It's interesting to note that historically, debt is synonymous with guilt and sin. And some respects, debt is considered as slavery. But there is good and bad debt. Borrowing to consume is considered bad debt. This is for food, cars, etc. and makes you a slave. Good debt is borrowing money now, to realize a future earning. For instance, if you start a super market, you must borrow capital to stock the shelves in order to provide for the community. This is good debt.
There is a debate between snowball vs high interest first method. If you need motivation to pay off bills, then choose snowball method. Otherwise, do high interest method.
0a. make an accurate balance sheet that lists ALL income, expenses, assets and liabilities. And know your cash flow (income - expenses) and your net worth (assets - liabilities). It's a MAJOR pain in the ass, but your financial success is magnified when you know exactly where you are. But if you cannot stomach this, you can skip this.
0b. Consider adjusting your W4 tax contributions to take home more pay. The idea here is that your income tax returns should be $0. And not a big lottery check.
0c. set up automatic payments wherever possible. Automatic payments makes debt go away like magic without all the emotional frustrations.
1. 6 month's expenses saved. If you have a consumption compulsion, put this is a completely different LIQUID, easily accessible account. You still need to pay bill regardless of your health, sobriety or stupidity.
2. Focus on credit cards. call up and say "I cannot continue to do business with you unless the interest is x% or lower." while having a better offer in your hands now. Nobody wants to loose a customer these days. Use business competition to your favor.
3. Pick snowball or high interest method, and pay off the credit cards
4. Refinance your mortgage. while the federal reserve is continuing their zero interest rate policy until 2014 (ZIRP), rates are at bottom. Refinance and work with loan officer.
5. setup automatic payments to mortgage that actually applies the payment to the principal every 2 weeks. The bank may charge for this, but you save nearly 30% of the payback period. It's worth it.
6. consider investments for retirement. Contribute more towards company matching 401k or IRA accounts and choose a solid mutual fund with true* diversification and not just one with 31 flavors of stocks. One that has a mix of cash, stocks, bonds and metals. PRPFX is a good example. Or you can build this portfolio yourself.
7. continue to pay off the debts until net worth = 0 (financially free).
8. continue to invest until asset income (passive/portfolio income) = expenses. (financially independent). Asset income is money comign in when you sit on your ass, which is different from labor income where you have to work.
9. At some point, when your net worth is a nice pile, seek out a good tax attorney (not to evade them).
10. If you reach $1,000,000, consider seeking an estate planner
11. If you reach an income of $200k, consider being an accredited investor
12. write your memoirs and check out.