How to Simplify Your Finances

There is hardly an American today who isn't in debt, and everyone has bills to pay. It can seem like a daunting task to undertake, but simplifying your monthly budget and expenditures can do more than ease your stress, it can also help you to save money!

Online bill pay is one of the most useful practices that is available to us today. By skipping the postage and making out checks, we have the ability to instantly debit our checking accounts to pay bills such as electric, water, sewer and garbage. Additionally, by gaming the system the right way, you can even earn perks by paying online with a credit card.

The first step is to get organized. Gather up all your current bills and statements and separate them into piles. Credit cards should be in one pile, utility bills in another, and a third pile should consist of your term loans, such as your mortgage, car loan and student loans. You might be tempted to put the credit card loans into this pile, but don't. These are a different sort of debt all together, and so must be treated differently.

Once you've got your bills organized, begin with your credit cards. Arrange them in order from highest interest rate to lowest. Excepting for the accounts that you've held longest, it's a good idea to pay off and close accounts you have little or no use for, particularly store credit accounts that you may not have used in a long time. However, you have to also ask yourself, How many major credit cards do you really need? Many professionals in the field will tell you that closing accounts will lead to poor credit history, and it can. The credit cards that have the greatest benefit are those that are oldest and that have the highest limit. If you find that you're having trouble not spending on credit cards, go ahead and shred them, but wait to close the account. This will remove the temptation from your wallet or purse while maintaining your good credit standing. If you do plan to close accounts, make certain to note when you call your credit card provider that you are "closing the account at my own request." This makes a difference, and the credit card company won't make a note of it unless you ask them to.

If possible, transfer your high-interest rate credit card balances onto the charge account that gives you the best interest rate. You will typically have to pay a fee to do this, but it's worth what you'll save in interest charges. This simplifies your finances by giving your a single bill to pay as opposed to multiple bills.

Next, look at your term loans. Can you consolidate any? Typically, student loans can be consolidated onto a single loan payment, but you may have to seek out bank loans to do this. One benefit of this through a bank is that you may be able to auto-debit the payment from your checking account and earn an interest rate discount for doing so. This can also be used for any of a variety of personal loans, but is generally not for mortgages or car loans. Still, if you have six student loans consolidated to one, you'll be paying less in the long run and you'll have an easier time managing your finances.

Finally, determine which of your utility bills can be auto-debited. Most today have the option of auto-debiting your payment from your checking account or a charge card, but it is extremely important that you keep up not only on your checking account balance, but also with a charge card balance, if you have your payments drafted in that way. The benefit to auto-debiting with a charge card is that you can earn bonus points toward airline miles, cash back and other perks for using specific cards. You just have to make certain that you pay the credit card bill on time every month to avoid accumulation of interest or fees.

With these few small changes, you can simplify your finances significantly. While each of the individual bills might be higher, there will be fewer of them, allowing you to more easily anticipate monthly finance needs, keep your payments on track, and improve your overall credit score.

Sources:

Bargaineering.com: Simplifying your Finances Interview with Liz Weston; Jim Wang; http://www.bargaineering.com/articles/simplifying-your-finances-interview-with-liz-weston.html

Fool.com: "Simplify your Finances"; Dan Caplinger
http://www.fool.com/personal-finance/general/2007/01/10/simplify-your-finances.aspx