Check that debt

One of the main reasons why people cannot achieve greater financial freedom is that they have excessive short-term debt. This debt has arisen from credit cards, student loans, car payments, and personal loans, among other things. This guide presents several ways to get a grip on out-of-control debt.

• Receive interest rate cuts. Ask any creditor to whom you paid your bill on time to lower your interest rate. If a few of them agree, you can pay off the balances on those loans and cards faster. You may also have more money to pay off other bills with the money you save from your lower interest rates.

• If you get a reduced interest rate on one or more of your credit cards, transfer funds from credit cards with higher interest rates to the card(s) with the lower interest rate. Check if there are any balance transfer fees associated with the card(s) with lower rates. If so, is the spread between the cards with higher rates and the ones with lower rates still better when you take transfer costs into account? If the difference favors the transfer, do it.

• Get a consolidation loan. If your credit is above average and none of your creditors are willing to lower your interest rates, consider getting a consolidation loan. These loans often have rates significantly lower than credit card rates and often cost less than paying each creditor individually. Keep in mind, however, that your specific situation may require collateral, such as your home, to secure a consolidation loan. Not all lenders require collateral. So it pays to shop around if you think your credit and financial picture are good enough to earn the unsecured loan.

• Limit your expenses. Take lunch to work instead of eating out every day. Reduce your cappuccino splurges from five days a week to three days to zero. How many channels do you really need? Reduce your cable TV package. Use the money you save to pay off your debts. Your thriving financial freedom will love it.

• This next one may seem like it’s in left field, but it will actually work. Do you have a qualified retirement plan? Does your employer offer a matching contribution? Are you contributing more to your account than the amount your employer agrees to? Then maybe it’s time to suspend the contribution above the game for a while. If your employer will only match your contributions up to three percent of your paycheck, don’t contribute more than three percent of your paycheck.

Use the extra money to pay off your short-term debt. Here’s why: You’ll probably never see earnings in your retirement account close to what you pay in interest on your short-term debt, especially if a large portion of it is on credit cards.

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Let’s take a closer look at that. Let’s say your investment portfolio makes an average of 11 percent gains year over year. That would be an exceptional situation, but let’s say it happens. Let’s also say your average credit card rate is 13.99 percent. By using all the extra money you put into your retirement account to pay off your credit card debt, you’re essentially paying yourself an extra 2.99 percent annually on that debt. So pay it off. If you then want to bring your pension contributions back to the original level, feel free to do so. There may be better places to invest that extra money, but that’s for a later discussion. You will have done a great job of freeing yourself from those short-term debt handcuffs!

Excessive short-term debt can become a serious financial burden if left unchecked. In the midst of everyday life, it can be difficult to find a place to cope. There are more ways to reduce debt than explored in this article, but using any of the ways mentioned is a step in the right direction – towards greater financial freedom.