Drawing The Line - Page 2 of 2
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Drawing The Line

my mortgage.”

Now, she’s determined to keep moving forward. Burney wants to pay off her remaining debt, save and invest more, and see if she can pay off her mortgage in 15 years, instead of 30. She’s determined to learn to say “no,” to herself and to others. The spending party is officially over.

The Advice
Danny Freeman, a financial adviser with Darda Wealth Management in Winston-Salem, North Carolina, says Burney’s experience offers many lessons because her history includes bankruptcy, borrowing against a 401(k), and rolling consumer debt into mortgage debt. Here’s what Freeman suggests:

Make up for mistakes. “Rolling a car purchase into a mortgage can be a very expensive transaction,” says Freeman. “Essentially, since her refinanced mortgage has a term of 30 years, it also means that she is financing that car for 30 years.” Burney is already making biweekly payments (26 each year, rather than 12), on her mortgage, so Freeman recommends that she increase each payment by $327 for the next five years–the increase will wipe out the car portion of her mortgage and leave her with an estimated balance of about $150,000. This should save her at least $15,000 in interest, over the next 15 years, says Freeman.

The $12,000 she took out of her 401(k) was also pricey. “Taking out the loan potentially cost her about $971 in earnings so far,” says Freeman. Add the loss of any future compounding of earnings, and this is the cost that many don’t consider when borrowing against their 401(k), he adds.

Concentrate on debt. Burney has a good start on achieving her goal of paying off her mortgage in 15 years, instead of 30. By making biweekly payments she will reduce her term to about 24 years , representing potential interest savings of more than $73,000. With increases in her pay and other adjustments in her financial situation, Burney should be able to kiss her mortgage goodbye in 15 years, Freeman believes.

Rethink savings strategies. Currently, Burney is putting $100 a month into savings bonds that pay just 3.6% annually. Freeman suggests targeting higher returns by investing in a mutual fund. He likes Excelsior Value & Restructuring (UMBIX), a large-cap value fund that focuses on companies believed to be undervalued but that offer significant price appreciation potential due to restructuring, merger, or buyout. Last year, the fund posted returns of 14.9%.

What’s more, he says Burney should use the $2,000 contest winnings to open a brokerage account and build a portfolio of dividend-paying stocks. To start, he recommends National Retail Properties (NNN), a real estate investment trust that acquires, owns, manages, and develops retail properties in the U.S., which he believes is undervalued. It has a current dividend yield of 5.8%. Another stock that he believes is undervalued is AT&T (T). It has excellent financials and a 3.6% dividend yield. Says Freeman, “With additional investments and her home paid off early, she will have enough assets to have a rock-solid retirement.”


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