The first step is to make a list of all outstanding business debts so you know exactly what you owe. This includes:
Next to each debt, note the interest rate, minimum monthly payment, total balance, and term length. This will help you understand the full scope of what you owe and the cost of carrying various debts.
There are three common methods for prioritizing business debt repayment:
Paying off debts with the highest interest rates allows you to avoid accruing more interest over time. This is usually the best strategy, but it depends on the type of debt.
This “debt snowball” method focuses on eliminating debts with the lowest balances first. You’ll be able to pay off several smaller debts quickly, which provides a psychological boost to keep going.
If certain debts have onerous minimum payments that are straining cash flow, you may decide to prioritize those first. This relieves immediate financial pressure so your business has breathing room.
Once you’ve assessed interest rates, balances owed, cash flow constraints, and other factors, map out a debt repayment plan. This should outline:
Here are some additional tips for accelerating business debt repayment:
If you are struggling to keep up with payments or debts are severely impacting cash flow, it may be time to speak to a professional.
* Prioritize high-interest debts but also account for other factors like cash flow constraints and penalties.
* Automate payments towards debts so you chip away consistently.
* Explore ways to increase income and reduce costs to accelerate repayment.
* Seek professional help if you are struggling with repayments.
* How to Make a Debt Repayment Plan – Reddit thread with tips on creating a plan.
* Which Debts Should I Pay Off First? – Article exploring different prioritization methods.
* How Do I Prioritize Paying Down My Debt? – Avvo Q&A with a financial advisor on approaches.
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