Financial Fitness Winner No. 34, Tamara Burrowes

By Carolyn M. Brown

as follows:

Burrowes needs to resolve her outstanding student loan from the National Education Center. Because the school closed before she could finish attending classes, Burrowes is fighting the $1,500 bill. Even if she is in “the right,” this could tarnish her credit (FICO) score–a three-digit number ranging from 300 to 900. The higher the number assigned to a person, the better his or her chances of being approved for a mortgage. Burrows’ FICO score will also affect whether she qualifies for a conventional mortgage, subprime loan, or FHA government loan. Also, the lower her FICO score, the higher the interest rate she will pay.

Since Burrowes has aspirations to own a home in the next two years, it is imperative that she maintains a good credit rating. Therefore, she would be better off making a settlement to pay half of her student debt or pay it off all together. (She also has a $2,350 student loan from her Howard University days.) Clark cautions that lenders look at these situations (whether you’re in the right) like this: They did you a favor and now you want to stick them by not paying the money back. He recommends Burrowes prequalify for a mortgage to see where she currently stands as a potential home buyer. She can call Fannie Mae’s mortgage division or try her local bank. Moreover, she needs to get her FICO score, available for a nominal fee through Equifax or any of the other major credit reporting agencies. To have a favorable credit rating, over the next 18 months, Burrowes must pay her bills on time, maintain clean, active accounts, and not apply for too many new credit lines.

Burrowes has to work another three years at the university before she can claim money in her 457 Plan, to which the university automatically contributes 5% of her salary. Still, she may be able to borrow against the money in the plan for the purpose of a first-time home purchase. She is also eligible to partake in her company’s 401(k), to which she should start contributing 10% of her salary. Once she gets comfortable with the decrease in her paycheck, and as her salary increases, Burrowes should contribute 15%, says Clark. The goal is two-fold: to increase her retirement savings and to increase savings for a down payment on a home. Clark suggests Burrowes invest in equity markets, primarily growth mutual funds that are invested in large-cap and midcap companies.

Burrowes has $1,000 or $500 per child in Coverdell Education Savings Accounts (formerly Education IRAs). Leave the money there. If necessary, she could always withdraw the money tax-free for elementary and secondary education expenses as well as college costs. Taking the $2,000 in contest winnings, Burrowes should open a 529 College Savings Plan or state prepaid tuition plan. She should put two thirds of the money (roughly $1,300) into a plan for her daughter, since she is closer to college

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