Make these 3 New Year's resolutions to improve your finances in 2021

(CNN) —  

The last 12 months have been rough, to say the least, and the pandemic has taken a severe toll on the personal finances of many Americans. Fortunately, it’s a new year, and with any luck, the pandemic will be in our rearview mirror in the near future. Still, the damage has been done, and many people are taking stock and vowing to improve their financial situation in 2021.

But new year’s resolutions are hard enough to keep even when the world isn’t in a pandemic. So we’ve put together a list of three realistic ways you can start getting your personal finances in order in 2021, along with some of our favorite financial tools that can help you along the way.

First, note that we said a portion of your debt, not the whole thing. Studies show that the best way to make a New Year’s resolution stick is to set specific, obtainable goals, and if you’ve spent several years — or one very terrible 2020 — getting yourself into debt, it’s going to be really hard and frustrating to try and get out of it all at once.

But you can take several manageable steps to not only pay down some of your debt, but to also set yourself up so that the remainder of your debt is easier to pay off down the line. How? By reducing the interest you’re paying on your debt.

Credit card debt is one of the most prevalent forms of personal debt in the US, and one of the primary factors that makes credit card debt so hard to get rid of is the enormous amount of interest you have to pay on it.

According to WalletHub, the average credit card interest rate on existing accounts was 14.58% in October, and an even higher 17.98% for new accounts. That interest makes it harder and harder to pay down what you owe, even when you’re making your minimum payments on time.

So, how can you lower your interest to a more manageable level? Believe it or not, the best choice is a somewhat counterintuitive one — opening up a new credit card.

We know what you’re thinking, but hang on! We’re not advising you to open a new credit card to spend more money. Rather, you’ll want to look for a credit card with an introductory balance transfer offer.

Balance transfer credit cards are cards that offer a 0% interest rate for a temporary period of time on existing debt that you transfer over from other cards. The intro period can be anywhere between 15 and 20 months, depending on the card.

By transferring over your debt to a new card with an introductory balance transfer offer, you’ll be stopping the interest on that debt for more than a year. And even if you keep paying the same amount that you’ve been paying each month up until now, you’ll be reducing your debt, because a portion of your payment is no longer for an exorbitant amount of interest.

How can you find credit cards with balance transfer offers? Just check out CNN Underscored’s list of the best balance transfer credit cards and see which card might be right for you.

Now, the bad news is that credit card issuers got more stingy during 2020, and it’s harder to get approved for a balance transfer credit card than it used to be, especially if you have a low credit score. It’s worth trying, but if you get turned down, applying for a personal loan is another option.

The interest rate on a personal loan is likely to be higher than a credit card introductory balance transfer offer, but it may still be better than sticking with the interest rate you’re currently paying. It’s also easier to get approved for a personal loan, as there are options for people with all levels of credit, though the worse your credit is, the more you’ll pay in interest for a personal loan.

You can use a personal loan to pay off your existing debt, and with a personal loan, you’ll have a set timetable for paying off your debt in full so it doesn’t drag on forever. But if you’re considering a personal loan, make sure the interest rate on it is lower than what you’re currently paying — otherwise, it doesn’t make sense to switch.

There are other factors to consider if you’re applying for a personal loan, so if you’re thinking about this option, make sure to read our guide on why you might consider a personal loan and how to apply for one. And for more ideas on how to make your debt more manageable in 2021, check out our 4 steps to getting rid of your credit card debt.

If there’s one thing that 2020 taught us, it’s the importance of having some sort of savings or emergency fund.

Some people say that, as a rule of thumb, you should have three or six months of living expenses saved up. But if you don’t have any savings at all right now, don’t try to accumulate six months of savings all at once. Again, your resolutions should be achievable so you have a good chance of accomplishing them and setting yourself up for future wins.

So instead, make your goal that you’ll start an emergency fund in January and add to it each month in 2021. This could be as simple as putting a jar on your kitchen counter with a slot in the lid and dropping your loose change into it each time you get home. That’s not going to add up to a ton, but it’s still better than doing nothing.

