15 Expert Tips to Help You Prepare Your Credit and Finances for the New Year

We all love the holiday season.

The parties, the food, and the festive decorations are enough to make anyone smile.

Although the holidays can bring plenty of cheer and joy, they can also distract you from preparing for the approaching new year.

Odds are, you probably won’t be thinking of your financial resolutions or goals while you’re chugging eggnog or unwrapping gifts. And that’s okay if you prepare for the new year before the holidays come around.

If you don’t prepare in advance, however, you might find that you’re up to your neck in holiday debt or that your credit score has dropped, and then you'll have to spend the first part of the next year making up for your lack of preparation.

That’s definitely not a fun way to kick off the new year.

The beginning of the new year is a chance to start fresh and set the tone for the rest of the year. So, if you start the new year stressing over your financial situation, you might feel the consequences of that for the rest of the year.

To make this upcoming new year a great one for you, we gathered several expert tips that can help you prepare your credit and finances for the new year.

Tip #1: Keep an eye on holiday expenses

Tanya Peterson, Consumer Finance Expert and Vice President of Brand for Freedom Debt Relief

“If you are holiday shopping, be cautious with the credit card(s). Make sure you are working from a holiday budget, and no matter what, charge no more than what you can pay in full and on time when the bills arrive. It is not worth going into debt for holiday shopping.” 

Jory McEachern, Operations Manager at ScoreShuttle

“Before you start wheeling and dealing out gifts, first make sure you’ve accounted for all of your holiday travel expenses and traditional grocery needs.

To make it easy, start online before you head into a store. Online shops typically allow you to search for items in your specific price range to prevent overspending. Compare prices from a few different vendors and always search for coupons codes and discounts before you make a purchase.” 

Jake Lizarraga, Writer at Finance Fox

“Avoid the holiday debt. This means being smart about how you’ll be spending the holidays. Expensive gifts or crazy decorations are unnecessary to bring in the holiday cheer, so don’t get caught up in the spending craze.”

Tip #2: Review your finances and budget monthly or annually

Jonathan Hess, Creator of Centsibly Frugal

“Prepare a year-end review of your finances. I use Mint to export all of my transactions throughout the year and spend an hour or two sifting through every category by month with Excel pivot tables to see how much I spent last year and if I can cut certain things.

I also take a look at which of my yearly subscriptions or promotions I’ve signed up for, that will be coming up for renewal in the coming year, and prepare to renew them, replace them with a lower-cost option, or cancel altogether.” 

Sean Messier, Credit Industry Analyst at Credit Card Insider

“Reevaluate your budget and incorporate any financial changes that may have taken place throughout the year. A year is a long time, and you may very well have received a raise or introduced another stream of income over the past several months.

If you’re aiming to boost your credit scores and haven’t paid off all your debts, consider directing some of this cash flow toward credit card balances and other debts that allow you to pay on your own terms. With all else equal, lower credit card balances can lead to a healthy boost to your credit scores.” 

Jared Weitz CEO and Founder United Capital Source Inc.

“Establish a monthly check-in on your spending and finances. During this time take note of any charitable donations, gifts, or purchases that could be tax-deductible.

When you break up this activity into a monthly action, it will be much easier to manage filing taxes at the end of the year and will ensure that you’re never late on any bills/credit cards etc.

This is also a great time to make sure there are no transactions to dispute or any suspicious activity. An hour or two a month will save you a great deal of time and frustration down the road.” 

Tip #3: Set credit goals and know your numbers

Todd Christensen, Education Manager at Money Fit 

“Set a credit goal to work on in (the new year). Any score about 750 or 760 will generally get you all the best repayment terms (low-interest rates, no fees, etc.) that lenders have to offer. Here are the steps you can take now to start the journey:

• Figure out where your credit score sits generally. Use a free app or service like Credit Karma, Mint, Credit Sesame, Bankrate, Nerd Wallet, etc. to see where your score is.
  
  
• Add the balances of your accounts from your credit report to figure out your total debt.
  
  
• Add your minimum monthly payments to understand your minimum payment obligation.
  
  
• For accounts with overdue payments, call the creditor to arrange a plan to get caught up so the account will report as on time. Not all creditors are willing to work out a repayment plan over a couple of months, but some would rather do that than take a loss by selling the account to collections.
  
  
• For any collection notice you have received in the past month or so, call the original creditor, office, business and ask if you can set up a monthly repayment plan and have them get the account back from the collection agency (to keep it off your credit report).
  
  
• Commit to sending a specific amount of money to your creditors each month in (the new year) above and beyond the required minimum payment.”  

