You need the $1000 emergency fund first, and if you need to use it, then the first thing to do is replenish it. You may need to adjust the plan to work best for you, but it is much more freeing when you don't have the debt hanging over you. We don't have much in retirement either and struggle with whether to save for college or what next. Most of our income goes to daily needs anyways. When we get a gift, we hold onto it and put it where it will best be used for the long haul.