As a small business owner, you know all too well that it is important to keep track of every dollar. Along with paying any employees you may have, you also must have money available to purchase new equipment, pay for insurance, make improvements to your building when needed and so forth. Unfortunately, there are almost always times when unexpected expenses arise at the worst possible moment, resulting in you taking on various amounts of debt. While initially you figured it would be no problem to get the debt paid off, the result may now be that debt is hurting your business. If you've had enough and are ready to pay off the debt associated with your business, here are some of the best ways to eventually become debt-free.
Avoid Predatory Loans
Depending upon your situation, you may be needing cash very quickly. When this happens, some small business owners turn to predatory lenders such as payday loans, title loans or high interest installment loans. While it's true you may get some quick cash, it will come at a price that is far too steep. Since loans such as these come with interest rates of as much as 300% in some cases, you are actually only compounding your debt problem. Since there are better options, avoid these loans at all costs.
Use Economic Stimulus Checks
With the current pandemic crisis, small businesses are finding themselves hurting more than ever in many cases. However, if you have taken on additional debt in an attempt to get through the hard times, don't forget that the federal government is offering help in the form of economic stimulus checks. You may be able to use this money to pay off some of your most pressing debts, including those with the highest interest rates.
Cut Your Expenses
While you may think you have already cut your expenses all you can, chances are that once you reexamine your budget there are a few more cuts you can make. In some cases, this may involve making tough decisions such as reducing employee hours or even laying off some employees. Another way to cut your expenses may be to renegotiate with your suppliers to see if you can get lower costs on certain items. If you've been a long-time customer who has always paid on time and is on good terms with your supplier, an honest talk may produce lower costs. Just make sure you avoid any agreement like delaying payments until a later date. It may feel like it's helping now, but that’s just another form of debt.
Put the Credit Cards On Ice
While credit cards can sometimes be a lifeline to small business owners, they can also become a way to take on too much debt over a period of time. Therefore, you may want to consider putting your credit cards in storage for a while. Tucking them away in a safe drawer means they’ll be out of sight, out of mind. However, this by no means implies you should find a pair of scissors and start cutting up all your credit cards. That could hurt your credit score. Instead, just let them take a break for a bit, which will allow you to see just how many unnecessary expenses you have been incurring and stop the financial bleeding.
Take Advantage of Low-Interest Credit Cards
While you are taking a break from using your credit cards to make purchases, it may be a good idea to see if you can transfer balances from cards that have higher interest rates to those with lower rates. Although you'll still have debt that needs to be paid off, you won't be getting charged as much interest as before, making it easier to get the debt finally paid off.
Have a Conversation with Your Creditors
If you have creditors who are waiting to get paid and you know it may be difficult for you to do so under the current terms and conditions, don't be afraid to have an honest conversation with your creditors. Since the goal of creditors is to simply get paid in a timely manner, most will likely be willing to work out an alternative plan with you until your financial picture improves. If you plan to try this, always make sure you do so before your payment is late, since creditors will be more willing to negotiate with you before the situation deteriorates.
Take a Second Look at Your Budget
When you want to pay off your business debts, go back and take a second look at your current budget. This should be a top priority for you, especially if it seems like the accumulation of debt has become a monthly problem. For example, if your revenues have decreased due to the pandemic or other reasons, you'll need to make sure you allocate enough money to continue paying rent, utilities, employee salaries, and other key expenses. Once you can create a new budget that more accurately reflects your current situation, there may be some newfound money to put toward paying off debt.
Always Pay More than the Minimum
If you wonder how you accumulated so much debt in a short period of time, chances are one of the reasons is that you were only paying the minimum amount on your credit cards. While it's true you were making payments, the reality is that interest continued to accumulate each month, driving up your monthly payments.
Evaluate Chapter 13 Bankruptcy
While it should be used only as a last resort, filing Chapter 13 bankruptcy could actually benefit you in some ways regarding the paying off of debt. Though it would involve hiring a bankruptcy attorney to help you through the court process and establishing a three to five-year repayment plan with creditors, filing Chapter 13 would allow you to retain control of your property. However, try all other reasonable methods to pay off your debt before pursuing this option.
Though accumulating debt is always much easier than getting it paid off, following some of the above-mentioned tips can allow you to see some light at the end of the tunnel. By using some common sense and good judgement about your finances, chances are your business could be debt-free sooner than you might think.