Here are 21 ways to reduce debt, build an emergency fund in 2021

Start the countdown: A new year is fast approaching. So now is the time to hatch a plan to get your personal finances back on track. Think of 2021 as a fresh start to solve your money worries.

Here are 21 tips – or must-do "money" resolutions for the New Year– to help you trim your debt and build up that crucial emergency savings fund in 2021.

Since most people need a substantial amount of money set aside to help ride out an unexpected financial setback, we'll kick off this list of advice with some money-saving tips recommended by financial planners and advisors:

Money-saving tips

• Cut back on spending.

Just like slimming down your waist size is good for your health, trimming the fat in your monthly budget is a good way to bolster the health of your emergency fund. (Your goal? Build up six months of living expenses.)

But like a diet, that takes discipline.

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"Review every expense that you have and ask yourself, 'Can I eliminate or reduce some of my expenses,' " says Philip Palumbo, founder and CEO of Palumbo Wealth Management. His pet spending peeve: dining out or ordering in. "It can add up quickly," he says.

• Pay yourself first.

When payday comes, dollars tend to disappear quickly. So put your savings on autopilot. Set up automatic deposits that move money directly from your paycheck to your savings account, says Diahann Lassus, president of Lassus Wherley, part of Peapack Private Wealth Management. "Pay yourself first, before those dollars have a chance to disappear," Lassus says.

• Rid yourself of "recurring" charges.

Scrutinize your credit card statement and identify and cancel any "recurring charges" for services you no longer use, such as magazine or video streaming subscriptions or weight-loss programs, says Cathy Curtis, founder and CEO of Curtis Financial Planning.

• Increase your insurance deductibles.

If you can afford the higher out-of-pocket costs in the event of a claim, consider increasing the deductible on your home and auto insurance policies. "Raising your auto insurance deductible from $500 to $1,000 can save you 13% on your auto premium," says John Campbell, senior VP and senior wealth strategist at U.S. Bank Private Wealth Management. You can also save money by bundling policies, or having a number of different types of insurance policies, such as homeowners and auto, at the same carrier, he adds. It doesn't hurt to shop around for a better deal around renewal time, either.

• Save your raise or bonus.

A windfall, such as a pay raise or bonus, is great. But if you spend it all, it's not so great for your savings account. The fix? Don't adjust your spending upwards to match your higher income stream, says Jeremy Staadeker, founding partner at The Staadeker Wealth Management Group. "When receiving a salary increase or other windfall consider prioritizing saving or paying down debt," he says.

• Don't wait till you have zero debt to save.

While debt is no doubt a bad four-letter word, putting off saving until you are debt-free is a mistake, says Matt Nadeau, a wealth adviser at Piershale Financial Group. Putting off saving, he says, means investors miss out on a key component of saving: time. Over time, your money has the ability to earn interest on prior interest, a concept known as compounding. Similarly, if you pay off debt instead of investing in your 401(k), you could also miss out on the matching employer contributions. "That's free money," Nadeau says.

•Save on stay-at-home.

Pandemic-related stay-at-home orders and related increases in the number of people working from home has resulted in many expenses that no longer need to be paid. For example, if you're no longer paying commuting expenses or for meals out or for your annual overseas vacation, funnel those one-time expenses into savings, says Jeffrey Corliss, managing director and partner at RDM Financial Group at Hightower.

• Adjust your paycheck withholding.

If you regularly get a tax refund from the IRS, that's better than owing. But it also means you're having too much of your pay withheld from your paycheck to cover your tax burden. You can increase your cash flow by adjusting your tax withholding to ensure that you’re not having more taken out of each check for taxes than necessary, says Michael DiNuzzo, a financial advisor at DiNuzzo Wealth Management.

• Save anywhere you can.

Every quarter or dollar or $20 you can save, no matter where you can find the savings, can add up fast, says Cynthia Pruemm, founder and CEO of SIS Financial Group. Consider enrolling in a program like Acorns, which sweeps your spare change on debit or credit card transactions into a savings account. Or save on shopping by making your purchases on online sites like Rakuten and Ibotta, which give you refunds for shopping at their sites. You can also spend less by replacing a pricey cable TV service for a cheaper streaming service like Roku, Pruemm says. "Saving money each month can be easier than you think," she says.

• Refinance your home.

