If the 3.9 percent rate is fixed, they should transfer the balances on the other two cards to the card with the lowest rate. At the very least, they should work on paying the balance off on the highest rate card first, and then work their way down to the card with the lowest rate. They should try to pay off this credit card debt within the next 15 months, as Marilyn's school loan payments will start at that time.
The good news is that there is some discretionary cash flow in their monthly budget, so they should be able to accomplish this while building a cash reserve as recommended earlier. One of the auto loans will be paid off shortly thereafter, so the extra cash flow at that point will help with her student loan repayments.
Marilyn's student loans will amount to approximately $35,000 and she will begin paying on these loans when she finishes her master's degree. It appears that she is already participating in the federal Stafford and Perkins loan programs, which offer the best rates among student loans. In addition, she may qualify for having some or all of the loans forgiven under new guidelines issued by the federal government for persons employed by public or nonprofit children- or family-service agencies. If she does not qualify for these programs, she will want to make sure she consolidates her loans to the program with the lowest interest rate.
The couple also faces a decision about housing; Marilyn is concerned about owning two homes. They currently have their marital home as well as her previous home, which is in an area where she could experience a serious loss in value if she sells now. They think they can rent this home for the time being and at least break even. There is a small line of credit on the home at 7.5 percent interest. They should work with their lender to see if they can lock in at a lower rate on the home equity loan, but it doesn't appear to be significant debt as long as the home doesn't stay vacant.
Plan for retirement
Marilyn and Ron have pretty aggressive retirement goals, as they want to be able to retire in 12 to 15 years. Since they each currently contribute 10 percent of their pay to their (Public Employee Pension) retirement plans, they should each evaluate the following:
- What their expected annual pension benefit will be at their anticipated retirement age.
- The difference in this benefit if they elect a Single Life pension or a Joint Life pension.
- Estimate what their desired income is in today's dollars.
- Determine the funding gap, if any.
If there is a gap between their anticipated pension income and their budgetary needs, a plan should be developed to fund that gap. My rough analysis shows that there may indeed be a need to save and invest more for retirement.