Living with debt, even business debt, can feel mentally, emotionally, and physically overwhelming. There is no one-size-fits-all approach to paying off debt. However, there are some recommendations that can make the process less painful.
How to Approach Paying off Debt
Business debt can come from different sources. Prioritizing debt and categorizing it is the first step to start paying it off. A person cannot pay off debt if they do not know how much of it they have.
People focus on the wrong type of debt. Credit cards interest rates are high, averaging around 15.78 percent a year. Focus on credit card debt first. It is what hurts the most. Once credit card debt is paid off, lower interest debt can be attacked
At the same time a person is paying back their debt, they should be paying themselves or investing in their business. They should divide the money between saving for the future of their business and repaying past loans. The goal is financial freedom and business growth.
Being debt-free is one step in achieving that goal. However, if the only focus is getting out of debt, that is all a person will achieve. If the focus is growing wealth, they will have the freedom that comes with that money.
Business Debt Payoff Options
To be successful, you need to create a strategy. One option is a debt snowball. This is where a person will focus on the smallest debts their business has and put all of their energy towards paying off that debt. At the same time, they pay the minimum amount on their other debts. Once they have attacked the smallest debt, they move on to the next smallest debt and go from there until they have attacked the largest debt they have.
Another strategy is the debt avalanche. This is where a person attacks the debt that has the highest interest rate while they pay the minimum on the rest of their debt. This may save time and money over the course of paying off their debt.
A third strategy is debt consolidation. A person combines all their old debts into a new one at a lower interest rate. According to Lantern by SoFi, “There are different financing options, including SBA programs, personal loans, and small business loan options.” Many of these options would allow a person to pay off their high interest business debt and then repay the new loan at a lower interest rate.
Tips for Paying off Debt
A business may qualify for no interest credit cards that have a zero percent APR for up to 20 months. This could allow business owners to transfer credit card balances and save on interest payments while eliminating their debt.
A business owner may be able to borrow money from friends or family at a low-interest rate or interest-free. Before going this route, they should set up a repayment plan that they can stick to so as not to damage the relationship.
Another option is for business owners to be open to side hustles. By monetizing all of their skills, they may be able to generate extra income that allows them to pay down their debt faster.
Business debt is frustrating. However, it is something that can be eliminated and prevented. Take the time to focus on what caused the business debt and then work towards paying it off.