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Combining finances when remarrying

That said, their immediate concern should be their credit card debt, followed by auto loans, the home equity loan and then the educational loans. The educational loan debt should be the least concern based on the potential for loan forgiveness and the preferential interest rate on the debt.

Education for the children
Marilyn expressed interest in assisting some of their children through college. Based on their ages, this could begin in three years and last for 10 years. I would take a "wait-and-see" approach on the college funding for the children, as Marilyn and Ron should focus on their own short-term finances first and then make sure they have fully funded their retirements. Then they can consider additional expenditures for college educations. It won't be a tragedy for the children to carry some college loans themselves, as education is a worthy investment and they'll have youth on their side when paying off the loans. It's not possible to borrow for retirement, but it is more practical to borrow for education.

The plan in 5 steps
1) Get an estate plan in order
  • See an attorney to draft will, living wills, powers of attorney.
  • Consider setting up trusts for the children.
  • Appoint guardianships for the children.
  • Check beneficiary provisions on retirement plans.
  • Check beneficiary provisions on life insurance.
Tip: As a preventive measure, read about the 7 ways you can accidentally disinherit your children.

2) Assess risk exposure
  • Get adequate life insurance protection.
  • Select a level term policy to contain costs.
  • Purchase long-term disability insurance.
  • Disability coverage should extend to retirement.
Tools: Check out Bankrate's Insurance Toolkit, then get a free quote from Insureme.com.

3) Establish emergency fund
  • Recommended cash reserve: $12,000.
  • Start saving in $24,000 emergency fund.
  • Invest emergency fund in CDs, short-term bonds.
Tip: Not sure why you need an emergency fund? Check out our guide on Creating an emergency fund.

4) Prioritize debts
  • Transfer balances from higher-interest credit cards.
  • Pay off credit cards within 15 months.
  • Next, pay off auto loans.
  • Charge rent for second home that covers equity loan.
  • Student loans may qualify for loan forgiveness.
  • If student loans don't qualify, consolidate.
Tools: Eradicate debt with Bankrate's Debt-tackling tool kit.

5) Implement long-term savings
  • Calculate future retirement income needs.
  • Determine funding gap, if any.
  • Save more for retirement if necessary.
  • College funding may have to wait.
Tip: Bankrate's Retirement road map offers some direction.

 

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