The best time to change for the better is in the spring when life wakes up again to bloom. Spring clean your house, your apartment, your car, your financial life.
1. Make a decision
A financial spring cleaning isn’t difficult. Comparing financial aims to exercising regularly or giving up smoking, 42 percent in a Fidelity survey[1] said it was easier to get at and stick to a financial task. Of those who got a head of steam early last year, more than half (51 percent) now feel they are better off financially. By contrast, only 38 percent of those who did not start at all can say the same.
It isn’t difficult to keep the momentum going. Of those surveyed who set out to clean up their finances in 2014, 74 percent realized half of their goal. Almost 30 percent achieved their financial goal.
2. Check your credit
By law you get one free credit report every year from each of the three major consumer reporting agencies – Equifax, Experian, and TransUnion. Take the opportunity. Access your free report online at AnnualCreditReport.com. You can request all three reports at once or order them one at a time. If your goal is ongoing credit monitoring and improvement, stagger the reports to one every four months.
You are entitled to additional free copies of your credit report under certain other circumstances. For instance, if credit is denied, or when credit is offered to you at a higher interest rate than the lowest rate promised in the original offer. In either case, the creditor must give you the name and address of the credit reporting agency from which it obtained your credit report, and instructions for requesting a copy.
Carefully review your credit reports with a qualified credit expert to determine the factors that hold your score down and how to address them.
3. Clean up your credit report
In 2013, the FTC reported that forty million American consumers have errors on at least one credit report. Twenty million have errors that are significant enough to affect their ability to obtain credit at the terms to which they would otherwise qualify for.[2]
You are entitled to dispute any inaccurate information that appears on your credit report, and you should. Most consumer disputes are resolved successfully, but many are not. In case you don’t make any headway with your dispute, help is available. The Consumer Financial Protection Bureau will forward your complaint, give you a tracking number, and keep you updated on the status of the complaint.[3]
CreditRepair.com’s members receive personal, one-on-one assistance and guidance throughout the credit cleanup process.
4. Pay down debt
A tax refund is a perfect catalyst to begin the journey to a debt free life. Use the refund to pay off or pay down balances. Some consumers start with the smallest balance and find inspiration to continue as, one by one, the bills disappear. Others prefer a money-saving approach, focusing payoff efforts on the most expensive debt (the balance that carries that highest interest rate). Both approaches are good.
5. Make or review your budget
Review your monthly spending. Know what you pay for food, entertainment, household expenses, clothing, and debt. Identify opportunities to cut spending.
Be sure your budget includes a regular monthly or bi-weekly contribution to an emergency fund. Most of us have a hard time setting aside the recommended six months’ worth, and no one gets there by magic. Take it one step at a time. Ideally, save 10 percent of each paycheck. If that number isn’t realistic, set a smaller dollar amount and stick to it.
6. Automate your payments
Embrace the 21st century’s innovative bill paying options. Automate your payments. Never be late again or incur late penalties and the associated hit on your credit score. Also automate your contribution to savings, whether by division of your direct deposit or by an automatic transfer from one account to the other.
7. Review accounts and fees
You may have multiple open bank accounts, particularly if you moved recently. While that’s not a bad thing in itself, be sure you’re not paying unnecessary fees, particularly for accounts that are redundant (like personal checking accounts at two different banks). Bank fee schedules change periodically, so even if the account was free when you opened it, there may be a monthly maintenance fee now. Most banks waive the maintenance fee for customers who maintain a minimum balance, and hitting that minimum may be easier after consolidating multiple accounts.
Similarly, consider closing credit card accounts that impose an annual fee unless you’ve determined that the card provides value that exceeds the fee.
Also review the interest rate you pay on any outstanding credit card debt. You may qualify for a money-saving balance transfer offer. Be sure the new card fits into a carefully planned payoff strategy, and don’t apply for new cards if you are at risk of running up more debt.
8. Review retirement savings plan
Never walk away from free money. Employees with access to 401k matching funds should take advantage of that benefit to the maximum allowed. Increase your contribution every time you receive a pay increase.
Review your plan to confirm that the investments are the right mix for you. Call your plan administrator’s financial advisers if you don’t fully understand how to evaluate investment options yourself.
9. Review and update important documents
Assess your insurance needs. Take a few minutes to speak with your insurance provider about the appropriate level of protection. Home building costs go up, for example, so you may need to periodically increase the coverage on your house. But once your car is paid off, you can save money by dropping your coverage to liability-only. You can also increase the amount of your deductible to lower the premium. The goal is to have adequate coverage without overpaying.
Review beneficiaries every year. Check your employer-provided life insurance policy, your 401k account, bank accounts and any privately purchased insurance. If you die, the policy documents could supersede your will.[4]
If you don’t have a will, create one. If you do, review it and make updates as needed. Also consider making a Power of Attorney and Living Will and/or Medical Directive. Click here for a free estate-planning checklist and blank forms.
10. Students: review financial aid needs
For college students: you’re most of the way through the academic year. How are your finances and plans to survive the summer and return to school in the fall? Besides the last few assignments, what critical tasks remain unfinished? With the help of your school’s financial aid office, be sure you understand what forms and procedures are required, and when. Sign, seal and deliver internship applications. If you know what courses you’ll take in 2015-2016, shop for sales on the text books now.
11. Retirees: review required minimum distributions
Retired people who have reached the age when minimum withdrawals from their IRAs are required (or pay a hefty fine and penalty to the federal government) should estimate the amount, the withdrawal dates, and financial needs that may arise in 2015.
[1] https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/2015-new-year-resolutions-fact-sheet.pdf
[2] https://www.cbsnews.com/news/40-million-mistakes-is-your-credit-report-accurate-25-08-2013/
[3] https://help.consumerfinance.gov/app/creditreporting/ask
[4] http://www.forbes.com/sites/deborahljacobs/2013/06/03/supreme-court-favors-ex-wife-over-widow-in-battle-for-life-insurance-proceeds/
Questions about credit repair?
Chat with an expert: 1-800-255-0263
