Saving and paying off debt are both important aspects of a healthy financial plan. But which do you do first? Here is a good rule of thumb. If you don’t have any savings at all, start with saving $1000 to cover unexpected expenses that life inevitably throws at you. The last thing you want to do is go further into debt to cover these expenses.
Make sure you continue to pay the minimums on all your other debts to stay current, but focus the rest of your financial energy on the $1000 savings first. Once you are paying off your debt, focus on the lowest balance first and then move to the next highest. If the balances are comparable, focus on the highest interest rate first. This will ensure you pay less interest and get out of debt faster.
Once you get this debt knocked out, keep putting as much as you can into your emergency savings fund, because ultimately you want to aim for 3-6 months of living expenses to protect you from major financial emergencies that may come your way.