I'm a 49-year-old recently divorced woman, and my annual salary is $94,000. I have $5,000 in savings, an IRA of $6,000, credit card debt of $9,000, and a personal loan of $12,000. I have a two-year goal of paying off my credit card debt, then paying off my personal loan. I will also be putting $500 a month in savings. I contribute 10 percent of my salary to a 401(k). Am I putting my money where I should? Is it better to put more money into savings while taking longer to pay off my debt?

How's She Doing? Select one:
A. Great!
B. Okay but should focus on retirement rather than paying off the credit card and personal loan.
C. Has it backward; should pay off the debts before saving a penny for retirement.
D. On thin ice.
E. In serious trouble.

Suze's Grade: A

Surprised? I admit, I'm giving this woman an A in part because she's being honest with herself about her situation. She's willing to acknowledge the truth and set realistic goals—and that is how you build long-term financial independence. (Yes, you can get an A for effort!)

Of course, I would have loved to hear that she had no credit card debt and $600,000 in retirement savings; it's clear that she's made some missteps in the past, and they've cost her a lot—both in terms of the interest she's paid on her debt and the time she's lost to boost her retirement fund. But mistakes aren't half as important as what you do to correct them, and what I admire is that this reader has come up with a clear, step-by-step plan to get herself on track: Get out of debt, keep building up her emergency savings, save more aggressively for retirement. That's exactly what she needs to be doing right now. I also love that she's so determined to pay back her personal loan. That tells me she respects both money and the person who loaned her that money. Honoring the value of a dollar is a fundamental requirement for a secure financial future.

It's also great that this reader recognizes the need to pay off debt and save simultaneously. It's not an either-or proposition—these are both high priorities. I want her to keep setting aside the $500 in savings until her emergency fund contains enough money to cover eight months of her living expenses. She needs that security. Once that's in place, she should then direct the $500 toward paying off her debts even faster. When the debts are eliminated, the $500 should go toward building up her retirement savings even more. She's already gotten an A, which is terrific—but staying diligent about her finances long-term is what will help her keep earning those high marks.

Suze Orman's new book is The Money Class: Learn to Create Your New American Dream (Spiegel & Grau).

Next: Quiz: Are You on the Road to Financial Independence

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