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Financial resolutions
Five tips to get out of debt and save some cash in the new year.
January 2, 2006: 2:25 PM EST
By Gerri Willis, CNN/Money contributing columnist
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NEW YORK (CNN) - With a new year in front of us, it's also a great way to make a fresh financial start. From getting out of debt to saving some Benjamins, here's the best ways to keep your financial resolutions.

1) Get out of debt

You can get out of debt more quickly if you cut your credit card rate.

While the standard variable rate of a credit card is around 13 percent, if you have a credit score above 650, there's a good chance you'll be able to cut your rate, just by asking, according to Scott Bilker, the author of "Talk your Way out of Credit Card Debt."

Check out www.cardratings.com and www.cardtrak.com to figure out what other cards are offering. If you find a better deal than what you have now, tell your card company that you'll switch unless they offer a better rate.

This works 56 percent of the time, according to the US Public Interest Research Group. And just think of the savings. If you owe $5000 and you cut your credit card rate from 16 percent to 10.47 percent while making the minimum payment, you will save about $4,900 dollars in total interest payments, according to US PIRG.

2) Stash the Cash

Instead of racking up those reward points, use your credit card to help you save money.

American Express is offering One Card. Every time you use this card, 1 percent of purchases will go into a high-yield savings account at a 3.5 percent annual percentage yield.

You may also want to think about enrolling in Bank of America's Keep the Change program. If you use your Bank of America debit card to buy lunch for $4.30, your checking account will round up to the nearest dollar amount, and would automatically transfer the difference into a savings account.

In this case, Bank of America would automatically transfer $.70 to a savings account that currently yields about 0.5 percent. Bank of America will match savings for the first three months and 5 percent annually after that.

Credit cards can also help out with your mortgage payments.

Citigroup has its Citi Home Rebate card and MBNA has its GMAC Mortgage Equity Rewards card, both of which return about 1 percent on purchases and can help reduce mortgage interest.

While the GMAC Mortgage Equity Rewards card is available only to those who have a mortgage with GMAC, the Citi Home Rebate card is available to anyone, regardless of mortgage provider.

"These cards can really help you pay off your mortgage," says Curtis Arnold of www.cardratings.com.

3) Don't wait! Consolidate

Uncle Sam is tightening its belt. And college students are going to feel the pinch.

If you are haven't consolidated your student loans, do it before July 1, 2006. If you are graduating soon from college, put your loans into early repayment status, get an in-school deferment and consolidate before July.

Congress is very likely to approve higher student loan interest rates for Stafford and the Parent Loan for Undergraduate Students (PLUS).

These loans, which are variable now, will changed to a fixed rates. Stafford loans, which are now about 4.7 percent, will move to a fixed 6.8 percent in July. And PLUS loans, which are about 6 percent, will be fixed at 8.5 percent.

If you are currently repaying loans, you won't be subject to the new rate, but Mark Kantrowitz of FinAid anticipates that interest rates on variable loans will rise up to 2 percent by July. "It's going to be a dismal year for student aid," he says.

4) Beef up your 401(k)

Now is a great time to check up on your retirement funds. Check out some online calculators. CNNMoney.com has a tool (found here) that will crunch the numbers for you, as does T.RowePrice.

If you're falling short of your goal and you're 50 years old or more, you can make catch-up contributions to your company plan.

If you turn 50 at any time during 2006, you can save an additional $5,000 in your 401(k). If you're younger than 50, you can put in up to $15,000 in your 401(k).

Next, you should check on the mix of stocks and bonds you have in your 401(k) to make sure you have an appropriate asset allocation. Click here to use CNNMoney's asset allocation tool.

"Stay away from short-term or long-term bond funds," says financial planner Doug Flynn. "These will do poorly in a rising interest-rate environment."

He suggests you look at stable bond funds and technology stocks to give solid returns in 2006. You should also stay away from hard assets, like gold or real estate investment trusts. This is not the time to run to these investments.

5) Reevaluate your insurance

After watching a year of hurricanes destroy countless homes and lives, there's no better time than now to take a fresh look at your homeowners policy.

If you have done a major renovation in the past year, you'll want to increase the value of the insurance.

About 40 percent of major home renovations this year are underinsured, according to a new study by the Independent Insurance Agents and Brokers of America.

Standard homeowners policies provide coverage for disasters such as damage due to fire, lightning, hail, explosions and theft. But if we learned one big lesson from Hurricane Katrina, it's that home insurance doesn't cover flood damage.

It's also a good time to take inventory of what valuables you do have in case you need to report it at some point to an insurance adjustor. Download inventory software from the Insurance Institute of America to help you compile your list.

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