Sometimes, all it takes is someone to show you the way. There’s nothing like good advice and a game plan to give you the gumption to take action. And, when it comes to your finances, courage is often needed to admit mistakes and begin mopping up a financial mess. Then, you’ll need discipline to break bad habits and develop healthy new ones.
That’s what BE’s 2002 Financial Fitness Contest winners did. Taking advice from financial planners, they have made significant changes in their financial lives. It wasn’t easy. They had to make these adjustments in the face of a tough economy, job losses and a bear market. But despite the inhospitable climate, many adopted the 10 principles of our Declaration of Financial Empowerment (DOFE).
Here’s a look at what happened to four of our winners.
ALEAS AND DAVID HAMMETT, UPPER MARLBORO, MARYLAND
It took the Hammetts seven years to rack up $70,000 in debt, and some $10,000 on credit cards. When we last featured Aleas, 36, a petty officer second class in the Navy Reserves, and David, 42, a full-time senior master sergeant in the Air Force, the couple had arranged a debt consolidation loan through the Navy Federal Credit Union so they could make one payment instead of separately handling their two car notes and Aleas’ school loans. Despite the strategy, they were drowning. Now, more than a year later, they can breathe again.
They have whittled down the $70,000 debt to about $45,000 and their credit card bill to $5,500. How did they do it? For one, they changed their spending habits and applied $7,000 from their tax refund toward debt. Following the advice of financial planner Walt Clark, president and CEO of Columbia, Maryland-based Clark Capital Financial, they refinanced their mortgage early this year, dropping their 7.5% fixed rate to 6%, saving roughly $840 a year. Also, they refinanced the debt consolidation loan from nearly 13% to 11%, but kept the same level of payments to pay it off quicker.
Since debt was the Hammetts’ No.1 priority, they have not made any changes suggested by Clark regarding the children’s college education. (The couple has two sons, Julian, 9, and Alexander, 4. David has three sons from a previous marriage: David Jr., 24, Maurice, 18, and Brandon, 14.) And even though she wasn’t able to commit to contributing 15% of her salary to her 401(k) as recommended by the planner, Aleas increased her contribution from 6% to 10%. David, on the other hand, started a regular savings account and has amassed more than $2,000. “I am so over the credit card thing. Credit cards can be the biggest hindrance to your financial success. We cut up all but one card,” says Aleas. “We’re not counting on credit cards for emergencies anymore.”
As instructed, they converted their two traditional IRAs into Roth IRAs, which will allow them tax-free growth potential and tax-free withdrawal of earnings–and divvied their $2,000 in contest winnings between the two separate accounts.
Currently, Aleas is looking for a better-paying job. She