Here are some hints and tips for the Thrifty Lifestyle we all enjoy. Yes, I use thwe word enjoy as I:
1) enjoy not having to work four jobs to pay huge debts.
2)Enjoy spending time homeschooling our son
3)enjoy working on projects at our home
4)enjoy the creative problem solving of a frugal lifetyle

Because we are creative in this way we have much more with less than many people with the same income. They just can't figure out how we do it --in spite of the fact we've explained it many times. They honestly don't understand the concept of truly controlling ones expenses. They think -- as one person said to me..."Bills Just happen." As if a bill comes out of thin air. I can remember standing there as we looked at each other both mystified by the other's view point.

Bills don't just happen... You contract for a service electric, a mortgage or rent, etc. and you pay it. You need to figure out a budget that works around these realities and plan accordingly. And surplus you save or pay down debts early.

So on to the questions.

Question: Should you pay off debt or save surplus income?

Answer: I've researched this quite a bit. You need to do both. Yes, on paper you should pay off debt early to eliminate the interest you are paying on any loan, BUT -- in reality you need to have a savings for emergencies. So what I'd recommend is saving the initial surplus in a "no fee" saving account preferably which pays interest. These are hard to find, but look for them at places like BANKRATE.com. Then when you have some emergency money saved, you can split your surplus to pay down debts. Pay off credit cards first, so you have an emergency reserve there too in case of a lay-off, illness, or whatever. Finally, work on paying off long term debt like a mortgage.

Here you can compare how two different couples spent their similar surplus over six months.

Couple A Couple B
Month 1 Save $100 Spent $100 on a new chair for the living room.
Got chair for a few dollars
at a yard sale

Month 2 Saved $100 Rent to Own Contract to get the matching Couch
Got couch free when helping
friend move

Month 3 Saved $100 Payed $100 on the couch

Month 4 Saved $100 Payed $100 on the couch

Month 5 Saved $50 Payed $100 on the couch
Payed $50 extra on credit card

Month 6 Saved $50 Payed $100 on the couch
payed $50 extra on credit card

As you can see Couple A now has $500 dollars in savings and has paid down a small credit card debt. Couple B is more deeply in dept, overpaying for a couch and still has no savings. The constantly complain to everyone that they can't figure out how their neighbors Couple A seem to have more stuff and more money. To them money is a mystery.

If you follow this process you have emergency money, back up credit, and finally freedom from debt. It will take a while, but in the end you'll be far ahead of people who just go from pay check to pay check with no vision of what they want, and no plan to get there.
For more ideas Check out these Frugal Living Books!
Complete Tightwad Gazzette
The Complete Tightwad Gazzette

Declare Your Finanacial Independence
Declare Your Financial Independence

Complete Cheapskate
Mary Hunt's Complete Cheapskate

Miserly Moms
Miserly Moms

You Can Afford to Stay Home With your Kids
You can Afford to stay Home WIth your Kids