Credit Assess
Setting vague goals can lead to short-lived attempts at reaching them. You need to be more specific so you have a way to track how you’re doing throughout the year. Three common financial resolutions are “I want to pay off my debt,” “I want to save money” and “I want to improve my credit.”
These goals are ambiguous, but with some added specifics, are respectable resolutions to make. Here’s how to break them down into more manageable pieces:
I want to pay off my debt.
Narrow down how much debt you want to tackle.
If you have six cards, for example, you could isolate two and vow to wipe out both balances by 2017. Or, you could tally up your total debts, and decide to pay off a percentage by the end of the year. Another option is to aim to clear the debt with the highest interest, or the two lowest balances.
You can even give yourself an extra boost by consolidating your debts so you have one, manageable payment.
“Look into your [consolidation] options,” says Judith Cane, an Ottawa-based financial planner. “You could ask for a line of credit with a lower interest rate or if credit cards have special deals for a balance transfer.”
Whatever goal you set, you’ll need to make sure it fits in your budget.
If you only have a few hundred dollars leftover once all your bills are paid, you probably can’t afford to put all of it toward your debt. Pore over your budget, determine where you can make sacrifices to meet your goal, and only commit to what you can feasibly afford so you don’t get discouraged. If you consolidate, make sure the terms of your consolidation plan (be it a loan, balance transfer card or line of credit) meet your budget, too.
Once you’ve decided how you’ll attack your debts for the year, and that your payments fit into your budget, set up automated payments to help keep yourself on track.
I want to save money.
Whether you’re dreaming of a trip to Hawaii or building an emergency fund, you’ll need to decide how much you want to save and when you plan on crossing the finish line.
Once you have these two elements decided, divide the goal amount by the timeframe you’ve set for yourself. For instance, a $12,000 emergency fund by next January would mean you’re aiming to save $1,000 each month.
Again, double check that this goal fits within your budget’s constraints, then automate the savings so you don’t end up spending this money.
I want to improve my credit.
Many people know they want a better score, but don’t delve into the actions they need to take to get there. Find out why your score is suffering, and, more importantly, take the necessary actions to raise it.
Say, you’re hoping to replace your car in October, or you want to be mortgage shopping by the spring, but you have a history of missed payments and a maxed out card.
You need to outline concrete actions that’ll help you prop up your score within your designated timeframe, Cane says. Make regular payments on your card and automate payments so you don’t miss due dates. Commit to paying down debt aggressively to lower your credit utilization ratio (the amount you owe compared to the amount of credit available to you). Call your creditors and ask about removing unflattering information.
Check your credit reports for errors, and if you spot any, call about getting those removed, too.
“Make sure everything makes sense and smooth out all the kinks,” Cane says. In the past year, for example, a handful of her clients found information on their reports that should have been removed years ago.
You’ll need to be willing to make sacrifices and really commit to your goals if you want to see an improvement by next New Year’s Eve. It’s easy to know the steps, but the real change must come from within.
