Implications

• If you're carrying a large amount of debt, which may include items such as a mortgage, car loans, credit card payments and possibly student loans, much of your income probably goes toward keeping up with the monthly repayment schedules. This limits your opportunity to start a savings program for major life events like retirement or your kids' education. If a financial emergency arises, you may need to cover it with a credit card instead of using cash, which puts you even deeper in debt.
  
  

Eliminating Debt

• If you've decided the time has come to improve your financial situation, your first instinct may be to attack your debt by paying as much as possible toward your obligations each month to reduce them as quickly as possible. Once your debt balances reach a manageable level, or are even paid in full with the possible exception of your mortgage, the next step is to begin a savings plan, using all the available money you've gained through debt elimination.
  
  

Drawbacks

• Postponing saving to attack your debt may not always be a wise strategy, as you won't have the cash to cover emergencies and you'll lose the benefits of compound interest gained by starting a savings program sooner rather than later. According to the Motley Fool website, your first priority should be to create an emergency fund while servicing your debt as best you can. You'll not only build cash, you'll also enjoy the psychological benefits that come with saving money.
  
  

Strategy

• To save money before you can spend it, start an automatic savings program such as directing your employer to deposit 10 percent of each paycheck into a credit union savings account. Once you have saved an amount equal to three to six months of your income to cover emergencies, begin automatic contributions to a 401k plan or IRA. In the meantime, service your debt by using techniques such as the "snowball" method, where you pay as much as possible toward the smallest debt while paying the minimum due on the rest. When the first debt is retired, apply the money to the second-smallest debt, and so on.