4 Tips for Improving Your Finances in 2012


NEW YORK (MainStreet) -- Even if they don’t make formal New Year’s resolutions, most people start the year hoping to be at least a little better organized. So here, then, is a quick checklist for keeping the financial aspects of your vow.

Pay down debt. The key to ridding yourself of credit card debt that piled up during the holidays is to set a realistic schedule rather than vaguely resolving to use spare cash for debt reduction “whenever you can.” The latter approach usually fails because, well, there’s always a reason to start next month rather than this one.

Start with the debts that charge the highest interest rates, and don’t to put new charges on those cards until the old ones are paid off. The BankingMyWay Credit Card Minimum Payment Calculator can help you devise the best strategy.

In a perfect world, credit card charges would be paid off during the grace period, to avoid any interest charges, but as a practical matter, it’s generally not too costly to pay interest for two or three months if you can’t pay it all off at once. But it is terribly expensive to incur late-payment charges, which can hurt your credit rating.

Many people transfer debts to new cards with zero-interest introductory periods. While the arithmetic can look attractive, searching for and applying for too many new cards can damage your credit rating. You’ll look better by keeping just two or three cards for the long term and maintaining a history of on-time payments.

Another strategy is to pay off high-interest card debt with a low-rate home equity loan. This can be a real money saver for people with a mountain of debt, but it’s generally not a good idea for people with routine card balances. Fixed upfront costs like home appraisals make home equity debt expensive for people who are not borrowing a lot.

Also, a home equity loan can throw a wrench in the works if you run into financial trouble and want to sell the home or negotiate a deal with your mortgage lender. If a lost job or other setback leads you to stop payments, your home equity lender could take your home.

Increase savings. If you regularly put money aside for long-term needs like retirement, try to boost the sum by 3% or so to keep up with inflation. Actually, inflation ran about 3.4% in 2011, but if you stick with a 3% annual increase you should match inflation over the long run.

Of course, these figures assume you have a long-term savings and investing strategy that really will generate the retirement income you’ll need. Many people are not saving enough, and need to boost their rate by more than 3%.

Shop around. Many people give little thought to renewing accounts for expenses like car and homeowner’s insurance, cellphone and cable services, electricity, bank accounts and credit cards. Because prices change so fast, a consumer may save a substantial sum by shopping around every year or so.

Watch the mail. It’s more than three months before tax returns are due, but key documents will start arriving in the mail shortly. That includes statements of mortgage interest paid, and 1099 forms from your bankers, brokers and mutual fund accounts. So watch the mail and make sure the important stuff doesn’t go out with the junk.

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