Many people tend to take on a lot of extra debt during the holidays. Oftentimes, we just can’t help ourselves when we’re out shopping and we see that amazing fondue set that would be perfect for Uncle Ray. Go ahead and charge it and we’ll worry about it later. Well … it’s later and now the credit card bill is due.
Not only do you have to pay for that great gift, but if you’re like most people, you also take a minute to reflect on your New Year’s resolution to be more financially responsible in 2014. You’re not alone …
Fidelity Investments recently conducted its fifth annual New Year Financial Resolutions Study and found that more than half (54 percent) of Americans resolved to save more money and improve their overall financial habits. Paying down debt can be daunting, but with proper planning it’s achievable.
Set up a budget
When creating a budget, a lot of people look to limit daily coffee runs or eating out to help save money. Another change that can result in significant savings isn’t one that may immediately come to mind … auto insurance. Mercury Insurance recommends reviewing your policy at least once a year to make sure you’re getting all of the discounts for which you are eligible. You also may find you could save a few hundred dollars just by shopping around a little, because rates change all the time, which could mean quite a bit of extra cash in your pocket. You could pay off that fondue set, apply it to a loan or credit card debt, or just put it in the bank and save it for an emergency.
Pay down debt
Financial guru Dave Ramsey subscribes to the “snowball” theory of debt relief, which suggests that you start by paying the minimum payments on your debts, then working towards paying off your smallest debt up to the largest. Suze Orman, on the other hand, recommends paying off the credit card with the highest interest rate first, then working your way down to the lowest. Whether you decide to heed their advice or go with another method, like working with a financial advisor, the important thing is to stick to your payment plan. You can set up automatic payments from your bank so that money isn’t available to you. Also, when possible, hold off on using your credit cards and accruing more debt.
Sell unwanted gifts or belongings
Chances are you might have received a gift that will end up sitting in the back of your closet for the rest of eternity. Or you may have clothes you’ve set aside to wear but haven’t touched in more than a couple years. Get a jump on your spring cleaning and get rid of the items you can most likely live without. You can sell those items on eBay or hold a garage sale to earn some extra cash to apply towards your bills.
Protect your belongings
Once you’ve established your debt-relief plan, another important step is to keep track of what you own and make sure it’s covered in the event of an unforeseen loss so you won’t need to worry about replacement costs. Digital measurement and analytics company, comScore, reports that American consumers spent $43 billion in online purchases during the 2013 holiday season (from Black Friday through December 22). Topping the list of purchases were video gaming consoles and accessories. Mercury Insurance recommends reviewing your homeowners insurance policy annually, especially after the holidays when you might’ve received big ticket items as gifts. A great place to start is to create an online home inventory, which will make tracking and updating your belongings easy. Then, speak with your local insurance agent to ensure you have the right amount of coverage to protect your stuff.
Best wishes for getting the New Year off on the right financial foot.