Five financial New Year's resolutions

If you’re suffering a financial hangover from the holidays, use your year-end pain to spur you on to better habits. Here are five New Year’s resolutions that can help you improve your finances in the coming year or inspire you to come up with solutions of your own.

1. Consolidate your debt. Take all that credit card debt and any other high-interest loans you have and refinance it with a single loan at a lower rate. Use the money you save on interest to make extra payments toward the principal. You’ll pay off your debt faster and save even more on interest. A single loan also means making just one payment each month instead of several. You may want to investigate the possibility of using a low-cost home equity loan or cash-out refinance to consolidate your debt.

2. Throw away your excess credit cards. Once you’ve paid your cards off or consolidated the outstanding balances, consider cutting them up and closing all but one account, which you should use for emergencies only. Credit cards are one of the most expensive sources of consumer credit and can be dangerous unless you are disciplined enough to pay them off in full each month when the bills come in. You’re better off to budget and save for predictable expenses like holiday gifts and to use less expensive forms of credit to handle unanticipated expenses, like a leaky roof or burned-out refrigerator.

3. Create a budget. Sit down and make a list of all the bills you pay, from utilities to car loan installments, plus your cash expenditures on lunches, groceries, gas and so forth. Calculate the average monthly cost of each item on the list. Compare the total to your net monthly income (your gross income from all sources less tax and other payroll deductions). Your net monthly income should exceed your monthly expenses, or you must make spending cuts.

4. Cut spending on non-essentials. Even if your budgeting exercise produces a positive balance, look for places where you can reduce your spending. Think carefully about how much you are laying out for discretionary items such as eating out, entertainment, cigarettes and clothing each month. Make any cuts you can and record your new spending goals for each item. Once a month, check to see how your spending stacks up against your new goals.

5. Save more from each paycheck. Once you’ve cut your discretionary spending, arrange for the money you’ve freed up by cutting your expenses to go into your 401(k) or a separate savings account. Stick to your new budget and watch your savings grow. Invest the money or use it to make extra payments on your mortgage.

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