How to clean up your finances for the new year

With the new year finally here, it’s the perfect opportunity to get your credit and money affairs in order.

If you’re like many Americans, it fits with your goals, too. Some 86 percent say they have at least one financial goal going into the new year, according to a 2023 Bankrate survey. Out of those people, 22 percent have the goal of paying down debt, 16 percent have the goal of getting a higher-paying job or another source of income, 15 percent have the goal of saving more for emergencies and 13 percent have the goal of budgeting spending better. The remaining respondents all cited other goals.

Whether you’ve got a financial goal in mind or you’re still trying to figure it out, this new year’s cleaning guide can help you get started. If you’re ready to sweep away your financial problems and set yourself up for success, follow these six simple steps.

1. Check your credit report

The Consumer Finance Protection Bureau recommends that you check your credit report at least once a year. Of all the chores, this is among the easiest to scratch off:

• Go to AnnualCreditReport.com. This website was set up by the three major U.S. credit reporting agencies — Equifax, Experian and TransUnion.
• Select the option to order a report. You can get one from each of the credit reporting agencies. This way, you’ll know exactly what is being reported about you and your accounts.
• Compare the three reports for differences or potential mistakes. There could be variances between them. Some collection agencies, for example, only report to one or two of the agencies.

“Your credit history is constantly changing, and there are things that impact your credit that you may not be aware of,” says Sachin Jhangiani, CMO of Elevate Money in Scottsdale, Ariz. “Checking it will give you insight into whether or not you are relying too much on debt or using credit effectively.”

If you see negative information, know that most of it will eventually drop off, so start a timeline for when they will. Derogatory marks such as late payments, defaults, collection accounts and Chapter 13 bankruptcy can only be reported for seven years, while Chapter 7 bankruptcy can remain listed for 10 years.

Pulling your reports also gives you a chance to deal with errors. “You may be getting hit for something you shouldn’t be and will need to get those blemishes removed,“ says Jhangiani. If you spot information that should not be appearing, either because it is wrong or outdated, dispute it immediately. You can also take the time to clean up your credit report if you haven’t done so before.

2. Review your card statements

If you can’t recall the last time you actually read your monthly credit card statements, you’re overdue. Those documents are generated by credit card issuers at the end of each billing period and contain plenty of pertinent information.

Unless yours are mailed to you (in which case, open those envelopes!), hop onto each credit card issuer’s website and download your last statement.

“Your statements will allow you to review your purchases and categorize them,” says Paula Swain, a certified financial planner with the Financial Center for Women in Southfield, Mich. Swain suggests downloading a year’s worth of statements to understand how much you are truly spending. Common spending categories include grocery, dining, entertainment, personal care, utilities, auto expenses, subscriptions and medical.

“When you have your total per category, divide by 12,” says Swain. “This will give your monthly average.” You will also find out how much the account is costing, and whether your behavior is having a positive or negative affect on your finances.

Here’s what to look for when you review the issuer’s terms and your current details:

• Annual percentage rate (APR). There may be a different interest rate for purchases, cash advances and balance transfers, as well as different interest for whether you’re behind on payments. Compare them to the average interest rates that are currently available.
• Fees. The most common are annual fees and late payment fees, so find out how much you’re being charged just to have the account and if you miss a payment.
• Credit limit. You should know the maximum amount you can charge, so check your card’s credit limit. That figure, when compared to your current balance, will be factored into your credit score as credit utilization. The general rule of thumb is to keep the balance to below 30 percent of the limit.
• Minimum payment warning. One of the provisions of the CARD Act of 2009 is that the issuer will have to print the time and total interest it would take to delete your current balance if you were to only make minimum monthly payments. It will also indicate the monthly payment you would need to send to pay it off in three years.
• Past due notice. If you’re behind on payments, your statement will show that the account is past due, as well as when you need to pay before a late fee is added to your bill.
• Rewards. If your credit card has a rewards program offering cash, points or miles when you charge, your statement will show how much you earned during the billing period and how much you have available.

