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The September 11 tragedy and subsequent declaration of war by President George W. Bush affected many American families. For Aleas and David Hammett of Upper Marlboro, Maryland, it meant that they had to be ready to serve their country at a moment’s notice. David, 40, a full-time master sergeant in the Air Force, received a “call for duty” in September (which meant he had to be ready within 24 hours); and Aleas, 34, a petty officer second class in the Navy Reserves, was on standby (as of press time).
Married seven years, the Hammetts accumulated $70,000 in debt, then arranged a debt-consolidation loan through Navy Federal Credit Union. This way they would have one payment instead of separately dealing with two car notes and school loans (Aleas completed three years of college). The couple pays $800 a month on the $70,000 Navy Federal Credit Union loan at 12.75% interest. Aleas explains that much of the debt accrued came from spending on “things that we really didn’t need to have–more wants than anything else.”
Like most parents, the couple is concerned about the physical safety as well as the financial well-being of their children. The couple has two sons, Julian, 7, and Alexander, 2. (David also has three boys from a previous marriage: David Jr., 22, Maurice, 16, and Brandon, 12.) The Hammetts are also trying to secure their own financial future.
“We are your typical American family living from paycheck to paycheck,” says Aleas. “We are trying to move in the direction of getting this debt from under us so that we can start to invest more money.”
Aleas has been in the service for 12 years, and David a little more than 20 years. Their combined household income is $108,000, which includes base pay with basic allowances and Aleas’ full-time job with Navy Federal Credit Union. The couple has minimal investment capital, about $400 in IRAs, $3,000 in bonds, and $6,000 in her 401(k) plan. (She also belongs to an investment club; her share of the pot equals $4,000.)
“Growing up, my parents taught me the importance of paying your bills on time, but not the significance of investing and paying yourself first,” says Aleas. “Now I am thinking about generational wealth. I want to teach my children to invest.”
The Hammetts have a monthly net income of $5,500 and about $5,300 in household expenses, monthly child support payments, private school tuition, and daycare. The couple’s biggest challenge is reducing their debt so that they will have more to contribute on a regular basis to their savings and investments. BLACK ENTERPRISE had the couple consult with Walt Clark, president and CEO of Clark Capital Investments in Columbia, Maryland. Here are his recommendations based on current market conditions and the couple’s financial objectives and time horizon.
REFINANCE THE MORTGAGE
The Hammetts purchased their home in June 2001; they have no appreciation in the house. With the recent decline in interest rates, they should refinance their current 7% fixed rate on the 30-year $187,000 loan to 5.75%.