Credit News

With post-holiday debt on the rise, many consumers have made “managing their finances better” as their top priority for the new year, according to Informa Research Services. A recent poll conducted by Money Magazine and ICR support these findings, with 32% of Americans planning to “save more” and 25% looking to “pay down their debt” during 2007.

New banking regulations, which allow for an increase in minimum monthly payments, have made “getting out of debt” this year’s number one resolution – exceeding “losing weight” and “exercise.” With national credit card interest rates averaging 13.75%, consumers have lost momentum in paying their credit card balance in full, opting instead to pay the minimum amount.

Here’s a simple 5-step plan you can implement immediately to improve your financial situation going into the new year:

Control your urge to spend –
Let’s face it, debt is an American way of life. As a matter of convenience, we’ve grown accustomed to charging everything with money we don’t have and paying for it later. Everyone encourages it – from retailers and banks, to credit card companies and automotive dealers – we’ve all been conditioned to spend, spend, spend. Control your urge to spend by admitting you have a problem. A good place to begin is by placing all discretionary spending on hold while you assess where your money is going.

Take stock of your spending habits – In addition to your expenses, take a look at your monthly payments and how much you could be saving in finance charges by paying off the entire amount. Although you may think you’re paying a low APR, your actual compounded finance charges can exceed 25% or higher. Make it a goal to pay-off your highest yielding interest credit cards first, before you pay down any others.

Restrict your credit card use to one card –
Comparison shop for a credit card which gives you a low- or zero-interest APR for the duration of the loan. Most cards will waive the annual fee but may charge a small transfer fee from $15 or 3% of the loan amount (up to $75), whichever is greater. Typically, you’ll have the option of selecting a 0% introductory rate for the first six to twelve months, or a low-cost APR (3.9%-9.9%) for the duration of the loan. Remember, your goal should be to calculate a reasonable amount you can commit to paying each month based on your overall debt until the balance is paid in full.

Use your debit card to pay for purchases –
Nearly 40% of all purchases this holiday season are expected to be made using a debit/check card, according to a study conducted by the National Retail Federation. Only 25% of consumers still use cash as a form of payment. Debit cards have become the modern day form of cash. They’re compact, reliable and universally accepted by everyone. Both retailers and consumers benefit from knowing the money will be there once charged.

Open a savings account with a high-rate of return –
Make it a habit to put something into your savings account each time you feel the urge to charge something. There are some high-yield e-savings or money market accounts which offer the flexibility of a low minimum opening balance or allow adding funds in small increments.

So this year, manage your finances before they manage you. Take the time to follow these 5 simple steps towards becoming debt free in 2007 and even more prosperous in 2008.