Shaping Up Your Credit: A 12-Step Program
by Lisa Bertagnoli
All 12 months of a fresh new year means 12 opportunities to get your credit shaped up and your budgeting under control. Here, experts offer one seasonally relevant idea for each month of 2012 to do exactly that.
January: Request your free credit reports.
Why January for this exercise, a favorite among financial advisers? “You want to get financially fit,” says Denise Winston, owner of Money Start Here, a Bakersfield, Calif.-based financial advice firm. Federal law entitles consumers to a free copy of their credit report from each of the three bureaus (Equifax, Experian and TransUnion) each year. To get these reports, visit annualcreditreport.com, the website set up by the three credit bureaus. Pull all three; each contains different information, Winston says. Review them for accuracy and take steps to fix incorrect information. Letting mistakes slide can cost: Missing an error, and having to settle for a higher interest rate, cost Winston and her husband $15,000 in extra interest on their mortgage.
February: Give your credit cards a break.
For the next 29 days, use cash or a debit card for all purchases. “It’s a good strategy all our counselors talk about,” says Hank Keaton, president and chief executive officer at American Financial Solutions, a nonprofit debt counseling service in Bremerton, Wash. Keaton recommends stashing cash to pay for the month’s needs in four envelopes: groceries, auto, dining out and miscellaneous expenses. “When it’s gone, it’s gone,” he says. “It’s a simpler, visual way to stick to a budget.” If you have racked up card debt, consider getting a balance transfer credit card with a zero percent rate to help undo the damage.
March: Start planning your summer vacation.
It’s not too soon to begin vacation planning, particularly if you’re using frequent-flier miles or points to pay (desirable flights and rooms go fast, especially in this economy). Even if you’re not, last-minute airplane rides and hotel rooms are expensive. “The sooner you start planning, the better,” says Keaton from American Financial Solutions. One idea: Look at trip-planning sites for budget-minded bundles on hotel, airfare and car rental.
April: Think charitably, and strategically.
Contributions to legitimate nonprofits (501(c)3s) usually are 100 percent tax deductible, with no dollar limit on the amount you can contribute a year. Before you donate, check out the charity on www.charitynavigator.org or another charity-rating website. Then consider giving via a monthly donation charged to your credit card. The charity will benefit from your regular donation; you’ll benefit from the tax deduction and perhaps a token of appreciation from the charity, says Brian Wodar, director of wealth management research at Bernstein Global Wealth Management in Chicago. Don’t, however, “set it and forget it,” he says. Review the charity and amount of the contribution each year, as well as your nonprofit-giving goals, to make sure the two still line up.
May: Use your tax refund wisely
Households usually get some kind of refund this time of year. What to do with the “free” money? Pay off credit card bills with it, advises Shane Scott, counseling services manager at American Financial Solutions. The goal is a low debt-to-income ratio; ideally with a debt (both credit card debt and secured debt, such as auto loans and mortgages) percentage of no more than 36 percent. “The lower the better,” Scott says. And adjust your tax withholding using a W-4 form, so next year you minimize your refund. Why loan money to Uncle Sam?
June: Shed some mortgage debt.
If you aren’t underwater (that is, your mortgage is higher than the value of your home), consider paying off your mortgage faster. Making one additional payment per year consistently can trim years off a mortgage, thousands of dollars in interest, plus improve your debt-to-income ratio, says Joe Lucey, president of Secured Retirement Advisors LLC, a financial advising firm in St. Louis Park, Minn. If you can’t manage an entire extra payment, round up to the nearest $100 with each payment. Even with such a small step, “the ultimate savings can really add up,” Lucey says.
July: Take a vacation; keep your budget intact.
Along with your swimming trunks, pack a prepaid debit card loaded with the amount earmarked for food, souvenirs, tourist attractions and other vacation necessities, suggests Neil Ellington, executive vice president at Consumer Education Services Inc., a nonprofit credit-counseling firm in Raleigh, N.C. Try your bank for the card – most will offer the service free of charge, he says. You’ll also get a statement of your purchases. Use that statement to analyze vacation spending, and use that information to create a tighter budget for your next vacation, Ellington suggests.