Tip #4: Lower your credit utilization rate

Logan Allec, CPA, personal finance expert, and owner of personal finance blog Money Done Right

“A sneaky trick to improve your credit is to lower your utilization ratio. The utilization ratio measures what percent of your credit limit you use, with a lower score actually raising your credit score.

For example, if you have a $1,000 balance and a credit limit of $5,000, then your utilization ratio is 20 percent. If you plan to lower your utilization ratio, you can take steps now like calling your bank this year and asking for a higher limit. This will improve your ratio immediately if you keep your spending at the same level through (the new year).”  

Chase Lawson, Personal Finance Expert and Author of Financial Freedom: Breaking the Chains to Independence and Creating Massive Wealth

“The second largest factor in your credit score is credit utilization. This represents 30 percent of your FICO score. If you consistently keep a relatively low balance on each of your credit accounts, this will help improve this metric.

A good target is to stay below 30 percent of your credit limit on each account. Therefore, if your credit limit on one of your credit cards is $1,000, try to keep the outstanding balance below $300, or 30 percent. In addition, you can ask to have your credit limit increased. In this case, you can keep a larger balance if needed and have it not impact your credit score as much.” 

Tanya Peterson

“Be aware of how much of your available credit you are using. You want to minimize percentage utilization and maximize credit available on each credit card.

As an example, if you have a credit card with a limit of $10,000, and you owe $3,000 on it, that's 30 percent utilization. Because credit card utilization can be very influential in calculation of credit scores, keep it very low.” 

Tip #5: Plan your investments ahead of time

Jonathan Hess

“Plan on which big investments you will most likely have during the year. If you’re planning on buying a house, car, or other large item that requires financing, avoid applying for other forms of credit so your score will be as high as possible when you apply.

On top of that, during the months leading up to that big purchase, keep your credit utilization very low by paying off some of your current balances before your credit card statement balances come out. This could give you a temporary boost to your score.” 

Chase Lawson

“It's better to invest earlier, so you can benefit from compound returns. As such, if you aren't already investing and if you're able to work it into your monthly budget, now is the perfect time to begin.

Historically, investing in a diversified portfolio mirroring the market has resulted in 7–10 percent yearly returns, regardless of timing. Consider contributing to your employer's 401(k) plan, especially if there's a match. Find good mutual funds to invest in. Slowly increase your contributions as you start making more money.”  

Tip #6: Make a debt plan (consider the snowball method)

Tanya Peterson

“Take time now to plan how you will pay off any debt you carry, especially credit card debt. Do it yourself if possible, with the avalanche or snowball method.

If not, now is the time to check out a personal loan (to consolidate and pay off the debt), credit counseling (slightly lower interest rate), or, if you are struggling to make minimum payments and have incurred a financial hardship, debt settlement.”  

Morgan Taylor, Finance Expert and CMO at LetMeBank

“Pick the smallest credit (or loan) that you have to pay off. Start putting as much towards that as your budget allows while maintaining minimum payments on your other bills. Once that's paid off, move on to the next smallest bill, putting what you would have put towards that first bill plus your minimum payment towards it. This snowballs until you've paid off all consumer debt.” 

Brandon Neth, Credit Card and Travel Rewards Expert at FinanceBuzz

"The debt snowball and/or avalanche methods are easy to follow, actionable and can make a real difference. Simply pay extra towards your highest interest debt first (avalanche method), or pay extra to the debt with the lowest balance first (snowball method). Continue paying the minimum on all of your other interest-earning debts simultaneously.

Get started today by paying any extra amount to your debt — whether it be $25 or $100. As you enter (the new year), you can most likely automate these extra payments so you don't have to think about it each month. By spending the next few weeks educating yourself, putting an extra payment toward your debt and making a plan that you can stick to in the new year, your credit should see a boost in (the new year)." 

Tip #7: Check your credit reports

Tanya Peterson

“Check credit reports. If you have not done so within a year, this is an excellent time. Everyone can obtain a copy of his or her report from each of the three major credit report bureaus (Experian, Trans Union, and Equifax). They are available through www.annualcreditreport.com once a year for free.

Reviewing your reports can help you detect identity theft or errors that damage your credit. Once you have viewed your reports, correct any errors by following the directions on each agency’s website.” 

Todd Christensen

“Get over the fear and pull your credit report at AnnualCreditReport.com. Most people I have helped to pull their credit thought things would be a lot worse than they actually were.” 

Nathan Wade, Managing Editor for WealthFit Money

“Not often enough do individuals check their credit reports as much as their credit score. One mistake could be holding you back from reaching your credit score goal or even worse — damaging your credit.

