One of the personal finance questions I get asked the most is “How do I set priorities?” In fact, the first conversation I had with Celeste was about this very topic. To quote the Takeaway co-host: “I hear what you’re saying about an emergency fund, paying off credit card debt, and starting an IRA ... but what do I actually do first?” It’s no wonder people are confused: with so many things to do with money, it’s hard to know where to start!

My advice: follow the numbers. Think of this advice as your “Spark Notes” to the most classic personal finance question. Here are the steps:

1. Look at the interest rates on all your outstanding debt. Line up all your debts: credit cards, student loans, money you owe friends and family... and figure out which debt is costing you the most by comparing interest rates. Average credit card interest rate: 14 percent.
2. Pick up the phone. If you want any sort of break, call your lender, bank, or landlord to see if they’ll lower your rates. One phone call could save you hundreds of dollars! If that doesn’t work, look into balance transfers or consider other options.
3. Start paying off your highest rate debt first. Paying off a debt charging you 14 percent is the equivalent to making a 14 percent return on your money. If you owe $10,000 to a credit card with a 14 percent interest rate, you’ll pay out $1,400 in interest. (With me so far?) If you put that $10,000 in a savings account earning 2 percent, you’ll earn just $200. So your net lose is $1,200. (Of course, you could try to get a higher rate in some other investment but you could lose it as easily as you would gain.) If you use the $10,000 to pay off your $10,000 credit card debt, you’d break even. You’d earn no interest but you’d pay out no interest. It’s better to break even than to lose $1,200. That’s why it’s smart to pay off your credit card debt.
   One exception: in the last year or so credit card companies have been shutting down credit lines. So if you have just one or two credit cards and you’re close to your limit – and in deep financial trouble—savings is important. You may not be able to rely on that line of credit if push came to shove. The average American household has five credit cards; usually that much credit should be enough to cover you in a real emergency. So for those people, pay off high rate debts and then start to save.
4. If you have a 401(k) with matching, that’s the best deal in town. The one exception to rule #3: if you have a 401(k) with matching—meaning for every $1 you put in, your employer will put in 50 cents or $1, that’s like earning an immediate 50 percent or 100 percent return on your money. That’s better than 14 percent. And remember, a 401k offers a range of choices, so if you’re nervous about the stock market, you can invest in safer places.
5. If you don’t have a 401(k), put your money in a tax-favored retirement account, like a Roth IRA. Don’t think of these as retirement accounts. Think of these as super-smart savings account. They offer terrific tax advantages that allow your money to grow exponentially fast. More on these in future DIY Bail Out segments, so keep listening!  
6. Save 6 months in an emergency fund. These days it’s important to have money to fall back on in an emergency. You don’t want to shop around for interest rates when it comes to your emergency money. Put it in a bank savings account earning 1 percent or 2 percent. Have the money siphoned out of your checking account automatically on a monthly basis and put into your savings account so that it builds without you having to do the work.