5 Tips To Help Eliminate Debt
By JD Esajian on June 22, 2017
Excess debt is a burden that can eventually consume your business. It leaves you susceptible to short term cash crunches and changes the decisions you make on almost every deal. In certain situations, debt can be the catalyst that propels your business to new heights however for most investors debt can be crippling. If your monthly debts are high enough all the work you do can essentially be for naught. Instead of debt weighing you down there are things you can do to combat it. The progress won’t happen overnight but once you pull yourself out of the debt hole you will see a real change in your bottom line. Here are five tips to help eliminate debt.
- Review Credit Report/Expenses. Your credit situation can feel like a black hole if you let things spiral out of control. As difficult as this may be you need to do face your credit reality before it causes your business to fold. The first thing you need to do is lay out all your monthly expenses and obligations. Obtaining a copy of your credit report is often a helpful tool as well as a copy of your most recent bank statement. Your credit report will have most of your monthly personal and business debt. The rest you should be able to size up from your bank statement. Don’t just look at the payment, rate and balance on these accounts. Those items are obviously important but evaluate what you are getting from them. If you are getting a positive return from the debt than it can be considered “good debt”. If you are throwing money at the account every month without much of an impact you need to red flag it. Before you make an action plan you have to know what you are working with. As difficult as it may be it is important to dive into your debt and see exactly where you stand.
- Commit To Change. Looking at and listing all your debt can be an eye-opening experience. Only when you add it all up does is feel real. If you really want to get out of debt and turn your business around you need to commit to change. Is your debt caused by poor business decisions or bad spending habits? Using debt to help get you through a rough patch is fine if you aren’t using debt when you should be using cash. There are many investors who choose to save their cash and pay the debt off after their next deal closes but never do so. What happens is their debt keeps slowly piling up and the monthly obligations rise. If you want to get out of debt you need to have the mindset to change. This means your business should get used to running lean some months when cash is tight. Instead of using debt to get you through you need to look for ways to conserve money until your next payday. This is an adjustment many business owners, not just investors, struggle with.
- Make A Workable Budget. Eliminating debt means making sacrifices. If you continue to use debt in your current manner you will eventually rack up hundreds of thousands in debt or be out of business in a matter of time. The alternative is to make a budget you and your business can live with. What makes this difficult in real estate, and any self-employed business, is the uncertainty of cash flow. One month you could have five deals and the next two. Instead of making a monthly plan you should look at a ninety day snapshot. Focus on one or two cards with the highest interest rates or worst terms. Work on paying these down over the ninety days while still taking care of your other obligations and preserving residual cash flow. You can go so far as to make a calendar of when you want to pay each card, how much and where the funds will come from. The more detailed you are in your budget and your payments the easier they are to make.
- Extra Payment. Look at where your monthly payment goes every month. A majority of your payment goes to interest with just a small portion to the actual balance. By paying just the minimum it will take you years to pay off an account, even one with a small balance. On the flip side you can pay over the minimum you create some momentum and accelerate the speed of the payoff. On your targeted accounts, the goal should be to double the minimum payment for a 90-day period. At the end of that term look at the progress you have made. Making these payments requires sacrifice and discipline but ultimately is worth it.
- Don’t Get Frustrated. Trying to get out of a debt hole that took years to create won’t happen overnight. The first few months is frustrating knowing that you may not have too much residual income to spend the way you like. However, you need to constantly look at the big picture and think of the long-term impact on your business. When you finally get your debt to a workable number you will feel like a monkey is taken off your back. You will earn more on every deal and have increased flexibility to make the best decisions for your business without the burden of debt hanging over you. There will be times when you want to pay a little less or scrap your plan all together. If you can make it through the first few months of your plan and start to see progress things slowly get easier.
Debt doesn’t have to be part of your business moving forward. The sooner you tackle your debt the sooner it will be eliminated.