Financial independence is at the core of the American Dream. No one sets out fresh out of college with aspirations and hopes of being dead broke at the end of their life! But the unfortunate reality is that scores of people find themselves in significant personal and household debt by the age of 30. Fortunately, there is good news. No matter how bad your current financial situation is, there is hope. If you take the right steps today, you can still reach your financial goals and find true financial independence.

Paying Down Debt

The first major step a person must take toward gaining control of their personal finances is deciding to eliminate all personal debts. There is no secret formula to making this happen. You simply have to be willing to cut expenses, which may mean less eating out, less entertainment, and fewer shopping trips each month, and then you direct this extra cash flow toward paying down your debts.

Now, the most powerful variable in the world of personal finances is interest rates. Interest rates are an extremely powerful, but neutral force. They can work against you and keep you in financial bondage, or they can work for you and make you financially independent. Interest rates work against us when we are holding bad debts, such as auto loans, credit card debt, department store debt, small business loans, and even college debt. One common step that many people take when they get serious about paying off debt is to consolidate debt into one monthly payment through a debt relief program.

The Pros

If you consolidate your debt you will benefit immensely from a lower interest rate. Most debt consolidation programs will negotiate with your creditors and negotiate a much lower interest rate than you are currently paying. This will reduce the amount you are paying in interest to your creditors each month, which will in turn increase the amount you are paying down on your debt each month, which will then significantly decrease the amount of time it takes to pay off your debts. In the long run, a debt consolidation program will oftentimes help your credit because it will reduce your debt and your monthly minimum payments, which all affect your credit score.

The Cons

In most instances, you will suffer a moderate credit score decrease when you enter into a debt consolidation program. The amount of points that your credit score will suffer largely depends on the type of program you enter. It should be understood, however, that this is a short-term effect. In the long-term your credit, as stated above, will improve.

A second major drawback to a debt consolidation program is the result of a missed payment. Instead of having your debt payments spread throughout the month with your small business loan at the beginning
of the month and your credit card payment mid-month, you will be making one lump sum payment each month. If something happens and you do not have those funds available the day your debt payment is due, the ramifications can be quite severe. The exact effect of a late payment differ program to program, but oftentimes it can cause your interest rate to soar, and you may even be kicked out of the program.

Debt consolidation programs can be an excellent solution to help lower your monthly interest rates, which will in turn speed the process toward true financial independence.

Jason Hoerr is an entrepreneur, trader and writer for based in Charlotte, NC

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