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<< Previous   of   Next >>   ADVERTISEMENT   CONTACT THE HERALD Mike Benbow, Business Editor benbow@heraldnet.com   Published: Sunday, December 23, 2007 What's next for Singletary's Challenge participants? Following through Carlesa Washington Age: 24 Background: Washington is a graduate of Howard University and works as a concierge, assisting new apartment residents with settling in. She lives in the District of Columbia with her mother. Washington now earns about $36,500 a year. Her 2007 New Year's resolution: Washington wanted to pay off all her debts and begin saving for a home. She had a $1,284 Bally's account, which was in collections, a Macy's account, also in collections, on which she owed $425 (she was able to settle this debt for $319). Her largest debt was $4,800 on a Visa credit card, which had been closed by the lender and was also in collections. Struggles: Initially it was hard for Washington to understand that even if she was paying for something in cash, she was overspending. For example, she had planned a trip to Las Vegas. "But I'm paying with cash," she said after I told her to cancel the trip. I also got a little pushback when I told her to get rid of an expensive Internet service on her cell phone. Setbacks: Four months into the challenge, Washington learned she owed a total in overdue taxes of $1,780, $1,400 of it to the IRS. She managed to pay off the IRS debt by using state refunds and by reducing the amount of money used to pay down the credit card debt. Despite the tax situation, Washington got right back on track and still paid off the debts ahead of time. She did that by taking on bartending jobs to supplement her income. Successes: Washington was the only challenger to pay off all her debts over the year. In all she got rid of $6,402 in 10 months. "I just feel relieved," she said. Washington kept a spending journal to discover how she wasted money. She developed a budget and stuck to it. The part-time job bartending helped. In fact, many of Washington's friends began watching what they spent because of her participation in this challenge. "When they saw my spending journal, it influenced them," she said. New Year's resolution for 2008: Washington has put off buying a home for now. Instead she's set her sights on studying to become a nurse anesthetist. To aid her savings, Carlesa will continue to live at home. Since her monthly expenses are so low, I recommended that she significantly boost her monthly savings to help reduce the amount of student loan debt she expects to take on. It's possible for her to save as much as $1,000 a month. Final thoughts about the New Year's Resolution Challenge: Like others participating in the challenge, Washington said she finally saw the value in having a financial plan and goals. The plan keeps you on track. The goals help keep you focused. Now Washington says she questions every purchase. "I got a lot more out of this than I thought I would. A lot of my habits changed. This gave me the boost I needed." Annie Schleicher Age: 36 Background: A single professional who works as an associate editor for a news Web site for high school students. The Pennsylvania native lives in the District of Columbia. She earns about $44,000 a year. Her 2007 New Year's resolutions: Schleicher wanted to pay off $4,500 on her only credit card; build up a savings cushion representing at least three months of her living expenses. She also wanted to accelerate paying off $10,754 in student loans. Struggles: For most of the challenge Annie struggled with sticking to restrictions on at least one budget item -- entertainment. As a young single professional she had a hard time cutting back on going out with friends. Setbacks: Ah, the best-laid plans. Since Schleicher has limited discretionary income, we decided to focus on just two of her three resolutions -- paying off the credit card and building a cash cushion. But Schleicher had a major setback. Her trusty 1992 Subaru Loyale, finally died. Two mechanics deemed it dead or at least not worth the expense of fixing it. I agreed. Here's what I suggested that she do: Figure out how much she could afford in a car payment every month. The amount couldn't interfere with her debt payments. I urged her to join a credit union. I had been pressing this since the beginning of the challenge since I knew she had an old car. Credit unions typically offer lower auto financing rates than banks or the dealer. I also encouraged her to check with her bank for comparison. She did. Most importantly, I wanted her to think "used." Finally, I recommended that she apply for a 48-month loan. If she couldn't afford the payment for a four-year loan, she couldn't afford the car. She joined a credit union. And, a co-worker was selling a used Honda Civic, which had about 7,000 miles on it, for $13,000. She was approved for a 48-month loan at the credit union at 5.99 percent, much less than the rates quoted by her own bank. Her monthly payment is about $300. Successes: Schleicher should be proud of herself. She has spent a year without using credit. And although she didn't