Paying Down Bills After Setting Up House

The Colón Family

Age: Kim is 43, and George is 52.

Background: The Colóns are approaching their one-year wedding anniversary. The newlyweds share their Dumfries home with Kim's daughter, who is attending college. After serving 22 years in the Army, George now works as a contract manager in the District. Kim, an Air Force senior master sergeant, has served almost 20 years in the military. Together they earn about $191,000 a year.

Goal: Stop living paycheck to paycheck and increase savings while paying off consumer and tax debt. Both have discussed building up their retirement funds. Originally, the two had hoped to honeymoon in Puerto Rico. That plan has been put on hold while they get out of debt.

Progress: The Colóns have paid off five credit cards and some past-due tax debt totaling about $8,800. When we started in February, the two were struggling to pay off a little more than $30,000 on eight credit accounts. They acquired most of the debt by buying furniture, appliances and other items for their townhouse after they got married. Kim has accrued $40,000 in student loan debt while working on her doctorate in organizational leadership. She is a dissertation away from her degree. Currently, the student loan debt is deferred.

George is also trying to pay down or negotiate to reduce about $12,000 in outstanding state and federal income tax debt.

New developments: As part of their debt-reduction plan, I advised George to sell his 2002 BMW Z3. The couple has two other cars.

George at first agreed to sell the BMW. But in the end, he couldn't part with the convertible, which was costing him $702 a month in car payments.

I'm okay with the compromise George and Kim came up with. They refinanced the car loan, and the monthly payment is now about $400. They are taking the savings and applying it to their debt plan. When the couple finish paying off their credit and consumer debt, they've promised to attack the car loan and pay it off early. That will reduce the extra amount of interest they would ultimately have paid in refinancing the car.

"I love sports cars, and I always wanted a convertible," George said. "To me it always signaled success, that you made it to the top."

But as I told George, when you make it to the top, you should buy your toys with cash -- not credit. Still, I couldn't fuss too much. The Colóns have drastically reduced their spending and have not used credit since the challenge began.

Kim is being deployed to the Middle East in August. She'll return home in February. The additional income she will earn while being deployed will go directly to paying down debt. No extras. No special treats. Nothing.

Their challenge: The Colóns need to continue concentrating on aggressively paying down their consumer credit accounts. When they pay off those, they can move on to other pressing debt, such as their taxes and home-equity lines of credit and student loans.

Next step: The couple needs to build up a little more savings cushion.