I am a medical student, and as such, already have tons of debt to begin with. That said, I've been wanting to upgrade my current system (cambridge audio CD player, squeezebox v3, a 10 year old NAD receiver, and a pair of minipod speakers that I received for free). I will probably keep the cambridge audio CD player for now.
You didn't give much in the way of specific data to go on; but I'll stick my neck out anyway...
First, for a ca. $1,200 budget, you'll likely be better off sticking to "Better Mid-Fi", than attempting to put together anything super exotic. Don't let the "Mid-Fi" moniker put you off -- as long as your doing this more for the music than the snob appeal, you can do quite well with brands like NAD, Adcom, Rotel, Hafler, etc. -- and occasionally, even the big "mass market" makers put out something halfway worthwhile (cf. some of the older Denon and Yamaha stuff).
Hence, as several other folks have suggested, you might want to also keep that NAD receiver, at least for awhile; but this depends greatly on just which one it is *AND* what kind of shape it's in. As a general rule, NAD's stuff is reasonably decent when it's new and working properly; but historically, the "low budget" build quality (how do you think they maintain that "bang for the buck" reputation, anyway?) leaves enough to be desired that after ten years, it may well be giving you some grief. If so, then I understand your desire to replace it. But if it's still working well, you would probably be better off putting at least *most* of the budget into speakers, and leaving the electronics upgrade for later. OTOH, if it's one of their real low-end "20-watt wonder" models, you will likely find yourself rather severely limited in your speaker choice. But then, on still another hand, as long as the NAD has a pair of line-level preamp-outs (which it probably does) this really is no big deal, as (again, assuming as the unit is otherwise working well) you can easily and cost-effectively add (now or later) a much beefier power amp without having to replace the tuner and preamp sections. For a few quick examples from the current Audiogon classifieds:
Adcom GFA555
Asking $350.00
http://cls.audiogon.com/cgi-bin/cls.pl?ampstran&1154420459
Adcom GFA-555
Asking $300.00 obo
http://cls.audiogon.com/cgi-bin/cls.pl?ampstran&1154197310
Mondial Acurus A200 Black pending
Asking $385.00 obo
http://cls.audiogon.com/cgi-bin/cls.pl?ampstran&1154190429
Parasound HCA-1000
Asking $275.00 SOLD
http://cls.audiogon.com/cgi-bin/cls.pl?ampstran&1154107140
So, based on the above, you should be able to devote at least $800-900 of your budget to speakers; and that seems about right to me, given what you've told us. But there's no way that I or anyone else can pick a speaker for you "by remote control". There's just too wide a gamut of widely disparate speakers -- all ostensibly "good"; and none of us have *your* ears. So the only thing to do is start listening. Beat the bricks and visit every decent audio store within driving distance, to get an idea of what you like. Go ahead and consider models somewhat above your budget, on the theory that you may be able to find an "affordable" used specimen; but beware that if you really get your heart set on something you can't afford to buy new, this might mean waiting quite awhile for _The_Right_ pair of used speakers to come along. Once you've narrowed it down to, say, 3-6 different makes/models, start perusing the classifieds here and elsewhere.
A few other comments...
Both of the speakers you mentioned are small "mini-monitor" types. Do you have a space problem that you didn't mention? If not... Even ignoring the obvious bass-extension issue, in this price range a conventional full-size / full-range speaker will surely provide better overall performance, especially if you're short on amplifier power. Here again are a few quick examples from the current Audiogon classifieds listings:
Tannoy Revolution R-3 tower speakers
Asking $850.00 obo
http://cls.audiogon.com/cgi-bin/cls.pl?spkrfull&1154978341
Klipsch la scala
Asking $850.00
http://cls.audiogon.com/cgi-bin/cls.pl?spkrfull&1154807972
Quad 22l
Asking $1050.00 obo
http://cls.audiogon.com/cgi-bin/cls.pl?spkrfull&1154790000
Focal jm lab Cobalt 816S
Asking $999.00 obo
http://cls.audiogon.com/cgi-bin/cls.pl?spkrfull&1154635779
KEF 104/2 reference
Asking $800.00 obo
http://cls.audiogon.com/cgi-bin/cls.pl?spkrfull&1154566026
Acoustic research AR-9 original
Asking $600.00 obo
http://cls.audiogon.com/cgi-bin/cls.pl?spkrfull&1154561963
Vandersteen 2Ce Signature oak trim
Asking $875.00 obo
http://cls.audiogon.com/cgi-bin/cls.pl?spkrfull&1154527335
Paradigm Reference studio 80 v.1
Asking $650.00 obo
http://cls.audiogon.com/cgi-bin/cls.pl?spkrfull&1154344313
B&W DM604
Asking $875.00 obo
http://cls.audiogon.com/cgi-bin/cls.pl?spkrfull&1154295460
I need to emphasize here, these are *ONLY* examples. Not only is the above list bizarrely varied in terms of the general types and characters represented, speakers are by far the most subjective part of any system, and there is simply no substitute for getting out there and *listening*.
The room dimensions you quoted are not bad, actually; but there's far more to a "good" room than the basic dimensions. This is not the time or place to go into a treatise on room acoustics; but *do* put the time & effort into setting things up correctly (including some "creative decorating", if necessary), or your investment may well be largely wasted.
