The start of the new year is a good time to review your finances and make needed adjustments. Here are three things to do to find out where you are and what you might need to do.

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1. Create or Update Your Budget

Most Americans (74 percent) have a monthly budget, according to a survey conducted for the financial website NerdWallet.

Already have a family budget? Great. Now’s the time to update it. With inflation, your expenses may have gone up significantly last year. If you don’t have a budget, now is the time to make one.

“A budget is very important, it’s like a roadmap on a car trip,” said Bruce McClary, a vice president at the National Foundation for Credit Counseling. “It shows where you are and where you want to go, so you can plan accordingly.”

Start with your major expenses: housing (rent or mortgage payment), food, clothing, utilities, insurance, medical, transportation, debt payments, entertainment, and other personal spending.

Your budget doesn’t have to be “pinpoint precise,” McClary said. No need to track every candy bar you buy, but if you have a three-latte-a-day habit or go out to lunch several days a week, those are significant expenses that should be noted.

By looking at where most of your money is going each month, you can figure out where to prioritize and where to cut spending. You may be surprised at what you find.

For example, many people have oversubscribed to entertainment services. Those automatic monthly payments are easy to overlook. Maybe you don’t need five or six streaming services. Pick one or two and cancel the others.

“This is where you find out where there’s overlap, where there are redundancies, and those redundancies are opportunities for savings,” McClary told Checkbook.

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2. Pay Down Credit Card Debt

Because credit card debt is the most expensive type of consumer debt, focus on paying it off. This will free up money for your monthly budget.

The average interest on unpaid balances is currently 20.74 percent, according to Bankrate.com. The average retail card interest rate is even higher, around 29 percent.

“We’ve been tracking rates for about 40 years, and they’ve never been higher,” said Ted Rossman, a senior industry analyst at Bankrate.

A Bankrate survey conducted last summer found that 47 percent of credit card holders carry debt from month to month, up from 39 percent two years ago. Sixty percent of those people carried a balance for at least a year.

Making the minimum payment is better than skipping a payment—you’ll avoid a late payment fee that will hurt your credit scores—but it won’t do much to whittle down that balance, and you’ll pay a staggering amount of interest.

The average American has a credit card balance of around $6,000, Rossman told Checkbook. Make only the minimum payment each month and you’d be in debt for more than 17 years, and at the current interest rate, you’d pay about $9,000 in interest.

Financial experts suggest moving that high-cost balance to a zero percent balance transfer credit card. With some cards, the zero percent promotional rate lasts up to 21 months.

“I think the best way to use one of these cards is to refrain from adding any new purchases. Just divide what you owe by the number of months in your zero percent term, and try to stick to that,” Rossman advised. “You don’t want to just use this as a way to kick the can down the road. You want to make real progress.”

That’s because the rate on the remaining balance, after the interest-free period ends, will skyrocket to 20, 25, or even 30 percent.

Expect to pay an upfront fee of three to five percent on the balance transferred to that new card. Even so, it can be money well spent.

“You could potentially avoid many hundreds or even thousands of dollars in interest, assuming you’re disciplined about paying down that balance. That’s the big thing,” Rossman said.

Many personal finance websites, including Bankrate, NerdWallet, and WalletHub have charts that compare zero percent interest balance transfer cards.

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3. Create an Emergency Fund or Add to Your Existing Account

Everyone should have a cash reserve that’s set aside for unplanned expenses that are not part of your monthly budget, such as car problems, home repairs, or medical bills. An emergency fund can also shield the blow of losing your job.

Most Americans have very little emergency savings. About one in four people (24 percent) have none, and an additional 39 percent have less than one month's income set aside, according to a 2022 survey by the Consumer Financial Protection Bureau (CFPB).

Research shows, the CFPB report noted, that those without an emergency fund often turn to high-interest credit cards or loans to cover those unexpected expenses, resulting in even more debt.

“You owe more money, you're paying such a high interest rate, and it can really snowball out of control pretty quickly,” said Kimberly Palmer, personal finance expert at NerdWallet.

Financial advisors often recommend having enough money in your emergency fund to cover your expenses for three to six months. But that goal is pretty daunting for many families, especially those living paycheck to paycheck.

NerdWallet suggests starting smaller.

“Pick an amount that works for your budget, and you just want to make sure you're setting aside something into that fund,” Palmer told Checkbook. “For some people, you might want to shoot for having $500 stored away in your emergency fund. Other people might want to say, I'm going to try to put aside $20 a month for as long as I can, and then raise that amount as soon as I can.”

If possible, move money into your emergency savings account automatically. Many employers will divide paychecks between checking and savings accounts. Just make sure there’s enough money going into checking to pay your bills.

If you’re cutting it close each month, you might make that deposit manually, Palmer said, to make sure you don't overdraw your account.
 

Help Is Available

If you’re struggling to pay your bills or falling deeper into debt, contact a nonprofit credit counseling agency. They can help you make a budget and set up a plan to pay off that debt. In many cases, they can negotiate with your creditors to get lower interest rates. To find an agency near you, or to talk to a trained counselor on the phone, visit the National Foundation for Credit Counseling website. The initial consultation is typically free.

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Contributing editor Herb Weisbaum (“The ConsumerMan”) is an Emmy award-winning broadcaster and one of America's top consumer experts. He has been protecting consumers for more than 40 years, having covered the consumer beat for CBS News, The Today Show, and NBCNews.com. You can also find him on Facebook, Twitter, and at ConsumerMan.com.