[jIM_Ohio]

The advice depends on your comfort level. I am in a similar spot and choose to invest 16% of my income. I have less debt notes (no student loans), have two car payments and a 1st/2nd mortgage combination.

I see my issue as liquidity. I want cash on hand, not less debt. Here is my plan

1st mortgage 288k (probably owe 287k now- in year 2 of 30 yr fixed at 5.75%).
2nd mortgage 54k (probably at 53k now- in year 2 of 30 yr fixed at 7.x%).
Our house is valued at 372k (342/372=91% owned by bank/ 9% equity)
car 1- in year 3 of 4 year payment of $700/month 6.x%
car 2 in year 3 of a 3 year lease. My wife travels for work and requires high milage, so we lease and turn car in at end. $350/month.

We have a 3 month emergency fund, plus we are working on getting another 3 months expenses in a secondary emergency fund. The primary emergency fund with 3 months expenses is in 90 day CDs (3 90 day CDs maturing every 30 days). The secondary EF is in a mutual fund PRPFX, which has moderate risk, but returns twice what the CDs do, possibly more. My goal is to have 3-12 month expenses in the mutual fund (in addition to the CDs) before tackling debt further.

Investing wise I send 11% of pay to my 401k, wife sends 6%, the matched from our employers kicks in 4% for me and 3% for wife. I max my Roth IRA each year, and wife's Roth is at 60% of max (3k) per year.

I am 35 yo and expect to retire between ages of 53 and 68. The goal is to invest heavily now and let time erase the debt working towards a debt free retirement. We do not need to be debt free next year, we need to be debt free in 18 years. Keep your eye on the right goal.

The $700/month for car will be applied to second mortgage when my truck is paid off in 2010. Once the second mortgage is paid off, that will add to PRPFX position. The $400/month from 2nd mortgage will also add to this position. $1100/month hits the 12 month expense goal in about 1.5-2 years. Second jobs and tax refunds might get the PRPFX position to 3 months before end of this year anyway.

In mean time any new money we get goes to PRPFX account. Here is why:

The debts cost us between 5.75% and 7.x%. PRPFX can probably beat the low end debts, the 7.x% is a question mark, so eliminate the question and pay down the debt, but I would prefer more liquidity in today's housing market. Cash on hand is better than the bank getting their money back sooner, or me paying less in interest this year.

I will now pass onto you the advice I gave myself- invest heavily when you are young. The next 5-10 years is when you will get the most growth. My advice would be this- invest based on retirement planning and tax planning, then let other circumstances adjust the debt load.

1) Set a goal for 401k/Roth levels. 11k now, how about 250k in 10 years?
2) Set a tax goal- what was 2008 taxable income? If you were in 25% tax bracket (above $65100 married filing jointly), then increase 401k contributions (and lower the Roth contributions) to get below $65100. This way you pay taxes at 15% and not 25%. The difference is huge (10% return). Show me anywhere else in this picture where you earn 10% except the company match. Debt doesn't cost you that, house doesn't, students loans don't either.
3) Once you are on track to reach 250k goal and tax goal, then deal with the debt. I do agree it is high, the issue is more the repayment periods that the actual amount owed. Pay extra on cars, then send that money to student loans, then send that money to 2nd mortgage (that is payoff order).
I would NOT, emphasize NOT make debt free the priority, just make it a goal and work towards the goal after the other 2 concerns are dealt with first.