Here we are at the start of another year. How are your finances shaping up?
As with every year, this last month can sometimes be a tough one for your wallet. Somewhere between all the holiday celebrations and family gift exchanges, you end up with a lot less money in your billfold.
The start of a brand new year may be your chance to put this behind you, but it’s not always easy improving your finances. But just remember, there may be a way back to financial stability. To help you on your path, check in with our pointers below. Here you’ll find some of the most common, yet useful financial goals and tips on how to achieve them.
1. Paying off Holiday Debt
In your quest to get all your friends and family the best gifts possible, you might have felt like you needed to go into debt to keep up with your holiday shopping. And now you can just keep up with your minimum payments until it’s paid off. No harm, nor foul, right?
The truth is, relying on making only the minimum payment means you’re carrying over a balance, which is an expensive habit to have. Generally, every time you carry over a balance, you accrue more interest and/or other fees.
In other words, the longer it takes you to pay off your holiday debt, the more money you may end up paying — even if you don’t charge another purchase to the account.
Paying off holiday debt as fast you can is a fantastic goal for the year, but how you tackle your payments depends on your unique needs and capabilities.
That being said, there are generally two popular methods (with seasonally appropriate names) to pay off any kind of debt — not just the kind that comes with sleigh bells.
The Snowball Method
This first method ranks your debt in order of smallest to largest balance with your focus going to the debt with the smallest balance. Any extra cash in your budget goes towards paying this off first while making the minimum payments on everything else.
Once you pay off the smallest debt, you’ll roll the money you were putting towards that first account into the next smallest debt. These small but consistent victories can be a great way to keep up the momentum until you’re making large payments against your biggest debt.
The Avalanche Method
For this next technique, you’ll look to the interest rates and rank them from highest to lowest. Again, you’ll make sure you have enough cash to cover the minimum payments of every debt. But this time, you’ll push any extra cash towards the debt that accrues the highest interest.
Once you pay off your first debt, you’ll use the cash that you were putting towards that debt to pay off the one with the next highest interest rate. And so on until you’re done paying off holiday debt.
While this second method may take longer to yield results, it does intend to wipe out debt in a way that saves you money. By first paying off loans that stand to earn the most interest, you may ultimately pay less in these fees.
2. Managing Your Credit History
Long after you un-deck the halls, pack away the decorations, and drag the tree out of the house, there may be one more gift left to unwrap. It arrives the next time you check your credit score - reporting if you have or haven’t done some damage to your credit history.
For better or for worse, your finances have an impact on your credit score and report at large. But the number as it is now may not stick around forever.
No matter what your credit score is, trying to impact your credit history is a great New Year’s resolution. This number can affect the chances of you qualifying for a personal loan or a line of credit in the future.
The higher a credit score is, the more likely a financial institution may offer you a loan or a line of credit at lower rates. As your score decreases, however, you may have to compromise on these rates if your request gets approved.
3. Building up Your Emergency Fund
Without a rainy-day fund, your finances are in a precarious position. How would you take on an unexpected emergency expense?
When you learn how it works, a line of credit may help you cover short-term emergency costs like medical expenses or household repairs. But long-term issues like a health scare or a job loss may pose a considerable challenge.
Creating a cash buffer of six months or more may help you weather these substantial financial emergencies with greater confidence.
But let’s be honest — you may feel anything but confident at the beginning of this goal. Building an emergency fund of six months of expenses or more may be daunting.
If you’re feeling overwhelmed by this admittedly monumental goal, try focusing on the smaller steps you’ll need to take in order to achieve it.
Check in with your budget to slash unnecessary expenses and free up the money you need for your rainy day. Then set up automatic payments for your essential recurring bills to stop you from accidentally spending this cash on other things.
Once your stockpile grows, think about switching to a high-yield savings account so you can earn more interest on your savings. Just remember you may need to access these funds at a moment’s notice, so don’t lock into any investments that may punish you for making withdrawals.
Follow a Budget
Whether you plan to protect your credit history or pay off debt, committing to any of these New Year’s resolutions will be easier with a budget.
This financial tool helps you see where your money goes each month, giving you a chance to spot any problematic spending habits that may prevent you from achieving your goals.
There are all sorts of budgeting methods out there, and some may work better for you than others. You’ll need to take the time to research different frameworks and methods to figure out which might be best suited to your situation. To help you get started, here are some CreditFresh budgeting guides for you to check out:
If you’re looking for more budgeting tips, check out this beginner’s guide to budgeting!
Disclaimer: The information contained herein is provided for free and is to be used for educational and informational purposes only. We are not a credit repair organization as defined under federal or state law and we do not provide "credit repair" services or advice or assistance regarding "rebuilding" or "improving" your credit. Articles provided in connection with this blog are general in nature, provided for informational purposes only, and are not a substitute for individualized professional advice. We make no representation that we will improve or attempt to improve your credit record, history, or rating through the use of the resources provided through FreshStart Blog or CreditFresh website.
