If you have any sort of consumer debt you should have no savings and no new investments - any spare cash should be going toward paying off debt, not earning interest.

I'm still stunned at the number of people who stop me in the street asking what they should do with spare cash. My first response is always: "Do you have any debt?" The usual answer is: "Just a home loan and credit cards."

Everyone wants some fancy scheme or tip but the best investment is just paying off consumer debt. It will save you a fortune.

Think about it. Home loan interest rates are now about 9 per cent and credit card rates range from 11 to 20 per cent on outstanding balances, depending on the card.

Term deposit rates for a year on $100,000 are 6 to 8.25 per cent and online accounts are 5 to 8.25 per cent. The reality is you're paying 9 per cent in after-tax dollars on a home loan and earning a maximum of 8.25 per cent in a term deposit, which is then taxed at your marginal rate.

It just doesn't make sense to build savings when there is consumer debt elsewhere.

I could also make the same case for not investing in shares and property and putting that cash into debt reduction as well. Show me how many investment funds out there are returning 9 per cent after tax with no risk. Paying off a home loan does do that.

With sharemarkets re-testing their lows and the residential investment property market a little sluggish, there is a real case to put to your financial planner that debt reduction is a better deal than adding to your portfolio.

Be careful with the sharemarket: it is still very skittish. Many investors were sucked in to the last rally a few weeks ago as the indexes headed toward 6000 points, but now they're back testing 5300. I reckon for average investors, like most of us, it's still time to be sitting on the sidelines and observing.

I should mention a couple of provisos here.

First, you'll notice I've been specific about "consumer" debt. That is, paying off those debts where you use your hard-earned after-tax cash. Deductible investment debt can be a different situation, depending on your circumstances, and you should consult your financial planner if thinking of paying that type of debt off early. It may not stack up.

At this time of year, many people are also looking at making extra superannuation contributions. After checking with your planner it may still be best to go ahead with the extra contributions rather than divert the cash to repaying debt.

One of the main reasons for keeping a stash of easily accessible cash is in case of emergency. Now that most variable home loans allow extra repayments and redraw facilities, that emergency cash could be more useful sitting in the mortgage.

With the economy slowing, high interest rates, rising unemployment and the overseas credit crunch, it's prudent to be a little more conservative and reduce expenses to lower consumer debt.

First, get a grip on where the money is coming from and where it's going. Yes, that means a family budget. By listing all your expenses and where your income comes from you'll be amazed at how many surprises turn up. There will be some expenses where it will be easy to make adjustments.

For a month, take around a notebook and write down every day-to-day item you pay in cash to see where those hidden costs are.

Then do simple things like make your lunch and take it to work instead of buying it. Every bit counts. A lunch and a drink costs, say, $7 a day, $35 a week, $140 a month, $1680 a year. That's a lot of money saved which can go straight in to the home loan and credit card.

Everyone concentrates on cutting the big ticket costs but there can be more savings in monitoring the simple things.

Speaking of big ticket costs, make sure you're getting value for money from your bank, insurance company and phone plan. Look at using public transport and taxis instead of the huge expense of running a car.

Once you've cut costs, it's time to look at the income side of things.

Start a second part-time job or turn a hobby into an income generator. A friend of my daughter's buys olives and olive oil in bulk then repackages it into cute jars to sell at their local markets. It's amazing how much they've earned.

You might love knitting and could do a deal with a local baby shop to sell your stuff. Give it a lot of thought. An extra couple of hundred dollars a month from doing something you love could make all the difference.