Consolidated Credit helps you make money resolutions for 2020 that will really work.
It’s that time of year again! The New Year means new chances to set some financial goals for 2020. But how effective are New Year’s resolutions, really? The answer is not very. Studies show that 80% of people have dropped their resolutions by February. And they also say only 8% of people actually make their resolutions happen. So, how can you develop good New Years resolution ideas that you can actually keep this year? These three tips can help!
Tip No. 1: New Year’s resolutions need to be SMART
It starts by making sure your resolutions are SMART.
What are SMART goals?
SMART is an acronym that tells you how to make a goal that you can reach:
It’s how you make sure that a goal gives you a plan instead of just a dream. In this case, you set money resolutions for New Year’s that drive you to succeed.
“I want to pay off debt” is a good ambition, but it’s not a SMART goal. Instead, you need to formulate your ambition to be SMART.
“I will pay off my largest credit card balance of $______ by ________ 2020.”
You focus on one specific debt and set a time limit on when you want to pay it off. The amount and timeline that you choose depend on your budget and what you can afford. It’s a goal you can measure as you pay off part of the balance each month. This makes your resolution achievable, instead of just a nice ambition.
In the same way, instead of “I want to save more money,” a SMART goal would be, “I want to save $______ every month in 2020, so I can invest the money in a CD.”
You set an amount and give yourself an end goal for what you will use the savings to do. Certificates of Deposit offer better interest rates than your basic savings account, so your money grows faster. However, you also can’t touch the money for a period of time, so you need to plan ahead.
Tip No. 2: Don’t neglect your emergency fund
A 2019 survey from WalletHub revealed that an unexpected emergency was the top obstacle that could derail a financial resolution. To prevent this derailment, make sure you’re adding emergency savings to your budget and you’re not overspending.
Not spending extra money to achieve your financial resolutions may seem like a given, but a 2018 survey from Quicken found that 56% of people who make New Year’s resolutions spend money to get on track.
- Nearly 40% spend between $100 and $500
- 14% spend between $500 and $1,000
- And 12.5% shell out $1,000 to $5,000
And that’s not just for expensive exercise equipment and diet fads!
“Among those making financial resolutions, 51 percent said their resolution spending runs $500 or more.”
But if you’re spending money to pay off debt or save money, you’re just going into the hole before you ever get started – and you’re even less prepared for an emergency than you were before. Sticking to a budget and maintaining your emergency fund will help you avoid derailing your resolution when something unexpected happens.
“While there may be an adage that you have to spend money to make money, there’s not an adage that you have to spend money to make money resolutions happen,” says April Lewis-Parks, Financial Education Director for Consolidated Credit. “There are plenty of free steps you can take to get your money resolutions started. Couponing is free if you want to save money, so is starting a budget. And the only money you should be spending on your pay off debt resolution is the debt payments you make.”
Tip No. 3: Focus on the money first, the rest will follow naturally
If you’re one of those over-achievers who make more than one New Years resolution, Consolidated Credit’s President Gary Herman says you should start with your money resolutions first. This is particularly true if your other resolutions have to do with weight, diet, exercise or just getting healthier.
“I’ve been counseling Americans about debt for more than two decades, and I’ve seen how health and money are tightly woven together,” Herman says. “Stress is a constant drain on our health, and nothing is more stressful than debt.”
Studies show that financial stress causes a slew of health and wellness problems:
- Overeating and unhealthy eating
- Lack of energy for exercise
- Headaches, muscle pain, and hypertension
- Panic attacks
Herman says that finding solutions for debt problems and money challenges first can give you a jumpstart on getting healthier.
“Solutions for credit card debt like a debt management program can lower your total credit card payments by 30-50%,” Herman explains. “You also reduce your interest rates, so you stop throwing money away, stop late fees and even stop constant calls from debt collectors. How much better will you feel with all that stress gone? You’ll be more likely to eat right, cook more meals at home, and exercise. You’ll sleep better, too, which research shows boosts your metabolism. Solving your financial challenges gives you a head start on getting healthy.”