Checking for accuracy before the new year will give you sanity that there isn't any oversight. Check your credit report from one of the three credit reporting agencies, everyone one is entitled to a free copy from each of these agencies each year. In the event that you find a mistake, dispute it immediately.” 

Andrew Chen, Founder of Hack Your Wealth

“You want to start (the new year) with confidence that your credit file is accurate and clean. You can pull your credit report for free once per year from each of the major credit bureaus (Equifax, Experian, Transunion) using a site like annualcreditreport.com (there are others, too).

Do this before the year-end to verify there are no reporting mistakes and that you indeed recognize every account/balance listed (i.e., no fraud red flags). If you see anything you don't recognize, contact the bureaus immediately to start the correction process; also call your card companies to notify them so they can put an alert on your file.” 

Tip #8: Budget for both regular and irregular expenses

Jonathan Hess

“Look at irregular expenses and start putting money aside for them. I have a few bills that are quarterly or semi-annual.

I will divide these bills by the number of months between when they’re due and set up an automatic withdrawal from my checking account so I can limit the ‘hit’ I take on the quarter when the bill is due. This also allows me to easily budget things on a monthly basis even if they’re due quarterly.”  

Simon Nowak, CEO of 3CreditScores.net

“If you don't already prepare a monthly budget you should start. Calculate the approximate cost of each monthly necessity. Take that total and deduct it from your monthly income.

From there you can determine what you have left to put towards reducing credit card debt or making an extra mortgage payment. Take advantage of opportunities to eliminate debt whenever applicable and feasible.” 

Tip #9: Be strategic about credit card payments

Andrew Chen

“Pay off your highest interest rate credit cards asap, even if that means opening a new no or low-interest card and transferring your balance to it.

Credit card interest charges are insanely expensive, especially for travel rewards cards, so you want to pay any cards off where you're carrying a monthly balance as quickly as possible. This will help you free up cash flow. In no event do you want to make a late payment — it'll be costly and it'll ding your credit badly.”

Tip #10: Consider autopay for bills and avoid late payments

Evan Sutherland, Cofounder, Budgeting Couple

“Bills are the crux of a great credit score. If you pay a bill late, then your credit score is negatively affected (not to mention your finances suffer from hefty late fees and interest charges).

Pay your credit cards, personal loans, mortgage, utilities, and cell phone bill on time, and your credit score could skyrocket. The easiest way to never miss a payment — as well as grow your credit score every month — is to use Autopay. Put every bill you can on Autopay.

When a bill is due, the billing company will automatically withdraw that month’s payment from your bank account. Your payments will always be on time, you’ll never lose money to late fees and interest, you’re (sic) credit score will grow every month, and you’ll have one less financial responsibility to worry about. Start consistently and effortlessly growing your credit score (by putting) your bills on autopay.” 

Nathan Wade

“Paying your bills on time is crucial to improving your credit score. If you have trouble remembering your payment due dates, set up an automatic charge. If you don't want payments to be made automatically, set up payment due date alerts.

Being organized will help you avoid making late payments. If you mistakenly made a late payment, speak with your credit card issuer and ask for late payment forgiveness. If you have a good track record, they will be more likely to forgive.” 

Tip #11: Check and monitor your credit score

Heidi Mertlich, Owner of No Physical Term Life

“Monitor your credit score. Credit scores are considered by most financial experts as a gauge of your monetary health. Your score is a factor for lending institutions to determine whether or not you qualify for a loan, and just how much interest to charge you.

Monitor your credit score to check for discrepancies and to protect yourself from identity theft."  

Richard Best, Personal Finance Expert at DontPayFull

“You need to know your score. Get a baseline for score and track it as you take steps to improve your credit. Sign up for a credit monitoring service so you can track your credit report and score. They are offered free through most online banking services or you can sign up free with CreditKarma.com.”  

Tip #12: Avoid closing old credit cards

Andrew Chen

“Do not close your oldest credit cards, especially if they have no annual fee. A big input into your credit score is the age of your credit lines. Some people open no-annual-fee credit cards when they are young, even if they don't intend to use them, simply to start establishing a track record of having credit responsibly." 

Morgan Taylor

“Don't close accounts. When you pay something off, don't close the account. Instead, figure out a regular monthly bill that has to be paid, and is already in the budget. Put that bill on one of the paid-off credit cards and pay it off every month in full. This will show that you're responsible with credit, actively using credit, and are paying off that credit in full every month.” 

Tip #13: Create a credit card balance-payoff plan

Sean Messier

“If you haven’t already, enforce a strict credit card plan that involves paying off the balance of every card in your wallet by its statement closing date...

