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Ten years ago, I heard my neighbor exclaim, “I am debt free!” I will admit I felt a tinge of jealousy because my life was in a rut with creditors on my back.
A week later, we talked, and I asked him how he became debt-free on a low income. He suggested I read books and watch videos on the topic, then stick with the plan.
So, I read books (one of the best books I have read is The Total Money Makeover: A Proven Plan for Financial Fitness by Dave Ramsey, and if you haven’t, I encourage you to start with this book. In addition, I have watched tons of YouTube videos on practical steps to get out of debt as an entrepreneur.
I will say I learned a lot from my study and practiced what I studied. In five years, I had paid off my student loan balance in full. I may not have screamed at the top of my voice in my backyard, but it felt good.
You may have started a business to help you to be debt-free within months, but it seems the start-up is plunging you into more debt. Here are tips to be free from debt.
You might also enjoy reading: Here’s How To Get Your Finances In Order Before Quitting Your Job.
Entrepreneurs’ Tips For Paying Off Debts
In this section, we will talk about the habits and practices an entrepreneur should adopt to succeed in paying debts.
1- Stop Borrowing
In my community, there is a saying, “if you find yourself in a hole, stop digging.” So, the first step to getting out of debt fast is to stop swiping credit cards. Avoid new loans and focus on paying the existing ones.
You probably wonder how you will pay your bills without credit cards and salary advances. You can have some help by reshaping your relationship with debt and money.
I recommend you study and know the actual costs of credit cards and new loans. Live on a cash basis- people feel more pain when physical hard-earned cash leaves their hands. You will unlikely spend impulsively with cash.
Attack your debts with resolve but cutting up your credit cards, including business credit cards- they are the enemy. Your business should help you get out of debt, not dig into it.
If you must borrow for business development, it should be to invest and use the return from the investment to pay it off immediately.
2- Change Your Money Mindset
You should transform your mindset and money beliefs to save your business from debts. Cultivate a saver’s mindset that allows you to plan and stick to a budget rather than focus on immediate needs.
Your bad business money habits could be a reflection of your money habits in your personal life. Unfortunately, the schools and family setting did not equip us with money management skills and wealth creation, meaning we must learn it independently.
You can transform your money mindset and break unhealthy patterns by taking a course, reading books, and watching videos.
Most entrepreneurs grew up with a mindset of working hard to get money; however, you should allow money to work for you. The book “Rich man in Babylon” underscores this reasoning.
So, have a healthy relationship with your money and let it be your slave. You create wealth by increasing your profits and saving money.
3- Track Your Spending
You can’t seal the hole if you don’t know where your money goes. I have heard people talk about making budget cuts, but it isn’t easy to do so if you don’t know how you spend your money.
Track your personal and business daily expenses by writing them in a book. Ensure you include debt payments on the expenses side.
It is not easy to religiously record all your expenses when accrued. Record all transactions the day they happened; otherwise, your memory will fail you.
You can use a budget worksheet, notebook, and banking app trackers to monitor your spending. My neighbor kept his receipts and used free money management apps to track his expenditures.
Whatever method you employ to help you track your expenditure, ensure it is easy to use and will motivate you to record all your expenses. You will be in a better place to get out of debt if you know your spending.
4- Have a Well-Written Budget
Creating a budget closely follows tracking your expenses. The budget will allow live below your means to start paying off your creditors and loans.
You will know which unnecessary expenses and eliminate them in your next month’s budget. Of course, you need to find a balance between a strict budget and livability.
Remember, if you want to be debt-free fast, you should give the situation scorched-earth treatment.
The budget should be in writing. You cannot trust a budget in your head on how you will spend money. You have a higher chance of sticking to a written budget than a mental plan.
A budget should also include your current and future financial goals, including the goal to get out of debt. Did you know that putting your goals in writing enhances your chance of achieving them by 42%?
Moreover, a budget will also help you build a business emergency fund to cover at least three months’ expenses.
But what strategy to use to pay off all your debts? Some people resort to debt consolidation, while others resort to credit balance transfers. This brings us to another practical tip to help you get out of debt.
If you are interested in learning more about setting up an emergency fund, I encourage you to read this article: How to Create a Business Emergency Fund for a Rainy Day? (Here’s how!)
5- Try The Debt Snowball Method
The Snowball method is probably one of the most effective debt payoff strategies. How does this strategy work?
You write down your current debts from the smallest to the largest and begin rigorously paying the smallest. When you finish it, you take the money you used to pay and any other cash you can get from selling your stuff or side hustles to pay the next.
As you repeat this process, the repayment money grows until you clear all your debt to the full.
Debt payment is a behavioral problem; handling small debts will motivate you to keep going. The extra funds will snowball to handle the debt and accrued interest.
Note: Maintain or increase the amount you dedicate for debt repayment. This means that if you dedicated $200 for debt repayment this month, strive to keep that way or increase it.
If you wonder how to get out of debt fast, ensure you increase your monthly repayment by including the extra source of income or unexpected income. You will reach your goal faster by dedicating more to the repayment plan.
Even if your month was not good, ensure you find ways to increase your monthly payments. Make it a habit to pay more than 20% of the total income, if possible.
6- Provide Value
The pandemic has dramatically changed the business sphere, including the markets and consumers’ buying habits. Businesses cannot afford to maintain the status quo; they must adapt to the changing environment to remain relevant.
As an entrepreneur, you should evaluate your competitiveness and replan to provide more value to your versatile customers. If your product or service does not suit the current customer expectation, change accordingly.
Your business will only pull you out of debt through its profits. You can dedicate some money to debt repayment if you make more profit.
Explore other options if you find it challenging to remain afloat with your current strategic plan. Discern the industry’s emerging trends and adjust to address these changing needs.
7- Create a Side Hustle
Sometimes paying off debts require additional revenue. What can you do to earn more money?
You can start a side hustle as part of your pursuit. You can enhance your current service or product to reach a new audience. For instance, if you operate a restaurant selling sodas, you can add fresh, healthy juices.
Alternatively, if you own a large business premise with rooms you don’t use, you can rent them as office spaces and use the rent money to pay off your debt.
You want to look for opportunities related to your line of business that you have fully explored. You could turn these opportunities into gold mines.
If you are looking for new business ideas, I suggest you read this article: 15 Best Online Business Ideas for Beginners (And how to get started!)
8- Renegotiate Your Credit Card Debt
Do you know you call your credit card issuer and renegotiate your credit card contract? You can ask to pay a lump sum instead of monthly payments in a debt settlement arrangement.
In the renegotiating, you can request your lenders for a lower interest rate on the cards. Provided you have a good repayment history, your creditors will likely give you some relief.
If your credit card debt is lowered, you can clear the balances faster, thus allowing you to get out of debt.
So, instead of reasoning that you won’t get negotiated credit card repayment plan, pick up the phone and make a call. The outcome may move you closer to your goal.
See also: 11 Proven Ways To Make Money as a Teenager.
Getting out of debt is daunting for many entrepreneurs, but you can have a different experience. You can change your mindset and relationship with money to scale your income, save more, be debt-free, and create wealth.
In summary, we have seen that you can get out of debt fast by
- stopping to borrow
- changing your mindset about money
- tracking your expenditure
- creating a budget
- using the snowball method for debt repayment
- proving value
- creating a side hustle and
- renegotiating your credit card.
Which other ways have worked for you that we did not cover in this article?