You’re not alone if you recently blew a fair penny on holiday-related purchases and activities. The National Retail Federation forecasted that winter holiday sales will reach up to $960 billion in 2022, an increase of 8% from 2021. (NRF).
You probably have aspirations of paying off credit cards and increasing your savings if you’re starting the new year with more debt and less money saved. In 2023, as Americans seek to better their finances and inflation is expected to reach levels not seen in decades, these are typical financial resolutions.
Fortunately, taking a few easy changes can help you improve your financial situation and quality of sleep.
1. Create a budget and savings strategy.
Knowing how much money comes in and goes out each month is essential for effective money management. List your monthly income and expenses on a spreadsheet, with a pen and paper, or using a budgeting app. Find strategies to save money, such as cutting back on eating out, canceling subscriptions you don’t use, or looking for more reasonable auto insurance. Money that can be saved or put toward paying off debt can be transferred from expenditure categories into those.
A budgeting tool might make it easier to keep track of your income and expenses. User-friendly tools are available in apps like You Need a Budget, Mint, and Goodbudget for tracking expenses and boosting savings.
2. Look for the best-paying savings account.
A savings account is a fantastic option for an emergency fund since it offers quick access to money when you need it. However, since interest rates can differ significantly between institutions, not all savings accounts are created equal. While many large banks offer annual percentage yields (APYs) that are drastically below the national average, certain internet banks and credit unions offer yields that are far higher.
According to Greg McBride, CFA, chief financial analyst at Bankrate, “looking about and putting your money in a high-yield savings account can put hundreds of dollars in additional interest returns in your pocket.” The only free lunch in finance is an increase in return without compromising quick access to funds or federal deposit insurance protection.
3. Group your savings by objectives.
You can save money by allocating a percentage of your funds to various purposes with the assistance of some banks and credit unions. You might utilize this technique to create a special Christmas shopping fund to prevent going into debt during the upcoming holiday season.
4. Make a plan for repaying your credit card.
You might have accrued balances on several credit cards as a result of holiday shopping or other outlays. The avalanche approach, which entails paying off the credit card with the highest interest rate first and continuing with the strategy until all your obligations are paid off, is one of the different methods for paying off such debt. This technique has the advantage that you pay off your obligations with the highest interest rates last.
The snowball method, which entails paying down your credit card debt in ascending order of size, is another tactic. In order to save money, Keith Heritage, investment adviser representative and proprietor of Heritage Financial Services in Newberry, Florida, advises starting with the smallest card first, regardless of the interest rate. This gives you a boost and facilitates the procedure.
5. Transfer your credit card balance.
According to Heritage, consumers can reduce their credit card debt by transferring their balance to a card with a low or no interest rate. You can pay off a balance without accruing more interest by transferring it to a card with a zero-percent introductory term.
Anybody who needs additional time to pay off high-interest debt can benefit from such balance transfers. With extended initial low-interest or interest-free periods, top-rated debt transfer credit cards are frequently available to those with good or excellent credit ratings.
6. Reduce your credit card usage
Reconsider how you use your credit cards, whether you’re trying to avoid debt or are paying off a credit card bill. By not charging more than you can pay off in full when the bill is sent, you can avoid getting charged with excessive interest charges. Canceling monthly charges for subscriptions, clubs, or other services you don’t use is one approach to lower your credit card cost.
If you lower your monthly credit card expenses, you’ll have more money in your budget to utilize toward a speedier balance reduction.
7. Use windfalls effectively
When you have a financial windfall like a tax return, work bonus, or inheritance, it can be tempting to go on vacation or go shopping. Instead, think about allocating some or all of the funds to savings or debt reduction.
Set aside money from a financial windfall for the winter’s worth of holiday-related expenses. When you’re ready to start spending money on things like gifts, parties, or trips during the holidays, this can help you avoid accruing credit card debt. When the large credit card bills don’t come the following January, you’ll be grateful you didn’t.
To sum up
Around the holidays, many people find it simple to accumulate debt. However, putting these sensible solutions to work can help you reduce your credit card debt and increase your savings. Members of Alliant Credit Union are able to open additional savings accounts, each of which can be used to finance a different objective.
According to Chris Moore, head of deposit and payments product strategy at Alliant, “one supplemental savings account could be for a vacation, while others can be for things like holiday shopping or a down payment on a new car or new house.” According to Moore, a member can create up to 19 of these accounts and set up periodic transfers from other accounts.