By Andrew Housser
It is a time-honored tradition to make a fresh start at the New Year. For many people, holiday bills are rolling in, providing new motivation to get out of debt and wipe the slate clean. If you are among them, take a look at this checklist. If you work your way through these steps, you will end 2011 in better shape than you are in today.
1) Set some goals
Before you can achieve anything, you must decide to do it. Getting out of debt, building a savings nest egg or gaining good credit does not happen by accident. Set a target today for what you want to achieve with your money in 2011. Do you want to save a down payment for a house (how much?), begin saving 10 percent for retirement, or get out of credit card debt? Write it down. Then begin planning to meet the goal.
2) Make a plan
Create a monthly budget or spending plan so that you can live within your means and begin moving toward your goals. Start by making two lists – one of your ongoing, “fixed” monthly expenses such as rent or mortgage payments, and one of your income. With what’s left, you can pay for variable and optional expenses. This “variable” category must include necessities like groceries and saving, as well as money for entertainment and shopping. Prioritize the items that are important to you. Then keep track of your spending every day, week and month throughout the year. Some people find it helpful to post their spending plan and goals in a visible place (like the refrigerator door) to keep them top of mind.
3) Give up credit
The best way to reach your goals is to live within your means. One of the keys to gaining a solid financial situation is to eliminate debt – especially credit card debt. And the first step in eliminating that debt is to stop adding to it. The money that is building up creditors’ bank accounts could be going into your own savings account. Cut up your credit cards, freeze them in a bowl of water, give them to your mother for safekeeping, or do whatever it takes to stop using them. Instead, look to your budget and use cash, checks or debit cards for necessary spending.
4) Know your credit score
Check your credit report routinely. You should review it at least once a year, and can request a free “tri-merge” report from all three credit bureaus by going to www.annualcreditreport.com. If you find errors or misrepresentations in your credit report, send a letter directly to each agency requesting the item be corrected or removed (follow directions on the agencies’ websites). If you see fraudulent action, put a fraud alert on your account with each agency, and immediately write your creditors to inform them that you did not conduct the transaction in question.
5) Always pay on time
On-time payments are the most important element of good credit. Create a system that keeps you timely. Keep bills in one location that you check weekly, set up online payments or write due dates on your calendar to stay on track. In doing so, you also will avoid late fees and other penalties that drive up debt.
6) Save, save, save
An emergency fund provides peace of mind and the wherewithal to avoid running up credit card bills when an unexpected life event throws you off track. Commit to yourself that ultimately, you will save 10 to 25 percent of your income. Even if you can manage to save only a few dollars a week, get in the habit and start. Then add to your savings whenever you can. To help force the discipline of saving for your emergency fund in a pain-free way, contact your employer’s payroll department to set up an automated plan to put a portion of your paycheck straight into a savings account each pay period.
7) Do more than the minimum
Pay more than the minimum payment on every bill. Even just adding $10 to your payment – or rounding payments up to the next $10 or $100 increment – will knock out debt much faster, and save bundles on interest charges over time. Take on extra work, sell possessions you do not need, and apply unexpected money like a raise, bonus or gift to paying off credit-card bills.
8) Participate in a retirement plan
Especially if your employer matches contributions, contribute to a business retirement plan. If you are on your own for retirement savings, invest in an Individual IRA, Roth IRA, and/or plan for self-employed persons.
9) Get the help you need
If you evaluate your situation and feel that your chances of getting out of debt are hopeless, take action to get help. Many options exist, such as borrowing money, asking lenders to work out a payment plan, or if necessary, seeking debt settlement help or filing bankruptcy.
Even if you have tried to make a fresh start in years gone by, trying again with these steps is worthwhile. Over time, you will build new habits and create a brighter financial future for yourself – in 2011 and beyond.