With all that information, you can decide how you want to approach your credit card accounts. You may want to concentrate on debt deletion, getting your payments in on time, asking the issuer for an interest rate reduction or figuring out how you want to spend your rewards.

3. Prune your credit cards

You want to make sure that you have enough credit card accounts to make your life easier, and not so many that it becomes too complicated. There is no one correct number of credit cards any person should have. It all depends on your needs and lifestyle.

Your credit report will show all your active credit cards. Consider pruning the following:

• Retail cards for stores you don’t shop from anymore
• Cards you don’t use that have high annual fees
• Joint cards with former partners
• Secured cards when you want to use the money for something else

Pruning credit cards can make sense under some circumstances, according to Swain. But know that it can influence your credit score either positively or negatively, depending on your credit standing. In general, if you have many years’ worth of excellent data appearing on your reports, the impact of closing an account will be lower than if you have very few. And if you carry over debt, shutting down a credit card’s line will reduce your credit utilization ratio, potentially lowering your credit scores.

You can close a card when the balance is at zero. If you still owe on it, Jhangiani suggests transferring the debt to a new card that does benefit your lifestyle. “Even better, you may be able to get a 0 percent APR deal so you don’t pay any interest for 12 months or even longer,” he says. Once done, you can cancel the original.

4. Adjust your budget

This step should feel much easier after you’ve reviewed your credit card statements and know where you’ve been spending your money. Now that you have that information, you can add to it all of the expenses that you don’t charge to your card, such as housing costs or cash purchases..

Subtract the total of those monthly expenses from your net income. Best case scenario is that you have cash left over for savings. Unfortunately, that’s not always the case, particularly as inflation eats into the cost of living.

Once everything is out in the open, highlight the areas that cannot be changed without radical measures. For example, your rent or mortgage, car payment, and insurance premiums are likely fixed for the time being. That will leave you with the variable expenditures that can be adjusted. These typically include:

• Transportation costs, such as gas and parking
• Groceries and restaurants, including takeout
• Clothing and accessories, including secondhand items bought with cash
• Personal care, such as hair and beauty
• Entertainment, such as movies, sporting events, hobbies and recreation

Your renewed budget should not just ensure that your expenses fit neatly within your income, but also that you’re spending according to your needs first, then your desires. Adjust accordingly.

5. Cancel unused apps and subscriptions

As you move along the numbers, you may also find you’re spending on things you don’t use or even want. Often these are apps and subscriptions. Focus on everything for which you are automatically billed and may no longer need, such as:

• Website hosting
• Music and movie streaming services
• Prime delivery membership
• Special Patreon podcasts
• Dating platforms
• Online gaming
• Gambling websites
• Subscription boxes for food and products
• Magazines

Take stock of all those items you’re paying for, and identify which you can purge. Canceling them usually takes just minutes. Just like that, all that cash will be back in your hands. Some items, like website hosting, will have a contract. So mark on your calendar when the arrangement is up, and make sure you cancel before you automatically renew. Consider putting tools in place to deal with those peskier recurring charges.

6. Keep up the cleanliness

Mopping up your financial picture isn’t a one-time event. You’ll want to maintain your progress so the next time you do a deep cleaning, the effort will be minimal.

Make a point of tracking your spending so it’s always in line with your lifestyle and goals. Monitor your credit card statements every month, and your credit reports every quarter. This way you can address problems before or as they occur—not after. Commit to using your credit cards when you’re certain you can and will repay the balance quickly. This way, you can also gain from the process by racking up lucrative rewards.

The bottom line

Taking a deep dive into your finances and cleaning them up will make it easier for you to start off the new year properly. You’ll understand where you stand in terms of your credit score and spending history, allowing you to refresh your budget or create a new one entirely. Once you feel like you’ve set yourself up for success, you can start looking into tools to help you reach new finance goals, such as building up your savings with helpful tips, setting up a travel fund with the Bankrate travel toolkit or even getting out of debt with a debt repayment plan.