There’s a common misconception that using no more than 30 percent of your credit card balances is the best move for your credit, but the reality is that having no debt at all is considerably better. That doesn’t mean never using your cards — it just means paying them off in a timely manner.”  

Richard Best

“Develop a plan to reduce your balances. One of the quickest ways to improve your credit score is to reduce your credit card balances to below 30 percent of their available credit.

Start with your highest balances first...and start in on your cards with lower balances. Your ultimate goal should be to reduce your balances to zero.”  

Tip #14: Cut off unnecessary expenses

Nathan Wade

“If you want to save more money in the upcoming year, cut out any unnecessary expenses and leave them in (the past year).

Nonessentials range from entertainment services to buying coffee each morning. Although it may not seem like a big change, buying coffee is roughly five/six dollars a day, (which) amounts to about $2,000 a year. This is a great amount that you can accumulate in (the new year).

Once you've cut nonessentials out, try your best to negotiate any current bills and see if there is any way you can bring down the cost from services such as your cell phone carrier.”  

Tip #15: Get your taxes done early

David DiNardo, President and CEO of Envolta

“Getting your taxes done early is an excellent first step that I highly recommend. The earlier you can arrange and organize all of your tax receipts, the easier your taxes will get done, and the clearer your financial picture will be for the new year.

By leaving your taxes to the last minute, you'll also increase the chances of having to file for an extension, which could result in actually having to owe money instead of receiving some.” 

Bonus tips from BestCompany's experts

Alayna Okerlund, credit repair expert

• Invest in credit repair. If you are struggling with poor credit and have plans to use your credit sometime in the upcoming new year, you may want to consider credit repair. You can either spend time to repair your credit on your own or you can take some of that effort off your shoulders and hire a professional credit repair company.

Although credit repair can take time, it can help you improve your credit score, which can result in better opportunities for you in the new year. If you’re planning on investing in professional credit repair services, check out this list of top credit repair companies to get started.

• Get organized. Creating an organized system for your finances can make all the difference. If you are struggling with staying on top of your finances, you might find that part of the reason is because you’re simply not organized enough. If you’re following tip #2 (reviewing your budget and finances), you may want to review your current financial organization structure at the same time.

Do what you can to find what works for you. You may find that you’re more into digital organization or you may like a physical filing cabinet system more. Regardless of whatever organization system you put in place, making an effort to be more organized can improve your chances of staying on top of your finances in the new year.

• Settle person-to-person debts. It can be hard to lend and borrow money from another person, especially if there isn’t a set plan to settle up in the near future. Maybe you found yourself in a tight spot this year and asked your best friend for a little cash or maybe a family member came up to you and asked you for money. Regardless of who borrowed money from whom, you should make it part of your financial preparation plan to settle those person-to-person debts before the end of this year.

Settling these types of debts can be awkward and uncomfortable. If you lent someone money and they can’t pay you back right now or vice versa, take the time to communicate with them and create a strict, written plan for reimbursement. This plan should include the debts owed, the exact date the debt will be paid back in the near future, and what is being done to make sure the person who owes money will be ready to pay up when the due date approaches. 

Alice Stevens, tax and insurance expert

• Check your tax withholdings. If your tax situation or income has changed, talk to the human resources department to review your withholdings. Withholdings are automatically taken from W-2 earners before you get your paycheck. If you're self-employed, check your quarterly tax payments to make sure that you'll be on-track for paying next year's taxes.

You don’t want to overpay your taxes because you'll have less money for your monthly expenses throughout the year. You also want to avoid underpaying them, too. Writing a big check to the government in April isn't pleasant and may be more than you can pay all at once.

• Look at your health expenses. Part of your annual financial review should include your health expenses. Review what you spent this year and project next year’s costs as best as you can. Maybe one of your kids needs to get their wisdom teeth removed next year or your doctor has recommended a procedure within the next year for you.

If you do this review during the open enrollment period (November 1–December 15), you can use this information to help you pick the right health plan to save you more money based on what you need. If you do your review after open enrollment, you can still use this information as you prepare your budget for the year.

• Meet with a finance professional. Meeting with a finance professional can give you financial advice tailored to your situation and goals. Whether you meet with a credit counselor to help you budget or create a plan to get out of debt or you meet with a financial planner to review plans for the future and retirement, it’s always beneficial to meet with a professional.

The bottom line

In order to enjoy the holidays and the beginning of the new year, it’s important to prepare your credit and other finances in advance. As you head into the holiday season, consider trying out a few of the tips listed above, enhancing your financial education, and seeking professional financial advice if necessary to get you and your finances truly ready for the new year.