Protecting Your Credit Score

• Though financial advisers commonly suggest saving at least 12.5 percent of your income before paying bills, doing so can lower your credit score. Thirty-five percent of your credit score depends on your payment history. The more often you pay creditors on time, the higher your credit score. If you're low on funds and opt to pay yourself first, you may not have enough left over to pay all your bills. Creditors may report late payments to credit reporting agencies, which can lower your credit score. Instead, pay your creditors first and your savings account second. Only credit accounts, such as loans and credit cards, appear on your credit report. For other bills, such as electricity and phone bills, paying late can mean loss of service, so avoid it when possible.
  
  

Eliminating Interest

• The interest on a loan can equal or surpass the cost of the item for which you took out the loan. For example, a mortgage loan for $125,000 at 5.16 percent interest--the average interest rate as of 2011--can cost you almost $121,000 over 30 years. Paying off such a loan can allow you to save tens of thousands of dollars that you would otherwise pay in interest. In this case, paying a bill is a means of saving.
  
  

Developing an Emergency Fund

• Paying debts can help you save thousands of dollars in time, but unexpected financial hardship can arise before you finish eliminating debt. If your car suddenly breaks down, for example, you must pay for repairs and alternative transportation to work. To cover such emergencies, financial experts such as Dave Ramsey suggest developing an emergency fund of at least three to six months worth of your living expenses. Save this money first, then focus your extra money toward paying off debt.
  
  

Long-Term Savings

• Investing can help you build wealth and save for retirement, but it can be counterproductive when you still have debt. This is because the money you pay in interest on debts can outweigh the interest you earn on investments. When you are debt free, you will have no interest payments to counteract the money you gain on investments. Saving for retirement is more beneficial the earlier you start, though, so use the Ballpark calculator at ChoosetoSave.org (see Resources) to determine how much you must save for retirement each year.