Newlyweds Want to Spend and Pay Down Debt

Dear Dr. Don,

My wife and I got married just one month ago. I'm 29 years old and she's 25. I purchased a house last year for about $145,000. We have three vehicles paid off and I have a loan for my motorcycle. My wife owes $50,000 on a student loan for her master's degree with monthly payments of $550. The interest rate on the loan is 6.99%.

Is there a better option for paying her student loan back? I don't have enough equity in the house to take out a second mortgage.

If we continue with the current payment plan, we'll be paying more than $25,000 in interest over the next 12 years.

My second question involves retirement savings. I put 10% of my pay in a 401(k). My wife just began a new teaching job and pays 6% of her salary into a 401(k) with a full company match.

I make $78,000 a year while she makes $37,000. We both want to buy new cars. We would trade in two of our cars for two newer used ones. This would add about $800 a month in payments for the next five years.

We'd also like to buy another house and keep my house as a rental for income.

What are your thoughts? I know we should be doing more for retirement savings, but it's not really the most enjoyable thing to do with our money right now.

Thank you,

-Aaron and Liz Lifestyle

Dear Aaron and Liz,

There's no easy answer for you to be relieved of your student loan debt. Typically, people look into lower-cost home equity loans. If you don't have the equity to pursue that option, you should reduce the principal balance through additional monthly loan payments.

My sense is that you would be doing too much by adding two car payments and another mortgage, based on your income. That's even with the possible rent on the current property. Instead, I suggest selling the property. This would free equity you could use as a down payment on a new home.

Does the use of one of your three vehicles justify the cost? Would an occasional rental get the same job done less expensively? I'm not even touching the subject of the motorcycle.

My suggestion is to space out the car purchases rather than buying two in the same year. Otherwise, you will be trapped having to repeatedly replace both of your vehicles at once. If you adjust the timing a bit, you should be able to reduce some of the cost over time, which includes repairs.

Newly wedded young couples, like you, have many demands competing for income. It would become even more challenging if you had children.

The money you set aside for retirement in your 20s and 30s will have decades to earn a return, maximizing the power of investing. That makes it a bit easier for you to reach your long-term goals. I understand that it can be difficult to envision that many years ahead. But, you'll be better off if you try. My advice: Strike a balance between spending, paying down student debt and investing for your future.

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