Four Important Steps to Successful Debt Relief

by Emily on July 19, 2017

in Articles

With policymakers trying to rein in consumer debt and consumer prices ever on the rise, a majority of small business owners are struggling under the pressure of overwhelming debt. According to CNBC, the numbers of retail bankruptcies in 2017 are approaching post-recession levels.

Declaring bankruptcy is among the options available to you as a small business owner. However, it comes at a huge price. In addition to costing you thousands of dollars in court filing and lawyers’ fees, filing for bankruptcy can have a devastating impact on both your personal and business’s credit record lasting for between seven and ten years.

Such an outcome is certainly undesirable. To avoid it, here are some measures you can take as soon as you notice your business debt beginning to spin out of control.

Free up funds by eliminating unnecessary costs

Review your expenses and determine which areas are responsible for driving your business into unmanageable debt and take appropriate measures to arrest non-essential expenses. For example, if delayed payments by customers hurt your cash flow, consider improving your collection processes. Idle business equipment and scrap can also be sold to raise cash.

Review your budget

Poor budgeting is among the common reasons for the uncontrollable growth of small business debt. Review your budget and craft a new one that takes into account the current financial situation of your business. To begin with, your monthly revenue should far exceed fixed monthly expenses such as utility and rent.

List all your essential variable costs and set aside an adequate portion of your budget to cover them. Thereafter, earmark the remaining portion for paying down your small business debt. Financial planners suggest paying more than the minimum required payment for credit-card debt to increase the speed at which you pay it down as you seek debt relief.

Accounting software, such as NetBooks, MS Money, ProfitCents, Peachrtee, Quicken, QuickBooks, etc., are effective in tracking expenses and making budgets.

Prioritize the more expensive loans

Start by paying off the debts with the highest interest rates. Typically, these will be debts obtained through credit cards. Business debt for which you have used personal or business assets as collateral should also be given high priority to avoid losing those assets in case you default or your loans fall into delinquency.

Talk to your creditors

Engage your business creditors and be open about the current financial situation that your business is in. Being honest demonstrates your commitment to meeting your obligations. Find out if, together with them, you can come up with a hardship plan with more manageable payment terms.

If the creditor declines, consider going the debt settlement way in which you negotiate with the creditor for settlement of the debt by paying an amount less than what is owed as a lump sum. For debt settlement to be successful, your creditors need to be convinced that it is the best option they have of getting as much of their money back as possible.

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