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As we begin to wave goodbye to another year behind us, and ring in the New Year, it is common to hope that the next year will be better than the last. One way people try to ensure this is by making New Year’s Resolutions.
With 2014 behind us, 2015 brings a fresh start to improving our credit and bettering our financial state overall.
Here are a few ways to resolve some past financial problems so you can raise your glass and give cheers to a brighter, healthier financial future. It’s time to wrap up the end of the year checklist and celebrate the start of another great year.
1. Monitor your credit
Maintaining a good credit score is so vital these days. Good credit means paying less interest, which ultimately leads to less money spent. The first step to improving your credit score is to know what it is and why you have the score you have.
Everyone is entitled to one free annual credit report from the three major credit bureaus. However, we think it’s important to have free access to it more than just once a year especially while you’re working to improve it. There are several services that provide free credit scores on a monthly basis like at Credit Concierge. Yearly access to your credit report makes it easier to see your progress while improving your score.
Once you know what’s harming your credit, you can actively make the necessary changes to rebuild or improve your score. It’s true that improving your credit takes time, but the sooner you know what to do, the sooner you can begin to raise your credit score.
For example, paying your bills on time is critical to maintaining a good score. Another major factor that most people often forget about or don’t know about is credit utilization. There is a delicate balance between your total available credit and the amount of that credit you use. Keeping the credit utilization ratio below 30% is ideal for maintaining a healthy credit score.
The last thing to remember about improving credit is that it must be used consistently to build a good credit history. There are credit cards designed for building credit, which will start you off with a low credit line that is easy to manage. After 6-12 months of responsible money management, you should see an increase in your credit score and receive a higher credit limit.
2. Pay down debt
Debt; we all know what it is. It’s that rain cloud of doom that follows us around for what could seem like a lifetime that is hard to break free from. Well, enough is enough. Make this the year to break the cycle of reoccurring debt.
First, get a full understanding of your financial state, aka, your debt to income. Creating a simple excel sheet will help with this. Write down all your debts, the amount you owe each month and how much interest you’re being charged. If you find that you’re in over your head, you may need to consider another source of income such as a second job or freelance work.
Interest rates can be a critical factor that keeps you from getting out of debt. If you think that sounds like your situation, you may want to consolidate your debts. This will make it easier to pay down all debts at once, make it easier to manage the number of payments you make each month, and save you money on interest in the long run.
Next take a look at the APRs you are paying on your credit cards. If you have a good credit score then you should be getting a good rate, or at least a reasonable one. Only sign up for low interest credit cards, or perform a balance transfer to switch from a high-interest credit card to a credit card that offers 0% APR for a number of months.
3. Save for the future
Another aspect to maintain good credit is by saving for future expenses. Whether that future is for retirement, or sending your child to college, it’s important to start sooner rather than later.
Retirement can be tricky to save for all on your own. A common question is how much you need or where to begin. We recommend looking into the company you work for to see if they have a retirement plan. You can also look up information online and read articles on retirement to get a good idea of where to start. If you’re still stuck, you can consult a financial advisor who can draw up a plan that will fit your needs and the lifestyle you want in the future.
College is another major milestone that takes lots of planning and saving. Setting up a college fund for your child when they’re young is ideal. Saving early can ease the financial burden of sending your child to college. Your options as a parent could include 529 savings plans, setting up mutual funds or savings accounts.
Also, encourage your child to go after scholarships. Scholarships and grants are great ways to fund an education without having to take out as many student loans, and the best part is that it’s money that does not have to be repaid.
4. Build an emergency fund
Having an emergency fund can save a lot of stress when life’s little mishaps happen. And believe me, they do happen. It may be unexpected medical bills, pesky car repairs, A/C units that only seem to fail in July, or something more serious like a death in the family. No matter what it is, life throws us a curve ball every once in a while and it always seems to be expensive. Creating an emergency fund specifically for times like these can save you a lot of stress and unnecessary suffering.
It’s also not a bad idea to keep a credit card on hand for emergency purpose only. Make sure that you get a credit card with no annual fees. You don’t want to have to pay to carry a card that you use only for emergency purposes, so keep this in mind when shopping around for your emergency credit card. Also be sure to look into the additional benefits and features that come with that card such as emergency roadside assistance or travel insurance.
5. Follow a budget
If you’re not already doing it, start building yourself a monthly budget. Following a budget can be helpful when trying to afford living expenses on a tight income, or to track spending so you aren’t throwing your money away on unnecessary expenses, or to help manage your monthly expenses so you can understand how to save more. Any way you look at it, budgets can be extremely helpful.
When you track your spending, your finances begin to make more sense on where your money is going. When you understand your spending, you can better regulate how to control your money.
Here are some helpful worksheets and tips that can start the process of living a financially healthier lifestyle on a budget.