However, an even better strategy is to open a savings account and have a portion of your paycheck deposited into it automatically on each payday. This is a concept known as “paying yourself first,” because you’re putting money aside for yourself each month before you start paying your bills, instead of trying to save whatever’s left over at the end.

You might be thinking that opening a savings account sounds like a hassle, and 20 years ago, it probably meant a trip to the bank and 45 minutes with a bank employee. But in 2021, you can literally do it from home in about 10 minutes with any of hundreds of online savings account options.

Maybe you’re nervous about putting your money with an online bank that you aren’t familiar with? Then you might consider an option like the American Express High Yield Savings Account, which CNN Underscored recently reviewed. There are other savings accounts that earn more interest, but if you’re looking for an established company and an extremely easy and quick way to start, it’s a solid choice.

Now, if you’re already spending every dime of your income and aren’t sure how you’re going to find money to put aside for savings, you should take a little time at the start of 2021 to sit down and put together a spending plan.

A spending plan is slightly different from a budget, in that it allows you to choose what you must spend money on each month, and then gives you the freedom to do whatever you want with the rest. (Plus, it’s more fun to think about making a spending plan than a budget. Everyone likes spending money, right?)

If you don’t know how to make a spending plan, we’ve got a spending plan guide that will take you through it step-by-step. And if you’re having trouble finding ways to cut back on how much you’re spending in order to make room to save some money, check out our ideas on how to reduce three of your major household expenses in just 30 minutes.

Credit scores can be scary and confusing, and there’s a lot of misinformation out there about how they’re calculated and what affects them. But the one thing that everyone knows for sure is that higher is better when it comes to your credit score. In modern life, your credit score influences everything from how much you’ll pay for your car loan to whether you can get a mortgage to buy a home.

So how do you improve your score? Well, like everything else on our list, you can’t go from a poor score to an excellent one all at once. But you don’t need to have a perfect credit score to make a difference. While higher is better, even a good score will open new financial doors for you that an average score couldn’t.

Of course, the first step to improving your credit score is knowing what your score is to start. CNN Underscored’s guide on how to check your credit score has several online options, many of which are free and some of which you might already have access to and don’t even know it.

And once you know your credit score, how can you tell if it’s good, bad or somewhere in between? The answer is it depends on which credit score you’re looking at. That’s right — just to make it all more complicated, there are several different credit scoring models that different companies use. But don’t worry, because our story on what’s a good credit score lays it all out for you.

Once you know your credit score and where you stand, the best way to increase your score in 2021 is to make sure you’re paying all your bills on time each month — making on time payments is one of the biggest factors used when calculating your credit score. And if debt is dragging down your score, paying off a portion of it using our tips at the top of this story will help increase as well.

Finally, while you should be careful of “bad credit repair” services that don’t have a known reputation, one service you can safely use is Experian Boost, which is run by one of the three main credit agencies. Experian Boost can track down a good payment history for services that don’t usually appear on your credit report — such as your utility or streaming service bills like Netflix — and improve your score by adding them to your credit file. And best of all, it’s free.

This one won’t apply to everyone, so we’re calling it a “bonus” resolution. But if you have a mortgage on your home and haven’t already taken advantage of the market’s historically low interest rates, now’s the time to consider whether a refinance makes sense.

Many people hesitate to pursue a refinance because the process can be time consuming and they don’t know where to start. While many banks and credit unions offer refinancing options, an easier way to start is with an online lending marketplace, which can provide multiple refinancing offers from different lenders all at once without even having to pick up the phone.

If you’re ready to look into a refinance and want to try an online marketplace, use our guide on the smart way to refinance your mortgage. And if you’re thinking about taking cash out of your home with a refinance, make sure to review CNN Underscored’s story on the pros and cons of a cash out refinance.

Regardless of how you refinance, you don’t want to wait much longer. Lenders expect interest rates to rise in 2021, so if you want to lock in lower rates — and potentially a lower monthly payment on your home for years to come — make it a priority to look into refinancing your mortgage now.

Here are some of CNN Underscored’s financial resources to help with your new year’s resolutions:

And you can find all our personal finance stories every day at our CNN Underscored Money hub.