The first day of spring has come and gone, officially marking the time of year to clean house – and not just your literal home. It’s also the perfect season to tidy up your finances.
The most useful spring cleaning is about more than neatening up your belongings. It’s also about simplifying things so your life can run more efficiently. This applies to your finances as well – from uncluttering your debt to simplifying your banking, from tidying your retirement savings to cleaning up your mortgage.
Just like you might have a “to do” list for your house spring cleaning tasks, here are 12 simple to dos to help you clean your financial house:
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CREDIT AND DEBT TO DO LIST
- Give yourself a credit check-up.
- Check your credit limits.
- If you have debt, make a plan to pay it off.
Give yourself a credit check-up.
To make sure your credit is in good shape should you need to open a new credit card, purchase or refinance a home, buy a car or find a job, give yourself a credit check-up at least every six months. By reviewing your credit report regularly, you’re more likely to catch errors that plague nearly 8 in 10 credit reports, many of which can take a toll on your credit score.
Luckily, it’s never been easier to access your credit. With sites like Quizzle.com, you can get your hands on your credit report and score for free, no strings attached, and even dispute any inaccuracies you may find – all online.
Check your credit limits.
The new Credit CARD Act went into effect in February, changing the way many credit card companies do business. While the new rules give consumers greater protections from unfair billing practices, many credit card companies are making adjustments in their favor. For example, some creditors are reducing the credit limits of riskier customers.
A lower credit limit can hurt your credit score because of “credit utilization,” or how much credit you use (balance) compared to how much credit is available to you (limit). Credit utilization makes up a large part of your credit score and when it rises above 50 percent, your credit score can take a big hit. That’s why it’s important to know the credit limit of each of your credit cards. If your credit utilization on any one card is above 50 percent, focus on paying down this debt as soon as possible.
If you have debt, make a plan to pay it off.
Embrace spring as the season of new beginnings by giving yourself a clean financial slate. There are two widely-talked about strategies to help you pay off your debt: focusing on the highest interest rate first and focusing on the lowest balance first.
The smartest financial strategy and the one that will save you the most money over the long-term is focusing on the debt with the highest interest rate first. However, the strategy that may help keep you motivated is focusing on the debt with the lowest balance first. Find out more about these strategies here. Regardless of what method you use, make sure to always pay at least the minimum monthly payments on all debt obligations.
BANKING TO DO LIST
- Reduce the clutter by signing up for paperless billing.
- Set up automatic bill-pay.
- Make sure you’re getting the most out of your savings.
Reduce the clutter by signing up for paperless billing.
Clean the house you live in and your financial house by signing up for paperless billing. If just 20 percent of American households switched from paper to electronic bills, statements and payments each year, we could save nearly 151 million pounds of paper and almost two million trees, according to PayItGreen.org.
In addition to reducing paper waste and helping save the Earth, paperless billing allows you to consolidate your financial documents, gives you easy and instant access to those documents online, and may potentially earn you additional incentives like points from your banks or credit card companies.
Set up automatic bill-pay.
Save yourself time by setting up automatic bill-pay with your bank. Many banks offer bill-pay as a free benefit and make it easy to enter bills, bill amounts and due dates online so you can put your bill-paying duties on auto-pilot.
Like anything, online bill-pay has its share of pros and cons. Some pros: you don’t have to worry about missing payments and due dates, you’ll save time and trees, and you may qualify for extra rewards from your banks and creditors. On the other hand, online bill-pay is so automatic that you may find yourself losing track of payments and mistakes can still happen.
Make sure you’re getting the most out of your savings.
Let’s face it: savings rates are just plain pathetic these days. But it’s still smart to compare the interest rate on your savings account with other offers; what may seem like a small difference in interest rate can actually add up to big money. Sites like Moolanomy make it easy to find out what banks offer the highest yield savings accounts. If you find an offer that puts your current rate to shame, make the switch!
RETIREMENT TO DO LIST
- Make it automatic.
- Determine if you can contribute more and do it.
- Rebalance your investments.
Make it automatic.
Set up automatic deposit from your paycheck into your retirement account. If the money isn’t readily available to you – like in your checking account – you may be less tempted to spend the cash you had slated for savings. Automatic deposits also make things easier by giving you one less task to do each time you get paid.
Determine if you can contribute more and do it.
If you have extra cash burning a hole in your pocket, consider socking away more for retirement. To determine whether you’re saving enough each month, figure out first the total amount you’ll need when you retire. You can start with retirement calculators online, or talk to your HR benefits rep, the company that manages your retirement account or a financial planner. Some of these resources may charge a fee, but the money spent up-front may be well worth the peace of mind and at retirement, having enough money on which to live
Rebalance your investments.
Is your money in the right place? Make sure to check in on your 401(k) or IRA every so often and rebalance your investments. Where your money should be depends on your age, goals and other life circumstances. If you’re not sure where to allocate funds, check in with the company that manages your retirement plan. Most have online tools to help you determine where you should put your money and if you’d like a little extra hand-holding, you can usually find that too (usually for a fee).
HOME LOAN TO DO LIST
- Find out if you can save money on your mortgage.
- Determine if a longer or shorter home loan term makes sense.
- Sign up for rate and payment alerts.
Find out if you can save money on your home loan.
While you may find savings reducing small expenses, it’s a good idea to also attack the largest of your expenses. For many Americans, that includes a home loan. Mortgage rates are still historically low and reducing your rate just a little bit could save you thousands of dollars over the life of the loan.
If you’re waiting around for a lower rate, don’t! Given the current rate environment and the nature of the markets, the odds of mortgage rates going down significantly are much smaller than the odds of rates moving up significantly. If you can save money on your home loan, make it happen… now.
Determine if a longer or shorter mortgage term makes sense.
Are you in the right mortgage? Determining if you’re in the right home loan is about more than just interest rate. The term of your mortgage – or the length of time you have to pay off your loan – should fit your personal financial situation as well.
A longer term – e.g. moving from a 15-year fixed-rate loan into a 30-year fixed-rate loan – may help you lower your payment. And if you secure a lower interest rate at the same time, you may be able to really free up some cash. On the other hand, a shorter term – e.g. moving from a 30-year loan into a 15-year loan – will help you pay off your home loan faster and save you money in interest. However, this option typically includes a higher monthly payment, so only make the move if you can afford to do so.
[Free Resource: Check your free credit report and score]
Sign up for rate and payment alerts.
The simplest way to clean up your finances is to make manual tasks automatic. You can do this with your home loan too, unless of course you enjoy monitoring daily mortgage rates! Sign up for free “rate and payment alerts” that allow you to set your threshold – e.g. notify me when rates drop below 5 percent on a 30-year fixed-rate home loan – so you know when you should consider refinancing.
For more ideas on how to improve your financial health, check out Quizzle.com, where you’ll learn how to achieve your credit potential and get home loan recommendations tailored to your unique situation.
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