Dealing with Personal and Business Debt

Hey there! Debt can be a tricky thing to manage, whether it’s credit card debt, student loans, medical bills, or loans for your business. We all make mistakes sometimes with spending or borrowing too much, but the good news is there are plenty of ways to tackle debt and get your finances back on track. This article will break it all down for you in a simple, non-judgmental way.

Personal Debt 101

Let’s start with the basics. Personal debt refers to money you owe as an individual, not related to a business. The most common types are:

• Credit card debt – This piles up when you consistently spend more on your cards than you pay off each month. The interest rates are usually very high!
• Medical debt – Healthcare in the U.S. is so expensive, even with insurance. Unpaid medical bills get sent to collections.
• Payday loans – These short-term, high-interest loans can trap people in cycles of debt.
• Personal loans – Banks or online lenders provide fixed-rate loans for things like home improvements or consolidating other debts.
• Auto loans – These allow you to finance a car purchase over time, but the interest really adds up.
• Student loans – College is so pricey that most students need loans, which take years to repay.

Other common sources of personal debt include unpaid utility bills, personal lines of credit, and borrowing from friends or family. Debt isn’t necessarily bad, but it becomes problematic when you take on more than you can realistically pay back.

Signs You Have Too Much Personal Debt

How can you tell if your personal debt load is getting out of hand? Here are some red flags:

• You’re only able to make minimum payments on credit cards and loans.
• Your debt payments take up over 30% of your monthly income.
• You use new credit or loans to pay off existing debts.
• You lie to family members about your spending and debt.
• You ignore calls and letters from creditors and collection agencies.
• Your credit score is plummeting because of late and missed payments.
• You feel stressed, anxious, or depressed when thinking about your finances.

Impacts of High Personal Debt

Carrying excessive personal debt can negatively impact all areas of your life:

• Hurt your credit score – This makes it harder to qualify for loans, mortgages, rental applications, etc.
• Strain relationships – Debt-related stress can cause arguments with your spouse or partner.
• Less retirement savings – High debt leaves you with less money to save for retirement.
• Reduced quality of life – From cheaping out on groceries to cutting back on travel and entertainment, debt forces you to make sacrifices.
• Bankruptcy – Your creditors could force you into bankruptcy if you default on debt payments.

If you see yourself in some of the warning signs above, don’t panic! There are plenty of ways to take control of your debt. The key is being honest with yourself about your spending habits and coming up with a plan.

Tips for Tackling Personal Debt

Getting out of debt takes discipline, but it’s completely doable with some planning. Here are some strategies:

• Track spending – Use a budgeting app to get clarity on where your money is going. Identify areas to cut back.
• Lower interest rates – Call credit card companies to request a reduced APR. Transfer balances to a card with a 0% intro APR.
• Consolidate debt – Combine multiple debts into one lower monthly payment through a personal loan or balance transfer card.
• Pay more than minimums – Pay as much extra as you can on high-interest debts. Start with the smallest balance first.
• Sell stuff – Sell unwanted electronics, jewelry, designer bags, etc. and use the cash to pay down debt.
• Negotiate bills – Call hospitals and service providers to try to lower your medical bills and other debts.
• Pick up side gigs – Drive for a rideshare service, walk dogs, babysit, or anything else with flexible hours to earn extra income.
• Avoid new debt – Pause any unnecessary spending until you’ve paid off existing debts.

With persistence and smart strategies, you can become debt-free and gain peace of mind! Now let’s look at managing business debt.

Business Debt Basics

If you have a small business or are self-employed, chances are you’ve taken on some business-related debt:

• Business loans – Banks offer term loans, lines of credit, and SBA loans to fund startups and expansions.
• Business credit cards – These are used for purchases and expenses related to operating your business.
• Equipment financing – Options like equipment leasing allow you to pay over time for expensive equipment.
• Accounts payable – This refers to money your business owes to vendors, suppliers, contractors, etc.
• Unpaid invoices – If clients don’t pay invoices on time, it can lead to cash flow issues.
• Commercial mortgages – Real estate loans help you purchase commercial property and office buildings.

Some business owners also end up taking on personal debt like credit cards or home equity loans to fund their company. This blurs the line between personal and business finances.

Is Your Business Debt Too High?

As with personal debt, it’s easy for entrepreneurs to accumulate unhealthy levels of business debt. Warning signs include:

• Relying on new financing to make loan payments
• Paying suppliers and vendors late
• Maxing out business credit cards
• Debt payments consuming 50%+ of revenue
• Missing payments and receiving late notices
• Using personal funds or assets to cover business expenses
• Owing back taxes and other obligations to government

If this sounds familiar, it’s time to rein in your business debt. Here’s how:

Strategies for Managing Business Debt

• Refinance – See if you can replace short-term, high-interest debt with a long-term loan that has lower monthly payments.
• Renegotiate terms – Ask creditors if they can reduce interest rates or fees on your existing debt.
• Liquidate assets – Sell unused equipment or other assets to pay down debt.
• Invoicing processes – Ensure you have strong systems for creating, sending and collecting invoices from clients.
• Additional capital – Explore options for bringing in new capital like taking on a business partner, selling equity, or raising funding.
• Extra income streams – Create new revenue-generating products or services that leverage your existing business.
• Chapter 11 bankruptcy – Reorganize your business debts under court supervision.

As a business owner, don’t take on more debt than your revenues can comfortably handle. Seek help early on from business advisors if you feel overwhelmed.