As the busy holiday season comes to an end, people around the world use New Year’s Day as a launching pad to improve themselves. Consistently among the top resolutions is bettering one’s financial position.
However, while you have the best intentions, many find financial resolutions more challenging to keep. Last year’s spending and financial decisions don’t simply disappear because it’s a new year. Instead, if you’re like most, you probably have a heaping credit card bill from the holidays staring back at you.
The trick with setting and keeping financial resolutions is preparation. The following guide will detail the framework you can follow to ensure you’re ready to start financially fresh in the new year.
Step #1: Assess Your Current Finances
Before you begin listing changes you want to make in the new year, you need to know where you currently stand. Review all your financial accounts and list your current balances. Then, identify all your outstanding loans and credit cards - including balances, interest rates, and payment due dates.
The more information you gather, the better because this information will come in handy later.
Step #2: Set Financial Resolutions
Identify the behaviors you want to change or improve in the coming year. Some examples might include:
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Saving more money each month.
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Paying off outstanding debt.
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Improving your credit score.
While these are good starting points, the more specific you can be, the better. Building on these examples, you might alter them to say:
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Putting $250 into my Savings Account each month.
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Paying an additional $175 toward outstanding loans monthly.
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Vowing never to miss a loan or credit card payment all year.
Step #3: Create a Budget
Building and maintaining a budget is tedious and time-consuming to many. But it’s also the best way to manage your money effectively.
Begin by identifying all your recurring monthly incomes. Then, minus your current monthly expenses. How much is leftover? Is it enough to satisfy your financial resolutions? If not, don’t worry. The following steps will help free up additional funds.
TIP: People often underestimate how much they spend each month. To get a more realistic figure, review several months of past checking and credit card statements.
Step #4: Consolidate Debt
If the holidays left you with a hefty credit card bill, a debt consolidation loan might be your saving grace. While “debt consolidation” might sound complicated, the process is very simple and can save you a significant amount of money. Here’s a quick example:
Imagine you have three credit cards overflowing from holiday fun.
Outstanding Balance Interest Rate
Credit Card #1 $1,500.00 17.99% APR
Credit Card #2 $3,000.00 21.99% APR
Credit Card #3 $1,750.00 14.99% APR
Your total outstanding balance is $6,250, with interest rates ranging from 14.99% APR to 21.99% APR.
A debt consolidation loan transfers your outstanding balance into a lower-rate personal loan. For example, your loan could be a $6,250 personal loan at 9.00% APR for 24 months. This benefits you in three ways:
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You’ll pay significantly less interest.
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You’ll only manage one loan payment vs. three monthly credit card payments.
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You’ll have set monthly payments that help you pay off debt quicker vs. making minimum payments on credit cards.
Step #5: Refinance Your Current Loans
Building off debt consolidation, refinancing your existing loans could also save money. If your credit score has improved since you initially financed your loans or interest rates have decreased, you could benefit from refinancing.
Ideal loans to refinance are car loans, mortgages, home equity loans, and privately held student loans.
TIP: When you’re at the credit union inquiring about debt consolidation, ask about refinancing your outstanding loans. You could knock out both at the same time.
Step #6: Revisit Your Budget
If you were able to consolidate debt or refinance loans, take a moment to update your budget. Plug in the new numbers pertaining to monthly loan payments in your expenses. Were you able to free up more funds to put toward your resolutions?
If your budget still isn’t quite where you want it to be, take a hard look at your monthly expenses. Find ways to trim extra costs. You might even come up with new resolutions to reduce expenses, such as only dining out twice a month.
Step #7: Automate Your Savings
While you might have the best intentions to save more money in the new year, life happens. Unexpected expenses always pop up. Whether it’s something significant like car repairs or just going out with friends, savings have a way of being spent.
The best way to ensure you’re saving more is to automate the process. With Payroll Deduction or Automatic Transfers, you can put your savings plan on autopilot.
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Payroll Deduction: Allows you to designate a specific amount from each paycheck to deposit into your savings account automatically.
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Automatic Transfers: You choose a date each month for a specific amount of money to automatically transfer from your checking account into your savings account.
Most financial institutions do not charge for these services, and they usually only take a few minutes to set up.
We’re Here to Help!
Starting fresh in the new year is a wonderful feeling. With a bit of preparation, you can create a game plan that will jumpstart your motivation and help reduce any fiscal stress you’re feeling.
If you’re interested in consolidating debt or refinancing loans, our loan officers are happy to help. Please stop by the Credit Union or call 410-687-5240 to schedule your appointment.