If you haven't taken advantage of record-low mortgage rates, consider refinancing your home loan to a lower rate, says Ryan Graham, senior financial adviser at Altfest Personal Wealth Management. "Even a 1% reduction in your interest rate can result in very material interest savings over the life of your mortgage," he says. A $250,000, 30-year-fixed home loan at 4.25% will cost you $1,230 in principal and interest each month. But you'll pay just $1,088 a month, saving $142 per payment, if you refinance to a 30-year loan at 3.25%.

• Spend less than you make.

This tip is basic math: If you spend less than you take home each month in pay, you'll be able to save more, says Jonathan Howard, a financial advisor with SeaCure Advisors. "The single most important aspect of financial security is spending less than you make," says Howard. "It is also one of the only wealth-building strategies that is entirely within your control."

• Downsize your possessions.

Purging isn't only a way to get rid of things cluttering up your life, but also a way to raise some cash, says Melody Juge, founder of Life Income Management. "Even if you plan to stay in your current home, do a room-by-room purging," Juge says. "Have a garage sale and use the money to (boost) your emergency fund."

• Don't buy the latest gadget.

Buying the hottest new smartphone or electronic gadget might give you bragging rights, but it will also dent your wallet, says Nolan Baker, founder of America's Retirement Headquarters. "A cellphone or computer two or three models older than the latest version can be 70% cheaper and still a major upgrade" over what you have, Baker says. Shop online for the best deals, he says. Apple’s website is offering the new iPhone 12 Pro at $999, but Walmart is advertising an iPhone 8 for $248.99, or roughly 75% less.

• Buy used wheels.

One way to reduce your monthly bills is to shrink your auto payment, Palumbo says. That means steering away from buying a new vehicle, which loses 20% to 30% of its value in year one, or not leasing a vehicle that forces you to get a new lease when the current term ends. Buying a used car is the better deal, Palumbo says. "Consider purchasing a car that is two to three years old and financing it at low rates."

Tips to pay down debt

• Put a 'warning label' on your credit card.

A few years back, Lassus gave clients stickers to put on their credit cards that read, "Caution: May be hazardous to your wealth." Keeping the risks of credit cards front and center is the best way to control spending, she says. "Think before you charge," Lassus says.

• Avoid budget-busting spending.

Paring down debt is about controlling costs. But you can't control spending impulses if there's no budget to benchmark your spending against, says Staadeker. Create a budget. And then monitor it every few months so you can "identify opportunities to control costs and increase savings."

• Prioritize debt repayment.

The only way to lower debt is to pay off existing debts. "Develop a plan to pay down the debt," Staadeker says. Dialing back credit card debt with sky-high interest rates should be at the top of your to-do list. One strategy, Staadeker recommends, is paying down debts with the highest interest rate first. That way you’ll pay less in interest. "Once these are paid off, move down the ladder to the next most expensive debt," he says. Another strategy is to pay off your smallest debts first, so you get a feeling of accomplishment and get more motivated to knock out other debts.

• Consolidate your debt.

If you're paying off credit cards and other loans and debt each month, you might be able to consolidate all those debts into a single loan with a lower monthly payment. Debt consolidation loans often come with fixed interest rates that are lower than borrowing costs on other debt. Rolling a number of debts into a single payment can save you on interest, and also provide additional cash flow each month to pay down other debt.

• Take advantage of 0% credit cards.

With the average interest rate on credit cards close to 18%, according to WalletHub, you could save money on interest by taking advantage of 0% introductory credit card offers, Pruemm says. "That way, your entire payment is going to principal (or the amount you owe) instead of principal and interest," Pruemm says. Let's say you have $2,000 in credit card debt. At 18%, you'll pay $360 a year in interest. With a 0% rate for 12 months, you will pay $0 in interest.

• Designate 2021 debt-free zone.

Make a commitment to "avoid incurring new debt in 2021," says John Mantia, co-founder of PARCO (Pensioned Americans Retirement Co.). If you don't take on any new debt this year, and pay down debts you already have, your debt will go down. "If you can focus on living within your means, you’ll essentially 'stop the bleeding,' " Mantia says.

• Start a side hustle.

One way to owe less is to make more money and use the extra cash to knock out those pesky bills. Join the gig economy. Deliver food, rent your home or join a ride-sharing company. "2021 could be the year to start to cultivate a side hustle," says Howard. "Diversification is a buzzword in financial circles. Creating income diversification" is another form of diversification, he adds.