If you are pedaling on your heels you are pedaling in a very incorrect and inefficient manner. The balls of your feet should be positioned over the pedal spindles. A couple of rules of thumb that provide a good starting point for height adjustment:
-At the furthest extension, there should be a slight bend in your knee
-with the cranks horizontal, the knee that is on the forward pedal should be over the pedal spindle.

These are just starting points, IMO, and from there you can tweak a little bit one way or the other. Fore/aft adjustment and tilt of the saddle are very much personal preference things. Everyone is different.

You mentioned in one of your responses that your bike is a mid 90's Huffy. I would suggest you don't invest a lot of money in it. I have thrown a couple hundred into my Trek 900, which came to me as a freebie, but I wouldn't put that work into a Huffy.

On the subject of Huffy's, here is the last Huffy I owned. This thing took me all over Germany in the early 80's.

Huffy by Yo Spiff, on Flickr