7 Steps to a Financial Makeover

Everyone starts out with a clean financial slate—no debt, unsullied credit, and a bright future. Of course, this picture can radically change, usually about the time we get our first credit card around age 18. Combine reckless credit card use with student loans, mortgage debt, and a car loan, and soon you might find yourself up to your eyeballs in debt. You may have even damaged your credit somewhere along the way. When you fall into this situation, it may seem inescapable, like you’ll never have a shot at a fresh start. The truth is that no matter what you’ve done to your finances, it’s never too late for a financial makeover. Follow these seven steps to take back control of your debt and start anew.

1. Devise a credit card action plan. You may not have any control over what happens to your retirement investments or the value of your home, but you can control your credit card debt. Make the highest payments on the cards with the highest rates first.
2. Dump the guilt. High levels of debt commonly lead to feelings of blame and/or guilt, but feeling bad won’t help you get out of debt. Accept your current situation without guilt and resolve to do everything in your power to make it better.
3. Get serious about saving. The number-one excuse people use for not saving is that they literally have no money remaining after the bills are paid each month. In almost every case, this is not true; it’s just that these people have not taken a hard look at their spending behaviors. It’s not that difficult to find $100 extra in your budget.
4. Don’t guess your credit score. You can’t do a stunning before-and-after makeover of your finances if you don’t know what you’re working with to start. Your credit score is a good indication of your financial standing, so find out yours ASAP. The credit bureaus charge a small fee to disclose your score, but it is money well-spent.
5. Tailor your retirement plan to your age. If you have more than ten years before retirement, the bulk of your investments should remain in the stock market. On the other hand, if retirement is rapidly approaching, shift your money over to bonds gradually.
6. Stay in your home for as long as you can. When the housing market is down and you sell, you will take a massive hit that could lead to more debt. If possible, stay in your house and ride out the slump in home values for as long as you can.
7. Take advantage of refinancing. If interest rates are low, then refinancing is an effective and relatively quick way to reduce your debt. Remember, refinancing is not just for home loans—you can also refinance your auto loan, personal loans, or even credit card debt. Before you refinance, just make sure that the cost of the new loan won’t exceed the savings that come with lower interest rates.

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