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How to get out of debt

How to get out of debt

Get out of debt

Getting out of debt fast can feel like a far-fetched dream when faced with mounting debts. But debt is a reality in business; becoming debt-free is only possible after understanding how to manage debts. Read on for more tips.

Business owners must understand that debt is unavoidable in running any type of business. The following must be done in order to speed up debt management:List all of your debts

List down debts

The list should contain all the necessary details about every single debt. The list headings/columns should include:

  • Creditor
  • Minimum payment
  • Repayment frequency
  • Interest rate
  • Total debt

Creating a list of debts is as necessary as it is self-explanatory. This is because it is important to first understand the scale and magnitude of the debt situation.

Organise list columns assigned for creditor names, amounts (minimum payment), repayment frequencies (whether weekly, monthly, or quarterly), interest rates, and total debt.

This list will help form a clearer picture of the current debt situation, which helps in effectively managing debts and start the debt repayment process.

Rank  debts

Debt prioritisation comes after listing down debts on a spreadsheet. Take note that the prioritisation of the interest rate depends on one’s current situation and what is most appropriate to one’s debt repayment goals.

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However, it is important to consult options with creditors, such as:

  • Asking creditors for a payment holiday. This will help free up cash in order to clear prioritised debts faster.
  • Asking creditors to freeze interest payments.
  • Determining how much to pay each creditor based on the debt prioritisation plan, then speaking with each creditor for a payment plan discussion.

Remember that the overall debt repayment plan will be defined by the outcome of the said negotiations with creditors.

Ask for debt amnesty from creditors

Debt amnesty is the process of negotiating with creditors after informing them that a person is longer able to pay the amount required by the creditors. After stating the situation, the person in question will then ask creditors for a lower amount that they can pay.

 Doing this will help keep creditors from compounding debts with interest fees.

Remember that when the fixed amount they require is still too high for a single repayment, this can also be negotiated with creditors and agree on an instalment system.

Pay off debts in order of priority

After talking with creditors and agreeing on a resolution that allows debt repayment without worsening the current financial situation, it is now time for debt repayment. This is where the debt repayment prioritisation plan comes into action.

Tough choices must be made in order to be completely debt-free. This includes letting go of some assets.

A big-ticket asset can cover most if not all of the borrower’s debts. If this kind of asset isn’t applicable to the borrower’s situation, an alternative is to sell several assets to cover all of the amounts owed.

It’s understandable that borrowers may find it hard to let go of their assets. But borrowers must keep in mind that they are actually not losing anything valuable since these assets are usually unnecessary or redundant ones. Doing this will no doubt help borrowers become completely debt-free.

After getting out of debt and ensuring a satisfactory credit rating, borrowers can always buy those assets back. In the meantime, borrowers need to focus their efforts and energy on efficiently managing and then repaying their debts.

Strengthen savings

Strengthening one’s savings must be done while still in the process of debt repayment.

This means that borrowers should aim to always spend less, remain frugal, and spend only on the things absolutely necessary for their business. The rest of your income should go straight to savings.

Manage cash flow

It is important for business owners to assess their expenses in order to effectively manage cash flow.

Cut on auxiliary expenses right away. Discontinue non-essential subscriptions, memberships, and other ancillary expenditures.Business owners should also consider if they can earn extra income.

However, business owners must understand that they should only engage in looking for ways to generate more income if they are certain that it doesn’t negatively affect the performance of their duties and responsibilities to the business.

Consider debt snowball payment

Aside from the above debt repayment schemes, business owners may also choose to employ the debt snowball payment method for a more convenient debt management and repayment process.

This method involves paying off debts from the smallest to the largest one(s). In the course of the process, a momentum will then be gained as each balance is paid off.

After fully paying off the smallest debt, the borrower will roll the money they were paying on said debt to the next smallest owed amount.

Consider debt consolidation

Aside from the debt snowball payment method, business owners may also consider consolidating their debts. Debt consolidation is probably the best method for borrowers when:

  • Business owners have to manage the repayment of multiple loans or sets of loans.
  • Business owners expect their debt consolidation loan to require a longer repayment term and/or period.
  • Business owners have a considerable credit card debt.

Learn more about debt consolidation here.

Reprioritise

Business owners in debt can opt to reprioritise while paying their debts by refraining from incurring any additional debts.

Business owners should commit to their debt management and repayment plans religiously, and never take on any other risk which might pull back their credit standing.

How to get out of debt
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