Liz Koh: Shake off holiday debt, start saving

Short-term priorities should be to pay off short-term debt

Short-term priorities should be to pay off short-term debt and build up a savings fund to cover unexpected expenses. A new year, a new start and new goals to achieve. How nice would it be if we could start the year with a clean slate -- no debts and a few dollars in the bank.

If your finances have got out of hand with all the craziness of the holidays, here is what you need to do to get back on track.

First, take stock of your financial situation. Work out what is left of your savings and how much debt you have accumulated on credit cards and store cards. List your short-term debts and add them up.

Short-term priorities should be to pay off short-term debt and build up a savings fund to cover unexpected expenses.

Stop adding to your debts and split any spare cash between paying off debt and adding to your savings. Having a savings fund will help keep you out of debt.

Pay off debt using these three methods.

First, list your debts according to the rate of interest that applies to the debt, starting with the highest. By paying off the costliest debt first you will pay less interest.

The second method is to list your debts by size, starting with the smallest.

The theory is that paying off some of your debts quickly gives a sense of achievement that encourages you to keep reducing your debts.

The third method is to consolidate your debts into a single loan spread over a time frame that makes the repayments more affordable.

Set targets for paying off debts and building up a savings fund that will allow you to enjoy the next holiday period without going into debt.