12 smart savings tips for 2012

Tip 5Pay down high-interest credit card debt

For many households, the best return on their money is to pay down credit card debt. Whether carrying balances at 12 percent or 22 percent, credit card debt is typically the costliest debt households have.

Plowing excess cash into repayment of credit card debt is a double-digit, risk-free return because it reduces the outstanding balance and the resulting interest charges. Furthermore, this is a sound move now while credit card rates remain low. Consumers with strong credit profiles can find interest rates in the single-digits as well as zero percent, balance-transfer offers lasting 12 months or more. To shop for lower-rate card offers, visit the credit card channel at

When prioritizing your debt repayment, start with the highest-rate card first and focus on paying off the balances in descending order. Use's debt pay-down calculator to develop a customized, month-by-month plan for repaying your debt.

Tip 6Start or hike contributions to a retirement plan

The burden of supporting ourselves in retirement is increasingly on our shoulders. The first introduction to retirement savings often comes through a workplace retirement plan such as a 401(k).

Contributions not only reduce your taxable income now, but your investment goes to work immediately and grows without the headwind of taxes until you begin withdrawals in retirement. The regular contributions made with each paycheck represent the best example of dollar-cost averaging, or buying fewer shares when values are high but more shares when prices fall. Any employer contribution represents free money, so be sure to contribute at least enough to maximize any employer match.

If your employer offers a Roth 401(k), your contributions are made with after-tax dollars, but withdrawals in retirement will not be dinged by taxes, allowing you to keep your entire nest egg. For more information, see the retirement channel at

Tip 7Make an IRA contribution

If you or your spouse has earned income, then you are eligible to contribute to an individual retirement account, or IRA. In 2012, those younger than age 50 can contribute a maximum of $5,000, assuming your earned income is at least that much. Those 50 and older can contribute up to $6,000 thanks to the permissible catch-up contributions.

You can open an IRA with a bank, credit union, brokerage firm or mutual fund, and invest the contributions how you choose. An IRA can be a great way to supplement the asset allocation of your workplace retirement plan where you may be limited to an available menu of investments.

With an IRA, you can choose investments that aren't available in your workplace retirement plan, such as commodities, individual stocks or certificates of deposit, or CDs, giving you access to investment options that result in a more diversified portfolio.

A traditional IRA offers tax-deferred savings while a Roth IRA offers tax-free savings for retirement. But Roth IRA contributions are limited based on household income.

Tip 8Rebalance your investments

Bonds have had an up year, cash yields are still near zero, and there has been plenty of volatility in the stock market. Many international markets are taking it on the chin while the U.S. market has been treading water.

Given this variation in returns, your portfolio may look different than it did at the beginning of the year and may have strayed from your intended investment mix. So rebalancing your investments back in line with your goals and risk tolerance is a prudent step.

Rebalancing also enforces the discipline of buying low and selling high, as you'll be shifting some money out of the assets that have performed well and into those that have lagged on a relative basis. This also helps reduce the susceptibility of your portfolio to a sharp correction in the markets.

Rebalancing is a good habit to undertake each year, but it is particularly important in a year of volatile movements and disparate returns between asset classes.


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