August: Dial down cellphone spending.
When kids go back to school, texting and phoning escalates; is your cellphone plan up to it? If not, start comparison shopping, says Todd Ossenfort, chief operating officer at Pioneer Credit Counseling, a nonprofit debt counseling service in Rapid City, S.D. Ossenfort suggests fixed plans (ones that include a set amount of minutes and texts) rather than per-call/per-text plans, “so you don’t have that surprise at the end of the month,” he says. Friends and family plans sometimes offer free calls/texts from users in your network, he adds.
September: Inspect now, save later.
In many parts of the country, September weather is clement enough to get outside and find money-draining leaks and faults in roofs, shingles, windows and insulation. It’s also a good time to do an energy audit, says Karen Carlson, director of education at InCharge Debt Solutions, a debt counseling agency in Orlando, Fla. One example: Cleaning gutters to allow rainwater to drip off effectively can extend the life of a roof by five to six years, Carlson says. When chilly fall weather sets in, keep the thermostat down, and bundle up in sweaters and warm socks, she adds.
October: Check in on college kids’ spending.
College can play havoc with finances, especially for freshmen not used to budgeting for themselves. This month, have a midterm check-in with students on their spending, suggests Heidi Albert, co-founder of School2Life, a Chicago-based firm that helps teach kids about finances. Review spending for everything from books and school supplies to meals out and dorm-room decorations; look for too many impulse purchases, Albert says. Work with spendthrift students to create a reasonable budget, or hand them a debit card (or prepaid card) with the amount they’ll need to finish the semester.
November: Rein in holiday spending, starting now
Thanks to Thanksgiving and early-bird specials, the holiday spending spree starts this month. Take the fear factor out of bills by recording credit card charges in your checkbook, advises Mary Hunt, the Cypress-Calif.-based author of “7 Money Rules for Life: How to Take Control of your Financial Future." “I tell people ‘Wise up, you’ve already spent the money,’” Hunt says. Here’s how: Take your checkbook register with you when shopping. When you make a credit card purchase, record the amount and deduct it from the balance as if you were writing a check. (Hunt uses a red pen to make finding the credit card transactions easier). When you get your credit card bill, reconcile the bill with your check register, then write a check. “No more surprises,” Hunt says. “It sure keeps you aware of what you’re spending.”
December: ‘Tis the season to pay cash.
Start 2013 off on the right financial foot – without a huge credit card bill on the horizon. Denise Winston of Money Start Here suggests carrying cash, not credit cards, to the mall. It’s easier to resist temptation with that finite amount of cash in your wallet. Merchants are more willing to bargain, returns beget cash (not a credit card credit a month later) and thus help with cash flow, and cash makes budget-minding easier. “The bottom line – cash is king,” Winston says. “You can’t spend what you don’t have.”
Denise Winston, founder
Money Start Here, Bakersfield, Calif.
phones: 661-588-1594, cell 661-333-5247
Hank Keaton, president and CEO
Shane Scott, counseling services manager
American Financial Solutions, Bremerton, Wash.
emails: firstname.lastname@example.org, email@example.com
Brian Wodar, director, wealth management research
Bernstein Global Wealth Management, Chicago
PR person/contact: Michael Shmarak
His phone: 312-919-9222
His email: firstname.lastname@example.org
Joseph Lucey, president
Secured Retirement Advisors LLC
St. Louis Park, Minn.
PR contact: Kathryn Kelly
her phone: 508-643-8000
her email: email@example.com
Neil Ellington, executive vice president
Consumer Education Services Inc., Raleigh, N.C.
Todd Ossenfort, chief operating officer
Pioneer Credit Counseling, Rapid City, S.D.
Karen Carlson, director of education
InCharge Debt Solutions, Orlando
phone: 407-532 5745
Heidi Albert, co-founder
Mary Hunt, author, “7 Money Rules for Life”
phones: 714-947-1784; 714-251-4294