3 smart money moves you should consider producing in 2017

5 stunning stats about credit cards

According to research by the University of Scranton, 45% of Americans make brand-new Year’s resolutions, however just 8% of resolutions turn out to be successful.

Here are three smart money moves you can make in 2017, along with some tips to help you succeed.

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1. Get rid of credit card debt

High-interest-rate credit card debt can seriously hold you back financially. If you have high balances on your credit cards, then the item doesn’t make sense to save along with invest for your future, so the item costs both your present along with future self big time.

Think of the item This particular way. Let’s say you have $5,000 in credit card debt at 16% interest. At This particular rate, the interest alone is actually costing you $800 per year just to maintain the debt. Even the best investors inside planet can only expect to achieve average annual returns of 12% or so, which might translate to a $0 expected gain in one year on a $5,000 investment.

In different words, if you invest $5,000 instead of using the item to pay off your high-interest debt, you’re actually setting yourself up to lose money ($0 per year in This particular case) over the long run.

So one of the smartest moves you can make in 2017 is actually aggressively pay down any high-interest credit card debt you may have. Not only will the item help you get on the path to financial security, however the item can also improve your credit score.

2. Open an IRA, then max the item out

If you haven’t already done so, 2017 is actually a great time to open your first IRA, even if you have a retirement plan at work, such as a 401(k) or 403(b). IRAs come in two basic varieties: traditional along with Roth. The main difference between the two is actually their tax treatment.

Traditional IRAs are “pre-tax” retirement accounts, which means your contributions may be tax-deductible (depending on your income), however your eventual withdrawals will be treated as taxable income. Meanwhile, Roth IRAs are “after-tax” retirement accounts. Contributions are not deductible, however qualifying withdrawals will be 100% tax-free.

that has a traditional IRA, you cannot withdraw any funds until you reach age 59-1/2, lest you pay a penalty plus income tax on the withdrawn amount (though there are exceptions in some circumstances). Roth IRA contributions (however not earnings) can be withdrawn at any time, for any reason. Furthermore, while traditional IRAs have required minimum distributions once you reach age 70-1/2, Roth IRAs do not. In order to contribute directly to a Roth IRA, you need to meet certain income restrictions.

With both types of accounts, you can contribute up to $5,500 for both the 2016 along with 2017 tax years, that has a different $1,000 annual catch-up contribution allowed if you’re over 50. I mention the 2016 tax year because you can still take advantage in 2017; the IRA contribution deadline isn’t until the tax deadline in April.

Your IRA contributions can be invested in any stocks, bonds, or mutual funds you choose, along with they can grow along with compound on a tax-deferred basis. In different words, you won’t pay capital gains or dividend taxes each year, no matter how much your investments grow.

If you plan ahead, maxing out an IRA might not be as difficult as you think. The $5,500 maximum contribution translates to $458.33 each month, $229.17 semi-monthly, or $211.54 every two weeks. Planning to contribute every time you get paid could make the process easy, along with you’ll be surprised at how quickly your account balance grows.

3. Maximize your credit score

A perfect 850 FICO score is actually indeed possible. However, the item isn’t necessary to strive for perfection when the item comes to credit.

However, maximizing your credit score is actually a not bad idea. Achieving the best score you can by following a few simple rules could save you thousands of dollars next time you finance a major purchase.

While the FICO credit scoring formula is actually a closely guarded secret, the general structure of your score is actually public information. Specifically, the FICO score is actually made up of all 5 categories of information:

Payment history (35%) — The biggest factor in a not bad credit score? Simply paying all of your bills on time.

Amounts owed (30%) — There are a bunch of factors of which go into This particular category, however one key point is actually of which This particular doesn’t necessarily refer to the dollar amounts you owe. Rather, a big part of This particular category is actually the ratio of your credit card balances to your credit limits along with the ratio of your loan balances to the original principal.

To maximize This particular category, you can start by keeping your credit utilization ratio under 30%, along with lower is actually better. If you can’t pay down enough to get there, another strategy is actually to ask some of your creditors to raise your limits, which will lower the percentage of your credit being used.

Length of credit history (15%) — There are some factors here of which you can’t control, such as the age of your oldest credit account. However, the ages of your individual credit accounts along with the average age of all of your accounts can be helped by only applying for brand-new credit when you actually need the item. Also, closing one of your older, unused credit accounts can bring This particular average down along with ding your score, despite what you may think.

brand-new credit (10%) — This particular includes newly opened credit accounts as well as “hard inquiries,” which occur when you apply for credit. One or two inquiries or brand-new accounts won’t hurt you much, however more than a few can significantly hurt your score. Let your current accounts age, along with only apply for credit you need, just like the last category.

Credit mix (10%) — This particular one may come as a surprise. One-tenth of your score comes by the variety of credit accounts you have. For example, if you have a mortgage, auto loan, student loan, along with credit card, then of which mix could boost your score more than having just one or two of those (assuming you pay them off diligently). Don’t open unnecessary accounts, however if you’ve been putting off getting a credit card, for example, then applying for one could help.

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Knowing how the credit scoring formula works is actually a not bad first step. You can read some more credit-improvement tips by experts here.

sy88pgw (brand-new York) First published December 30, 2016: 11:34 AM ET

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3 smart money moves you should consider producing in 2017

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