Black Enterprise drafted a blueprint to help the family get on the right track and balance their finances with two people (father and son) in college come this fall.
• Reduce monthly obligations. For starters, they must get their negative cash flow down to a reasonable level immediately. “They can use money from their checking and savings accounts to reduce about $15,853 in credit card debt,” says Joseph C. Ellis II, senior vice president, wealth management for Wells Fargo & Co. in Minneapolis. “This will reduce their monthly obligations by about $785 per month, bringing their monthly cash flow to a negative $1,592.” Moreover, the couple should look to reduce living expenses by taking advantage of a family share plan to reduce landline and cellular phone costs—currently $450 total monthly—and combine their auto and homeowners insurance with one carrier to get a multiple policy discount rate. They can use the savings to go toward reducing their negative cash flow.
• Rent the second home. They own three homes: a primary residence (valued at $65,000 with a $107,000 mortgage and $964 monthly payment); the first home they ever purchased together, which is empty (valued at $50,000 with a $70,000 mortgage and monthly payment of about $625); and a rental property in their Alabama hometown (valued at $61,000 they owe $38,000 on the home and a $120 monthly payment). The couple is meeting their tax obligations, mortgage payments, and insurance on all three properties, but they aren’t netting any additional income and since they are also underwater, Ellis suggests renting the vacant home. If a tenant can cover the mortgage payment, that would further reduce their negative cash flow to $967 per month.
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