% or less, and include the credit card balance in order to eliminate that payment. Getting a longer term on the loans would reduce their monthly payment amount, but they can opt to pay more each month to help accelerate the pay off of that debt. * SET UP COLLEGE SAVINGS FUNDS Aleas should discontinue investing $50 a month in Series E Savings Bonds Savings bond A government bond issued in face value denominations from $50 to $10,000, with local and state tax-free interest and semiannually adjusted interest rates. savings bond A nonmarketable security issued by the U.S. and discontinue investing $50 a month in a savings account Savings Account A deposit account intended for funds that are expected to stay in for the short term. A savings account offers lower returns than the market rates. Notes: earning 3% interest. She should instead put that money, along with the $3,000 already accumulated, into an automatic investment plan as part of a Uniform Gift to minors custodial account Custodial Account 1. An account created at a bank, brokerage firm or mutual fund company that is managed by an adult for a minor that is under the age of 18 to 21 (depending on state legislation). 2. A retirement account managed for eligible employees by a custodian. or 529 College Savings plan in 7-year-old Julian's name. In addition, they should begin contributing $50 a month to a growth mutual fund through the 529 College Sarongs Plan, in 2-year-old Alexander's name. Since financial markets are at historic lows, she should invest in a growth mutual fund or unit investment trust (UIT UIT Union Internationale des Télécommunications UIT Unit Investment Trust UIT Ultraviolet Imaging Telescope UIT União Internacional das Telecomunicações (Portugal) UIT University of Information Technology ), which operates like a mutual fund, but purchases a fixed portfolio of diverse securities. UITs are held until maturity (anywhere from one to five years) and they offer protection against short-term capital gains Short-term capital gain A profit on the sale of a security or mutual fund share that has been held for one year or less. A short-term capital gain is taxed as ordinary income. . Generally they require a minimum investment of $1,000. * CONTRIBUTE MORE TO EMPLOYMENT PLANS Aleas needs to maximise her 401(k) account by contributing 15% of her salary instead of 6%. As soon as the Air Force makes available thrift savings plans The Federal Thrift Savings Plan, or TSP, is a retirement savings plan for civilians who are, or previously were, employed by the United States Government and for members of the uniformed services. The TSP encompasses many millions of investors and has substantial assets. , David should contribute a percentage of his pay--whatever is the maximum allowed--to that tax-deferred program. * INVEST CONTEST WINNINGS IN ROTH IRAs Roth IRA An individual retirement plan that bears many similarities to the Traditional IRA. Contributions are never deductible, and qualified distributions are tax-free. A qualified distribution is one that is taken at least five years after the taxpayer established his/her first The couple has saved $200 each in two traditional IRAs. Because their incomes are above the limits of a traditional IRA, they should convert those to Roth IRAs (his and hers), and place $1,000 from the BE contest winnings into each account, The goth IRA Ira, in the Bible Ira (ī`rə), in the Bible. 1 Chief officer of David. 2, 3 Two of David's guard. IRA, abbreviation IRA. allows them tax-free growth potential and tax-free withdrawals of earnings. With a Roth IRA, the modified adjusted gross income for joint filers is $150,000 as opposed to the $53,000 limit on traditional IRAs. With an income of $108,000, they don't currently qualify for a tax-deductible contribution on their traditional IRA.
Financial Snapshot:
Aleas Hammett
HOUSEHOLD INCOME
Gross Income $108,000
ASSETS
Savings $2,500
IRAs 400
Bonds 3,000
401(k) 6,000
Investment Club 4,000
(%) of total assets)
Total $15,900
LIABILITIES
Mortgage $187,000
Consolidated loan $70,000
Credit card balance 10,000
Total $267,000
Net Worth -$251,100
|
|
||||||||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion