Strategies for Paying Off Your Debt
Saturday, June 10, 2017, 6:00 AM | Leave Comment
The author James Lendall Basford once said that “a man in debt is a man in chains”, and he was completely right.
However, going into debt is one of the most frequent ways of financing small businesses, and although it seems as a reasonable decision at the time, sooner or later it backfires.
This is something you notice as soon as the lenders start tightening the reins and prices start to grow.
Is filing for bankruptcy a solution in this case? Yes, but it comes at a steep price.
Fortunately, there are other strategies that will help you stay afloat even under the weight of growing debt and, eventually, leave your money problems in the past.
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It’s easy: spend less
A rule that can be applied to both personal and business finances: in order to save money, you need to spend less money.
What does that mean in the world of small business finances?
You should identify those expenses that are not necessary, as well as those that led your company in debt in the first place.
Equipment you are paying maintenance for and use it rarely or never is a good place to start. If you sell it off, not only you’ll save on future expenses, you will also have instant cash flow.
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Create a new budget
Company budget isn’t something that is made the moment when the firm was founded and never changed again.
On the contrary, budget should be revised regularly, especially when there are some major changes, such as growing debt.
Create a new budget based on the business’s current financial situation which will include giving more money to debt repayment.
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Set your priorities straight
And by priorities we mean, tackle the highest-interest rate debt first (usually credit card debts).
However, if you have guaranteed some debt repayment with some of your personal assets, you should put that debt on your priority list as well.
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Speed up the cash flow
If you put your debt payment on hold, just because you’re still waiting for pending invoices you may find that bank are not as understanding as you may think.
Instead of being patient for one to three months until the invoices are paid, you can decide for cash flow finance option and get your cash in advance. This enables you funding within 24 hours without lock-in contracts.
And while an invoice financing company will not chase down your debtors for you, you’ll always have enough cash to keep business going smoothly.
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Consolidate debt
Are you paying debts to multiple creditors? That can be a true hassle. If you consolidate your debt, you will probably get a lower interest rate and have the duty of making only one payment a month, which will make the debt easier to manage.
There are two ways to consolidate your debt (with the first one being the safer one):
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Obtain a loan large enough to pay your debts back
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Transfer the debts to one business card with a 0-percent introductory APR
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Renegotiate your debt
The inability to pay your debt isn’t good for both you and your creditors, so in most cases, they will be happy to renegotiate the loan term or lowering monthly payments.
There is even a possibility of settling for a sum less than what you owe.
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Automate your payments
You’re only just a human and no one can expect you to remember everything, but again, creditors won’t look at you forgetting to make the monthly payment so fondly.
The easiest way to avoid is to make a deal with the bank to set up automatic payments toward your debt. Besides taking care of the forgetting part, this move will make parting with the money easier.
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Seek counseling
Debts are so frequent in the business world that there are a lot of dedicated counseling organizations that can help you with managing and renegotiating your debt.
If the situation is more complicated, you can always turn to a bankruptcy attorney.
Finally, regardless of how deep in debt you are and how many creditors are waiting for your payments, you must not forget to stay on top of your regular expenses, such as utility bills and rent.
You won’t solve your financial problems by owing more money. Staying focused on your active debts and current expenses will also help you raise your credit score.
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