How To Spring Clean Your Finances

It’s that time again: tax season, when you’re running the numbers and settling up with Uncle Sam. This is also the perfect opportunity to get your credit and money affairs in order. When you do, you’ll be in a better economic position throughout the year.

If you’re like many Americans, it fits with your goals, too. According to a 2022 First National Bank of Omaha survey, 40 percent of the respondents said they wanted to increase their savings, 34 percent believed their credit history was impairing their ability to secure financial wellness and 30 percent hoped to pay off debt.

Ready to sweep away problems and set yourself up for success? Follow this financial spring-cleaning guide. Each task is simple and the results will be powerful.

1. Check your credit report

The Consumer Finance Protection Bureau recommends that you check your credit report at least once a year. Of all the chores, this is among the easiest to scratch off. Just go to AnnualCreditReport.com, the website that was set up by the three major U.S. credit reporting agencies–Equifax, Experian and TransUnion. Select the option to order a report from each of the credit reporting agencies. This way you’ll know exactly what is being reported about you and your accounts. There could be variances between them. Some collection agencies, for example, only report to one or two of the agencies.

“Your credit history is constantly changing, and there are things that impact your credit that you may not be aware of,” says Sachin Jhangiani, CMO of Elevate Money, located in Scottsdale, Arizona. “Checking it will give you insight into whether or not you are relying too much on debt or using credit effectively.”

If you see negative information, know that most will eventually drop off, so start a timeline for when they will. Derogatory marks such as late payments, defaults, collection accounts and Chapter 13 bankruptcy can only be reported for seven years, while Chapter 7 bankruptcy can remain listed for 10 years.

Pulling your reports also gives you a chance to deal with errors. “You may be getting hit for something you shouldn’t be and will need to get those blemishes removed,“ says Jhangiani. If you spot information that should not be appearing, either because it is wrong or outdated, dispute it immediately. Here are some more tips for: spring cleaning your credit report.

2. Review your card statements

If you can’t recall the last time you actually read your monthly credit card statements, you’re overdue. That document generated by credit card issuers at the end of the billing period contains plenty of pertinent information.

Unless yours are mailed to you (in which case, open those envelopes!), hop onto each credit card issuer’s website and download your last statement.

“Your statements will allow you to review your purchases and categorize them,” says Paula Swain, a certified financial planner with the Financial Center for Women in Southfield, Michigan, who suggests downloading a year’s worth to understand how much you are truly spending. Common sections are grocery, dining, entertainment, personal care, utilities, auto expenses, subscriptions and medical.

“When you have your total per category, divide by 12,” says Swain. “This will give your monthly average,” says Swain. You will also find out how much the account is costing, and if your behavior is having a positive or negative affect on your finances.

Here’s what to look for when you review the issuer’s terms and your current details:

• APR. There may be a different interest rate for purchases, cash advances, balance transfers and if you are behind on payments. Compare them to the average APR’s that are currently available.
• Fees. The most common are annual fees and late payment fees, so find out how much you’re being charged just to have the account and if you miss a payment.
• Credit limit. You should know the maximum amount you can charge, so check the credit limit. That figure, when compared to your current balance, will be factored into your credit score as credit utilization. The general rule of thumb is to keep the balance to below 30 percent of the limit.
• Minimum payment warning. One of the provisions of the CARD Act of 2009 is that the issuer will have to print the time and total interest it would take to delete your current balance if you were to only make minimum monthly payments. It will also indicate the monthly payment you would need to send to pay it off in three years.
• Past due notice. If you’re behind on payments, your statement will show that the account is past due, and when you need to pay before a late fee is added to your bill.
• Rewards. If your credit card has a rewards program offering cash, points or miles when you charge, your statement will show how much you earned during the billing period and how much you have available.

With all that information, you can decide how you want to approach your credit card accounts. You may want to concentrate on debt deletion, how to get your payments in on time, asking the issuer for an interest rate reduction or how you want to spend your rewards.

3. Prune your credit cards

Pruning credit cards can make sense under some circumstances, says Swain. But know that it can influence your credit score either positively or negatively, depending on your credit standing. In general, if you have many years’ worth of excellent data appearing on your reports, the impact of closing an account will be lower than if you have very few. And if you carry over debt, shutting down a credit card’s line will reduce your credit utilization ratio, potentially lowering your credit scores.

You can close a card when the balance is at zero. If you still owe on it, Jhangiani suggests transferring the debt to a new card that does benefit your lifestyle. “Even better, you may be able to get a 0 percent APR deal so you don’t pay any interest for 12 months or even longer,” he says. Once done, you can cancel the original.

4. Adjust your budget

Subtract the total of those monthly expenses from your net income. Best case scenario is that you have cash left over for savings. Unfortunately, that’s not always the case, particularly as inflation eats into the cost of living.

Once everything is out in the open, highlight the areas that cannot be changed without radical measures. For example, your rent or mortgage, car payment, and insurance premiums are likely fixed for the time being. That will leave you with the variable expenditures that can be adjusted. These typically include:

• Transportation costs, such as gas and parking
• Groceries and restaurants
• Clothing and accessories
• Personal care, such as hair and beauty
• Entertainment, such as movies, sporting events, hobbies and recreation

Your renewed budget should not just ensure that your expenses fit neatly within your income but that you’re spending according to your needs and desires. Adjust accordingly.

5. Cancel unused apps and subscriptions

Take stock of all those items you’re paying for, and identify which you can purge. Canceling them usually takes just minutes. Just like that, all that cash will be back in your hands. Some items, like website hosting, will have a contract. So mark on your calendar when the arrangement is up, and make sure you cancel before you automatically renew. Consider putting tools in place to deal with those peskier recurring charges.

6. Enjoy the cleanliness, and keep it up

Make a point of tracking your spending so it’s always in line with your lifestyle and goals. Monitor your credit card statements every month, and your credit reports every quarter. This way you can address problems before, or as, they occur—not after. And commit to using your credit cards when you’re certain you can and will repay the balance quickly, and will gain from the process by racking up lucrative rewards.