NEW YORK (CNN/Money) - Derrick and Stephanie Sherer see quite a lot of each other. When they met, they were working together at a furniture company. Now that they're married, they work together at a major telecommunications provider. Derrick, an engineer, and Stephanie, a project manager, currently live in Overland Park, Kansas, with their 2-year-old daughter, Carley.
The situation
Like many young couples, the Sherers want to ensure they have all their financial bases covered for their future needs -- retirement, college savings and a new house. But every month, their expenses and retirement savings take away most of their paychecks, and they find there isn't enough left over to put a significant dent in their debts. "We are so tight with each paycheck," said Derrick.
Together, they bring in about $85,000 a year, split almost exactly between their salaries and bonuses. Both have life insurance at four times their salaries, and have all of their health, dental and vision insurance through their employer. Derrick, 25, and Stephanie, 31, each contribute 6 percent of their salaries to a 401(k) plan. Derrick's account is currently valued at about $4,500 and Stephanie's is worth about $5,900. They also opened a Quest Education Fund for Carley, currently valued at about $900.
The Sherers pay about $1,200 a month on their mortgage. The house, bought for $132,500 and appraised last year at $136,600, was financed with a loan at 8.125 percent. The remaining mortgage balance is about $129,000. They also owe a total of $16,000 in credit card debt and pay about $500 toward it each month.
And then there's the $400 they pay each month for a leased sport utility vehicle plus another $212 on a car loan. On the horizon is payment of a $15,000 student loan, used to finance part of Derrick's education -- they haven't begun payment of this loan yet because he is still in school.
The Sherers would like to get out of credit card debt, purchase a new house in 2 to 3 years, fund Carley's college education, and be able to retire comfortably. "The only real problem we have now is the credit card debt," Derrick explained. "It is decreasing, but slowly."
The solution
Wipe out credit card debt. Experts say the Sherers' number one priority must be to pay their credit card debt as quickly as possible.
"Their credit card debt has them underwater," said Jon Duncan, a Certified Financial Planner at Jon Duncan and Associates in Tacoma, WA. "I would strongly encourage them to pursue that goal before they try to tackle any others."
Adds Steve Carter, a CFP at Carter Financial in La Jolla, CA.: "I wouldn't recommend they try to make more money with a second job, since living paycheck-to-paycheck is already stressful, and they have a young child. Instead, they'll need to reduce their expenses as much as they can."
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Carter offered the following strategy to help the Sherers cut down on expenses: create a monthly budget by making a list of their expenses, prioritize it, and drop any inessentials. They should then arrange to have both paychecks deposited into a money market account, and on the first of every month, transfer only the cost of those essential expenses from the money market account to their day-to-day checking account.
"As they make purchases and pay bills throughout the month from the checking account, they know they've blown the budget if they run out of money too fast," Carter said.
The roof over their heads. Duncan also recommended they look into refinancing their mortgage. "If they can, they should refinance. That would free up extra cash, which they could apply to credit card debt," he said. "They do have low credit card rates, but refinancing the mortgage is a good idea anyway. Mortgage interest you pay is tax-deductible, and credit card interest you pay is not."
Finally, both planners suggested they put the purchase of a new house on hold for a few more years. "I wouldn't recommend they sell the house until they're out of debt," Duncan said. "They're young -- lots of time to buy later."
"Unless they have more cash on hand, a bigger house plus credit card and auto debt could take them under," Carter added.
Stamp out other debts. After they have less pressure from credit card debt on their monthly cash flow, Carter recommends that the Sherers get out of all other debts besides their home. "The Sherers could make extra payments to their various debts based on the interest rate of each one -- highest rate first. When one debt is paid, they can apply the payments that had previously gone to it to the next one in line," he said.
Regarding auto debt, Carter recommended their next purchase be of a late model used car with as big a down-payment as they could handle at the time. "They should drive the cars as long as the maintenance costs don't become burdensome -- hopefully 8 to 10 years -- and avoid leasing," he said.
Buy more life insurance. Duncan suggests, too, that the Sherers increase their life insurance coverage. "Nobody likes to talk about it, but if one of them were to lose their life, they'd be in a world of financial hurt," he said. Carter recommended they get approximately $150,000 of additional coverage apiece through inexpensive term insurance.
Increase 401(k) contributions. Carter said this can be a low-priority goal for the moment, because the Sherers started saving young. "They are so young that if they keep up with their current payments, they are on track to retire at age 65," Carter said.
Both Carter and Duncan do recommend that the Sherers diversify the retirement assets they already have. "They each have about one-third to one-half of the assets in their 401(k)s in company stock -- and they both work for the same company," Duncan said. "After what happened with Enron, we should all keep in mind the importance of diversification."
"Their 401(k) investments should all be moved to Fidelity Dividend Growth Fund, where Derrick already has some of his retirement savings. That's a solid large-cap blend fund. As their balances grow, they can diversify into foreign stocks, small-caps, etc.," Carter said. "They should only invest in their company stock if there is an incentive -- in which case they should take it, and then diversify out of the stock as soon as they're allowed."
Tackling tuition. Carter mentioned that saving for Carley's education was also a low-priority goal for the moment, and should come after paying down debts and saving for retirement.
"One good idea is to save for her education in their own names," Carter said. "That way, they have the flexibility to use those funds for another purpose, if it's absolutely necessary. If Carley gets a scholarship, for example, that money could then go into their retirement funds." 
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