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 percent.
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 percent of my pay in a 401(k). My wife just began a new teaching job and pays 6 percent 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.
-- Aaron & Liz Lifestyle
Dear Aaron & 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.