Have a New Year’s resolution to become debt free 2020? Here’s how to reach your goal…
Keep track of spending
The first key to stopping frivolous spending that leads to debt is to write everything down. Then start cutting back on things that are not needed, so you can stop charging and start saving.
Read all credit card statements
Make sure to read all the fine print in monthly statements. Pay close attention to see if creditors change your annual percentage rate (APR). Interest rates are currently on the rise. If your rates increase, call your creditor to see if there’s a way to lower them.
You also want to make sure that you recognize all the charges on your monthly statements. One trick that identity thieves use to fly under the radar is to make small charges you may not notice. If you’re trying to pay off debt, the last thing you need is to pay someone else’s charges!
Pay off high interest rate debts first
The most efficient way to resolve debt is by paying down the highest interest rate balances first. Once the high-interest debt is paid, tackle the next highest, and so on. Remember, to continue paying the minimum due on all other debts.
Be careful with borrowing
Borrowing against a home or a 401(k) to pay off debt may be convenient, but it is also dangerous. People may lose their home or fall short of investing goals at retirement.
Don’t be overly concerned with paying down mortgages
Mortgages tend to have lower interest rates compared to other debt. Focus on paying down other debt first. Many times, people are able to deduct the interest they pay on the first $1 million of a mortgage loan.
The New Year is a great time to look and see if coverage is on target with current needs. Compare insurance prices with the existing policy to competitors. If the automobile and homeowner’s insurance policies are through different companies, look into combining for a multi-line discount.
Get help if you’re feeling overwhelmed
At the end of each year, it’s easy to get caught up in the holidays and spend beyond your means. If this happened to you, treat this as a learning experience and resolve to do better this year. In the meantime, if you’re feeling overwhelmed by your debt, start looking for solutions that can provide debt relief.
How Consolidated’s credit counseling team can help you achieve your money resolutions
If you’re already a debt management program client…
Did you know you can make extra payments or larger payments on your debt management program? If you received extra cash for the holidays or money throughout the year, like a tax refund, use it to pay off your debt faster. Just talk to the customer service team to apply an extra payment or larger payment.
And if you have a goal to buy a home once you complete your debt management program, talk to one of our HUD-certified credit counselors. They can help make sure you’re ready for mortgage approval.
If you want to pay off credit card debt…
Total up your balances. If they’re over $10,000, then you may need some help to get out of debt. Even without interest charges included, it would take monthly payments of almost $850 to eliminate your balances this year. And high interest charges mean it will actually take much longer.
So, you need a better way to pay off your credit cards. The answer may be debt consolidation.
Karee Eliminates $16,000 in Debt
Debt consolidation cut the interest rates on Karee’s credit card debt down to less than 6%. Consolidation cut her monthly payments in half and allowed her to get out of debt in less than five years.
Debt Consolidation in Action – a case study from Texas
This month’s featured debt consolidation case is from El Paso, Texas. Karee had almost $16,000 in credit card debt when she came to Consolidated Credit.
The credit counseling team negotiated her interest rate down to 5.73%. And as a result, her monthly payments dropped by over 50%, from more than $600 a month to just over $300 a month. And instead of taking over 11 years to pay off her debt, it took less than 5 years.
Karee saved almost $6,500 in interest charges alone. And she had this to say about her experience: “Paying off my debt has been simple and stress-free from the beginning. Everyone has been very helpful and supportive. I never thought I’d ever be out of debt, but in less than a year I will achieve my goal!
If you want to save money…
Saving money usually relies on finding the money in your budget to save. Then you need to build a budget that ensures that you set that money aside consistently. Nonprofit credit counseling services like Consolidated Credit can provide a free debt and budget analysis. They can help you set a budget that builds savings in, so it can become automatic.
Often, part of the challenge may be that you’re carrying debt. A certified credit counselor can help you evaluate if a debt management program would be beneficial to achieve your goals. People who qualify generally reduce their total credit card payments by up to 30-50%. That frees up more money for saving, so you can achieve that money resolution.