completely pay off the $4,500, she is close. Just two more scheduled payments in the new year and she'll be rid of that credit albatross. Schleicher would have paid the debt off completely if not for the car crisis. She's down to about $300 in savings, chiefly because of repairs before she got rid of the other car. She donated it to a charity for a tax break of $500. At one point she had saved as much as $1,100 in her emergency fund. "I got a little off track with my goals for the year but I still feel good about the outcome," she said. As I told Schleicher, it is OK she had to use the money. That's what an emergency fund is for and why it is paramount to save even while you are trying to get out of debt. Schleicher has a part-time tutoring job, which she will keep, and will use that money to help make her car payments. New Year's resolutions for 2008: There's still the student loan debt. With the credit card debt out of the way, Schleicher plans to focus on getting rid of her six student loans. Her combined loan payments are $260 a month. On the current schedule she has three years left to pay off the loans. "I feel like I have been paying them forever," Schleicher said. A student loan isn't a pet that should be kept around with loving affection. This young woman and hundreds and thousands like her are being smothered by student loan debt. It's time for her to get free of that bondage. I suggest that, starting in March, she take $100 of the $400 she was paying on the credit card every month, and use it to accelerate paying down the student loan debt. The rest of the money ($300) would be split between rebuilding her emergency fund (three months' worth of living expenses) and a separate savings I call the "Life Happens Fund," which is used for unplanned nonemergency expenses. She'll still divert money from her retirement savings to get out of debt. At the beginning of this challenge I recommended Schleicher stop making the $100 a month payments to her retirement fund so that she could pay off her debts. I wouldn't have suggested stopping all retirement contributions, however. Schleicher's employer contributes the equivalent of 10 percent of her salary to a retirement plan even if she does not contribute. That's an amazing benefit. It means she can afford to divert her own contributions for a short period to get rid of the student loans. Final thoughts about the New Year's Resolution Challenge: When Schleicher started this challenge she wanted to do better with the money she made, something her deceased mother urged her to do. "I think I've certainly learned a lot but this is just my first step," Schleicher said. "It's not as if something magical happened and I'm suddenly solvent. I had good intentions but life got in the way. Although it's been a bit tough at times I am so glad that I made the decision to 'put it all out there' and ask for help." The Chandlers Ages: Tania, 40; Carl, 39 Background: Married with two children, Myles, 6, and Sydney, 3. The family lives in Maryland. She is a professional school counselor. He's a systems consultant. Together they earn about $141,000 a year. Their 2007 New Year's resolutions: Pay off $14,400 in consumer debt and build up an emergency fund. Struggles: The Chandlers, like many consumers, struggled with budgeting and with an impulse to indulge themselves. They're a hard-working, loving couple who occasionally gave into their wants. They've made great strides in paying down their debt but they could have gone further. They bought furniture for their family room. Carl Chandler also bought a PlayStation 3 console for $600. "I'm entitled to a little something," he said. I'm still concerned they don't have enough of a cash cushion to cover even one month's of their living expenses. Setbacks: What often derails people from reaching their debt-reduction goals are everyday life expenses. During the year there were several other expenses they hadn't saved up for that diverted funds earmarked to pay down their debt. Successes: The Chandlers were successful in this challenge in several ways. They may not have paid down as much debt as they could have, but they still made a good dent in eliminating the $14,400 they owe on credit cards. They've gotten the debt down to $10,800. That's a 25 percent reduction. "Our debt is better than when the year began," Tania said. "At least, we have a plan of action." They've also managed to put $4,000 into an emergency fund. New Year's resolutions for 2008: The couple still aims to save at least three months' worth of expenses. In addition, as soon as they get clear of their credit card debt, they want to start saving for their children's college education. Final thoughts about the New Year's Resolution Challenge: I'm most impressed with how much the Chandlers have reined in their spending. They hardly go shopping anymore. They get it now. They get that it's not how much you make that matters but how you make do with what you have. "We have a plan now," Tania said. "I think overall we did well although there is still room for improvement." Washington Post Writers Group

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