These Moves Could Save You Thousands in 2016

Photo: Flickr user Steven Depolo.

Every year, millions of people make New Year's resolutions to save more money. In fact, in 2015, saving more was the third-most-popular resolution, behind "lose weight" and "get organized."If you want to improve your financial life in 2016, here are three ways you could save thousands of dollars this year, as well as set yourself up for success in the future.

Pay down (or refinance) high-interest debtOne of the best ways to save money in 2016, if it applies to you, is to pay down high-interest debt, such as credit cards.

Consider that, if you owe $10,000 in credit-card debt at 16% interest, and you make minimum payments of $150 per month, it will take you nearly 14 years to pay it off, and you'll end up spending $24,600. On the other hand, if you double those monthly payments to $300, you'll knock out the debt in less than four years, and save more than $11,000 in interest. This is a big difference; paying off credit card debt should be a serious priority if you're interested in saving money.

A smart option that can help you accelerate your debt payoff is to transfer your balances to a card with a 0% introductory APR. In the above example of $10,000 in credit-card debt at 16% interest, about $133 of your first $300 payment goes toward interest. However, if you are paying 0% interest, the entire $300 goes toward paying down the principal.

There are several great options, such as the Citi Simplicity card, which has a 0% APR on balance transfers for an industry-leading 21-month introductory period. Or the Discover it card offers a 12-month 0% APR period, as well as the ability to earn cash-back rewards.

Work on your credit scoreThe savings on a 0% APR introductory offer may sound great, but it may not be an option if you don't have good credit. Additionally, improving your credit score can make the cost of borrowing for major purchases, such as houses and cars, much cheaper.

You might be surprised at the difference a relatively small improvement can make. According to, a consumer with a FICO credit score of 690 -- which is generally considered to be a good score -- can expect to receive an APR of 4.067% on a 30-year mortgage as of this writing. Consumers with a 760 score, which is considered an excellent score, can expect a significantly better APR of 3.668%. This may not sound like a huge difference, but the better interest rate represents a savings of $20,530 over the life of a 30-year, $250,000 mortgage.

In order to maximize your credit score, you need to know how it's calculated. While the actual FICO formula is a well-guarded secret, the categories that are used to compute your score are:

  • 35% from payment history --This is self-explanatory. Pay all of your bills on time, as agreed, and this portion of your score will be just fine.
  • 30% from "amounts owed"-- This refers more to your balances relative to your credit limits and original loan balances than the dollar amounts you owe. By paying down some debt, or increasing your credit limits, you could potentially improve this part of your score.
  • 15% from the length of your credit history-- This takes into account the age of your oldest credit account, the average age of your accounts, and ages of individual accounts. It may be a good idea to leave older accounts open, and to limit the amount of new accounts you open while you're trying to improve your score.
  • 10% from new credit-- This includes new credit accounts, as well as inquiries -- the number of times you've applied for credit in the past year. Fewer inquiries are better for your score.
  • 10% from your credit mix-- Creditors want to know that you can handle several types of debt responsibly -- credit cards, mortgages, installment loans, etc. If you only have an installment loan and no credit cards, or vice versa, adding a new type of credit to your profile could possibly help.

Max out your retirement accountsBy increasing your contributions to tax-advantaged retirement accounts such as IRAs and 401(k)s, you reap a double benefit. Not only are you saving more money for your future, but you could get a tax benefit for 2016.

For the 2016 tax year, you can contribute up to $5,500 to a traditional or Roth IRA, and an additional $1,000 if you're 50 or older. A Roth IRA's biggest tax benefit is delayed until retirement, when your withdrawals will be tax free, but traditional IRA contributions can be tax-deductible right now. If you're in the 25% tax bracket, a $5,500 contribution to a traditional IRA could save you $1,375 on your federal income taxes.

Contributions to accounts such as 401(k)s and other qualified retirement plans are even more generous. For 2016, you can choose to defer up to $18,000 of your salary ($24,000 if 50 or older) into your 401(k).

Many employees contribute enough to take full advantage of their employer's matching contributions, but you can, and should, try to contribute more. I realize it's not practical (or necessary) for most people to contribute the absolute maximum, but even a small contribution boost can make a big difference over the long run, and on your 2016 taxes.

Just a startThis is not an exhaustive list, and there are plenty of other smart ways you could save money in 2016. Just to name one, you might consider giving up your cable or satellite TV in favor of a few streaming services. Did you know that the average American can subscribe to Netflix, Amazon Prime, Hulu Plus, and Sling TV, and still cut your TV expense in half? Here are some more details on this and several other savings ideas.

The bottom line is that, if you use these three suggestions, and get creative with some of your expenses, you might be pleasantly surprised at how much money you can save in 2016.

The article These Moves Could Save You Thousands in 2016 originally appeared on

Matthew Frankel has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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