Decluttering your finances is just as important as decluttering your home. It’s all about organizing and simplifying your financial life so you can focus on what really matters. While many people do this at the start of the year, cleaning up your financial records regularly is a good idea. But where do you begin?
Below are a few tips on what to keep and toss to get your financial house in order.
Use Personal Loans to Get Rid of High-interest Debt
What is considered high interest is an individual situation and can vary depending on the type of debt. High-interest debt is any debt which could have a high interest rate, such as credit card debt, payday loans, and personal loans with longer repayment periods, which typically means they have a higher interest rate. Mortgages and student loans typically have lower interest rates.
People can find themselves with high-interest debt for various reasons, including the following:
- Low credit score or limited credit history: If the creditor views you as a higher risk to loan to, it may charge a higher interest rate.
- Impulse purchases/overspending: Credit cards typically have higher interest rates. Adding too much debt and carrying a balance can mean getting charged a high interest rate for your purchases.
- Only making the minimum payment on credit lines: Only paying the minimum payment on credit lines could mean your debt accumulates interest and will take you longer to repay.
- Unemployment: Unexpected job loss could cause you to rely on using credit for living expenses, which could mean adding high-interest debt.
- Emergency expenses (medical bills; car or home repairs): When unplanned expenses come up, you may need to rely on high-interest credit options to pay the expense.
If you’ve been working on improving your credit score and have an existing personal loan, you may be able to lower your interest rate by refinancing the debt. To do this, you would apply for a new loan to pay off the old one. Taking out a new loan to pay off your debt may help you save if your new loan has a better interest rate and repayment term than the initial one and you pay the loan back on time. You can also use a personal loan to pay off a credit card bill or any other higher-interest debt you may owe.
Check your budget and financial situation before taking out another loan to ensure you can stay on top of making payments.
Organize your Financial Records
Your financial records, like credit card statements, medical bills, and tax records, can build up over time and make it difficult to navigate when you need them. Arrange your bills and statements in a manner that makes sense to you.
This can be as simple as putting each document in its own folder and storing it in a file cabinet or drawer. You could also go paperless by keeping everything stored digitally. You can create separate folders within your inbox to keep everything organized.
Dispose of Older Documents
Go through your old bills and receipts and toss anything you no longer need. The most secure way to dispose of these items is to use a paper shredder. This will ensure your personal information, like your Social Security number or account numbers, won’t fall into the wrong hands. This includes utility bills, credit card statements, and ATM receipts.
Some of the financial documents you may want to discard include the following:
- Tax returns: You should save copies of your tax returns for up to seven years.
The IRS generally has six years to assess additional taxes if you didn’t report all your income or your reported income was under 25 percent of what you earned. If you’re selected for an IRS audit, you want to have the last 3 years of tax return documents.
- Credit card and bank statements: You can dispose of your credit card and bank statements after around a year but hold on to any statements applicable to your taxes for up to seven years.
- Receipts: It’s best to keep your receipts for larger purchases, something you may want to return, or an item you have a warranty for. Once you see your transactions on your bank statement, you can discard your receipts.
- Canceled checks: Hold on to your canceled checks for up to seven years if they support your tax returns in any way, like a charitable contribution or a tax payment. Otherwise, you can shred them once you’ve verified with your bank that the check was canceled.
Many of these documents may be accessed through your online account on the provider’s website, so there may not be a need to keep physical copies.
Analysis your budget
Review your budget regularly to help you identify areas where you can save money and make spending adjustments such as dining out less, canceling monthly subscriptions, or having a night in with friends.
You can also look for ways to supplement your income, like starting a side business, doing freelance work, gig work, picking up a part-time job, or negotiating a pay increase at work.
The Bottom Line
Decluttering your finances can be intimidating, but it’s important to get started as soon as possible. You can simplify your financial life and achieve your goals by eliminating high-interest debt, organizing, and disposing of your financial documents, and reviewing your budget regularly.
Notice: Information provided in this article is for information purposes only and does not necessarily reflect the views of wealthybyte.com or its employees. Please be sure to consult your financial advisor about your financial circumstances and options. This site may receive compensation from advertisers for links to third-party websites.
