By Drew Hendricks
No one likes being in debt. But, that’s just an unfortunate part of life. Try all you might, there will come a time when you will have to borrow money. For most people, that’s not a big deal. It may take years or decades to pay off a student loan or mortgage payment, but that debt will be resolved at some point.
Unfortunately, that’s not always the case for the entrepreneur.
Establishing a startup takes a lot of resources – whether that’s paying for research, an office or employees. It just seems like the bills keep adding up with no end in sight. And, that is a daunting and overwhelming experience that can consume your life. But, it doesn’t have to be that way.
If you plan and accept useful advice, you could have a shot from climbing out of entrepreneurial debt.
8 Tips for Creating a Debt Payment Plan
Before you continue to dig yourself further into a financial hole, you should probably seek the advice of trained professionals. In fact, it would be a wise decision to talk to a financial planner prior to getting in debt. You could probably walk into any local bank or financial institution to discuss your future with a financial planner. Or, you could search for local planners at the homepage for the Financial Planning Association or The National Association of Personal Financial Advisors.
But, let’s say that you had talked with a financial advisor and things went haywire. Who could you turn to then?
That depends on your current situation. Do you need someone to help you plan a budget? Do you need assistance consolidating loans? Do you have to discuss your options with creditors? Do you have to declare bankruptcy?
Once you identify the main area of your financial concerns, you can search for professionals nearby who can offer their assistance.
Have a Plan
John Rampton who founded Host suggests “Whether with the help of a planner, or even written up if you’re good with crunching numbers, you should have a plan in place before getting into debt. Who can set up a budget by using Excel or any spreadsheet that you have available.”
FreshBooks has come up with a nifty 5-point plan to help any small business create a balanced budget. The points include:
Step 1: Tally Your Income Sources – Figure out how much money you’re bringing in per month.
Step 2: Determine Fixed Costs: Identify the expenses that you know will be the same every month.
Step 3: Include Variable Expenses: Identify the expenses that change monthly.
Step 4: Predict One-Time Spends – Set aside money for an emergency.
Step 5: Pull It All Together – Add all of the above to come up with monthly budget.
Of course, there will come a time when you will have to revisit your budget. Your monthly income has changed, the price for a fixed product or service has been adjusted or your budget just isn’t effective. Whatever the case may be, you need to stay on top of your budget on a frequent basis. You can make use of inexpensive software like QuickBooks, Quicken, Sage Software’s Peachtree, Sageworks’ ProfitCents or MS Money to keep track of or revise your budget.
Cut Unnecessary Costs
If you made a monthly budget, you may have noticed that there are certain items that aren’t really a necessity. And, that could include items from both your professional and personal life. For example, you could cut your cable or satellite service. Maybe you have to purchase office supplies from a discount store. While reviewing your budget, try and cut the costs that you know are not essential. This will help free up some additional money every month, which you could put toward paying off your debt.
If you need more assistance on how to get back on track financially, spend the couple of bucks on “The Battle Scarred Guide to Small Business Debt Relief and Recovery” by Ken Thomson. Thomson is the president of Biz911, Inc., a Delaware-based firm that helps small businesses rectify financial issues with some really sound advice.
Before you go all-in on being an entrepreneur, try and save some of your hard-earned money. While this may take some careful planning, and keeping you at that dreaded job longer than you wanted, this could save you the stress of being in debt. Even if you don’t know all of your expenses in advance, setting anything aside can be a big help.
Also, if you made those cuts we’ve already discussed, you can put that money towards paying monthly expenses, even if you’re not completely in debt just yet.
Earn Money on the Side
Let’s say you quit your job, became a full-time entrepreneur and now realize that you’re in a tough financial position. Instead of letting the bills continue to pile up, you may have to swallow your pride and get a job on the side. That’s not saying that you have to work part-time at Wal-Mart, but maybe you can find a writing or consulting job in your field that can help chip away at your debt. Even if you’re spending 19 hours a day working between your day job and side job, you may notice that within a year you have paid off some serious debt. It’s going to be tough, but no one said being an entrepreneur was easy.
If you’re not able to devote the time to working even part-time, you may want to consider selling off some assets. Maybe go through the house and see what you can sell somewhere like eBay. It may not be a large source of money, but at this point anything helps.
If you’re one of the 37 million Americans with an outstanding student loan, then you may already be aware of the pros and cons of consolidating your loans. If you haven’t had to make this decision before, here are some of the benefits of consolidating your loans.
- One monthly payment
- The interest rate may be lower
- You should be able to pay off your debts more quickly
- No more dealing with debt collectors
- There’s a financial expert who can guide you along for maintained success
Before trusting anyone with your finances, do some research and locate reputable debt consolidation companies. A good starting point would be the selections from TopTenReviews.
Speak With Creditors
Instead of getting deeper and deeper into the pit known as debt, why not be a bit more proactive about your situation? Even if you’ve cut back on nonessential items and are working at least part-time, what harm is it going to do to give your creditors a call?
Explain your situation and ask if they offer a hardship plan, are able to reduce the interest rate or offer a settlement plan. Just remember that if the terms are agreed upon, you must make sure that hold up your end of the deal. The last thing that you want to do is default on a payment plan or arrangement with a creditor.
Avoid Credit Cards
It’s really tempting to start your new business venture with that plastic card burning a hole in your wallet – which 44 percent of small business have done in the past. But, this has to be avoided if possible. But, what’s the big deal about maxing out a credit card if it’s for my future?
Probably the biggest concern is that when you use a credit card you may be a little more carefree with how you use it. Let’s say that you set aside $10,000 to launch your business. Because you have a set amount, you may be more cautious on how you spend that money. After all, you’re going to need every penny of that ten grand to fund and run your company. But, let’s say that you have $20,000 available in credit and you only need half of that. Because you already have enough to front the company with some extra on the side, you may splurge on items that you don’t need or items that you could have gotten at a better price.
While a credit card could be a great way to establish a line of credit or be used when there’s an emergency, it shouldn’t be used to start your company. It’s only going to make your whole debt situation much worse by helping you become more lenient in your budget.
Drew Hendricks covers tech, social media and environment. He’s written for many major publishers such as Inc., Forbes and Entrepreneur.