NerdWallet Celebrates the New Year: 5 Financial Resolutions for Everyone
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Happy New Year from your favorite credit card nerds! In addition to donning dorky hats and guzzling champagne, we’re ringing the year with a list of our top financial resolutions. Over the course of 2012, you may be inclined to cheat on your diet or recommence old habits, but here are a few easy changes anyone can make.
1. Get out (and stay out) of credit card debt
Getting out of debt can be like climbing out of quicksand. But with the right tools and the right mindset, it might not be as tough as you think. If you’re paying your way through a hefty sum, it may be beneficial to transfer your balance to a low-APR credit card. For example, the Chase Slate has a 3% balance transfer fee and two possible introductory APR offers. Folks with good credit will receive a 0% purchase and transfer APR for 15 months, while average credit will be eligible for a 6-month promo. By moving your balance to Slate, you’ll gain a substantial chunk of time to work through debt without racking up more interest.
We wouldn’t call Slate the best low-APR card on the market (that title goes to the Citi Diamond Preferred with its 18-month 0% promo period), but it comes with a unique debt-fighting feature called Blueprint. Blueprint is an interactive online program linked to a handful of Chase credit cards. It allows you to set and maintain budgets and create plans for paying off balances and large purchases. If finance isn’t your thing, Blueprint simplifies your money and automates user-friendly graphic displays of your spending. It doesn’t tie up your money or lock you into any sort of contract. Blueprint exists simply to help you get organized and map your finances. Additionally, its “Full Pay” feature allows you to select categories (groceries, gas, etc) that you’d like to pay in full each month. Even if you carry a balance, you won’t be charged additional interest on your chosen categories.
2. Start a Retirement Fund
Most people carry a vague anxiety about retirement, but it’s always too far in the future to get worked up about. You’ve probably heard it time and time again, but the time to save is now. A small investment early in the game will buy you peace of mind as you near the end. Regardless of you age and regardless of whether you have 401(k), we recommend starting an IRA.
IRA stands for Individual Retirement Account and is an easy way to start saving for retirement. The money you put in is tax-free now, and you see taxes on it only when you withdraw. If you think you’ll be earning a lot more in the future, you’re better off with a Roth IRA. Your contributions are taxed now, so when you eventually cash out, that mountain of money is tax-free and entirely yours. Opening an IRA is fairly easy, and the requirements are pretty basic. As long as you have a job and can afford the minimum initial investment, you can get started. Credit card debt will make earning interest a lot more difficult. Pay it off before you try to open an IRA.
And don’t dump every last penny into your account. Circumstances may arise that require you to spend a little unexpected money. Keep a cushion of cash for emergencies.
To set up an IRA, you’ll want to go through a brokerage firm or mutual fund company. There are a lot of quality options out there, and you’ll probably want to choose something low-cost. OptionsHouse, Vanguard, and Fidelity are all good examples. Do a little research, and it won’t take long to find a suitable firm.
3. Join a credit union
For those of you with a social conscience or a bone to pick with big banks, taking your business to a credit union is the first step in financial dissent. If you missed out on Bank Transfer Day, let the New Year be your time to make a change. This fall, a handful of banks were toying with the idea of imposing debit usage fees. The policy was met with overwhelming outrage. Eventually, banks caved under pressure and dropped their plans. But don’t think for a second they won’t try again. And when they do, you can bet they’ll be smarter and less apt to compromise.
Credit unions are not-for-profit organizations governed by their members. This allows them to offer free and high-yield checking accounts, low-interest loans and credit cards with generous terms. Moving your money to a credit union is a way to ensure your funds are in the hands of someone who cares. They tend to treat you more like a person and less like a number. But don’t just move your checking account. Take advantage of the great loans your union has to offer. Not only do their loans tend to be fair, but taking out a loan helps give back to the credit union.
4. Improve your credit score
A good credit score can only make life easier. Among other benefits, you’ll be able to qualify for better credit cards and better loans. Your FICO score is contingent on a number of categories, each of which affects your credit differently.
Payment history (35% of your FICO score): Building credit is about building trustworthiness. Lenders want to see you will pay back what you borrow. The only way to convince them is to demonstrate by making credit card and loan payments. This category holds the greatest sway over you FICO score, so you need to make certain you’re hitting your minimum. If need be, set up personalized reminders.
Amounts owed (30% of your FICO score): Simply enough, keep your debts low. Try not to get too close to your overall credit limit. Lenders don’t want to deal with customers steeped in debt. Pay off charges as quickly as possible.
Length of credit history (15% of your Fico score): Start building credit as early as possible. The longer your accounts are open, the more time you have to establish your trustworthiness. Avoid opening too many accounts at once. This lowers the average age of your accounts and appears risky. If they don’t cost you anything to maintain, keep old accounts open as long as possible.
New credit (10% of your FICO score): Opening a new account and using it responsibly helps lenders forget about your less-than-perfect past. Again, don’t open a bunch of credit cards at once. And if you’re searching for a good interest rate, make all inquiries in a short span of time. Fair Isaac counts all inquiries made in a 14- or 45-day period as one individual inquiry.
Types of credit used (10% of your FICO score): Diversify the types of credit you have. You want to avoid credit card debt, but installment loan debt can actually be beneficial if you’re keeping up with your payments.
What it all boils down to is smart spending. Try not to spend money you don’t actually have unless it’s on things like education or housing. Keep an eye on your finances and make payments, and you’ll be fine.
5. Travel more
As important as it is to save for the future, don’t forget to live a little. Traveling can be both fun and educational and is, perhaps, the best way to break the monotony of routine and predictable daily living. People often shirk away from travel as recreation, believing it unaffordable, a luxury of the wealthy. But the truth is, travel doesn’t have to break the bank. The Internet is full of cheap travel tricks you can use to minimize costs. And if you pick up a good travel credit card, you can earn free cash for flying and hotel stays. Here are two of our favorites!
Capital One Venture
The Capital One Venture is, hands down, NerdWallet’s favorite travel rewards card. It boasts a flat 2% rewards rate on all purchases. Your points can be redeemed for flights on any airline and nights at any hotel without restrictions or blackout dates. It’s simple, fair and hard to beat. Your points will never expire, and how you use them is entirely up to you. The Venture does charge a $59 annual fee (waived the first year), but it has no foreign transaction fee and your rewards easily offset the cost. Nothing will motivate you to see the world like free flights and hotel stays.
Chase Sapphire Preferred
The Chase Sapphire Preferred is another excellent card, flaunting a 50,000-point signup bonus worth up to $625 when redeemed for travel. If you want a free flight right off the bat, signing up for the Sapphire is your best bet. The rewards rate is 2% on travel and dining and 1% everywhere else. Additionally, when you book travel through Chase, your points are worth a full 25% more. The Sapphire comes with a $95 annual fee (waived the first year), but that’s nothing when you take into account the phenomenal signing bonus and potential for big rewards.