6 Tips to Ensure That You Steer Clear Of Business Debt

One of the most difficult things to do is to dig yourself out of debt. That is why it is a good idea to steer clear of that particular trap in the first place. In truth though, most people find themselves buried in debt at some point along the way, and if you are a businessperson, this can be particularly trying. Entrepreneurs do not have the luxury or advantage of having a paycheck every month like clockwork.  Most times, at least until the business is finally on its feet, they tend to put all their profits back into the business. Steering clear of debt right from the get go is usually the best thing to do. Here are some ideas to help you out:

  1. Ensure that you have a budget and are sticking to it. If you currently have a loan that you are paying off, the first thing to do is come up with a strategy to ensure that you are keeping up with your payments every month. Begin by creating a budget that is balanced by following these steps:
    • Consider your income per month and make sure that you tally it all together.
    • Figure out your fixed costs. These are the bills that show up every month without fail.
    • Figure out your variable costs. These should include those figures that fluctuate from month to month.
    • Predict future one-time expenditures. If you will need to pay a copywriter to put together a press release or something like that once a quarter, be sure to add those expenses as well. Of course, you must consider miscellaneous costs to deal with small emergencies and other unexpected expenses.
    • Now create a comprehensive budget that can guide your expenditures from month to month.
  1. Carry out your research. If you have to apply for a loan, it is important that you review all your options prior to making any commitments. You must consider your ability to repay the loan. If you find yourself questioning your ability to repay it, you need to look to other sources of funding such as startup incubators and crowd funding. Any loan you take should be a perfect fit for your business and for you. Some considerations before signing up include:
    • Do I need substantial collateral?
    • How is my budget and cash flow affected by this loan?
    • Does this loan serve my purpose? Is it a right fit for me?

Only after you have carried out your research and found a loan that you know for sure you can pay comfortably can you take it on.

  1. Steer clear of Credit Card and Additional Debt

Anyone working to stay out of debt should definitely take just what they need and not more.  Stay within your budget and work only with what you can afford. If you are going for an industry meet and need to have some promotional items, settle on what will fit within your budget. If that means only coming up with tee shirts, great! Don’t go all out to have pens, Frisbees, iPhone cases, and other merchandise made on credit as well. These expenses are out of your budget and you cannot afford them. Credit cards have the advantage of not needing collateral to take on debt, but the high interest rates can really cost you in the future.

  1. Consolidate your debt. If you are making loan payments to several different companies or perhaps even debt collectors, you need to consolidate so that you are only making one payment every month at an interest rate that will most likely be lower than what you are paying right now. If you have enough money to play with, you should consider repaying your debts using the debt snowball method. Start by paying off your smallest debt and then work your way to paying off the largest one.

You should also consider prioritizing your bills every month. If you are looking at months where you can’t pay every bill, then you will need to make a decision on which ones must be paid off immediately. Payroll and taxes should definitely be handled first, while credit cards are further down your list of priorities.

  1. Get a side hustle. Most startups do not begin turning a profit until about the 3rd Considering that 9 out of 10 startups fail according to an article on Forbes magazine, you should continue making some money on the side until your business actually takes off. Additionally, your startup will likely not pay you anything for a while and you still have bills to pay. By making a little money on the side, you will avoid getting deeper into debt as you pay off one bill at a time using a credit card. As an entrepreneur, you should do everything it takes to make it.
  2. Cut off all your unnecessary costs. It is important to look at what got you into debt and then deal with it. Look at your receivables and see if your customers are paying you on time like they should. Consider your expenses as well and if they are too high, work on bringing those down. If you have a costly phone system, or office space that is too big or costs too much, then it is in your best interest to make those changes. Call in the collectors if your customers are holding on to your money as well, so you can get something back, if not all of it.

Consumer debt is at an all-time high at 1.3 trillion dollars with many American’s caught in the debt trap.  You don’t have to be among them. It is important to do what you can to get out of debt as soon as possible. Business debt, coupled with personal debt is enough to cause you to flip out after a while. So, steer clear of debt as much as you most possibly can.

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