Debt Affects Everyone
More and more families are saddled with debt nowadays. The average American family is in debt to the tune of $12,000, the average UK family to around £8,800 sans mortgage. Even students are getting affected, with those attending various courses having debts ranging from $8,000 to over $20,000. Businessmen are in no way exempt to the general trend towards indebtedness. However, their debts usually include loans which were taken out for capital or operational expenses.
Five Ways to Deal with Bad Debt
Why does bad debt happen to good people? The answers vary widely. If you’re one of the people saddled with this debt, all is not lost. There are still ways of getting out from under that crushing burden and getting back on track.
1) Take stock of your cash flow. Some entrepreneurs with debt problems don’t know how much they’re spending, sometimes not even how much they’re really earning. The first step towards handling debt is to find out how much money is coming in (your income), and how much is going out (operational expenses, debt servicing, etc.). This information is needed so that you can figure out a) how to make “inflow” greater than “outflow” and b) how much more you need to increase inflow or how much more outflow you need to reduce to make this a reality.
2) Establish certain fiscal guidelines to live by. Establish a maximum amount you can spend, and keep below it. No ifs or buts.
3) Start cutting down on outgoing money. Personally, this means reducing the number of times you go to the mall, brown-bagging lunch to work, commuting instead of driving, halting non-essential expenditures like subscriptions and vanity purchases, etc. For your business, this is streamlining operations so you spend less to achieve the same business ends.
4) Think about restructuring your debt, and if that can help you. You have various options available to you. One is to talk to your creditors and see if they’ll agree to lower your payment rates. This can free up more money per month, at the cost of extending the loan lifetime. Another possible option is to take money from any investments you have, such as an idle property you haven’t found use for yet and use these to pay off your high-interest debts.
You could also consolidate your loans to obtain a lower interest rate and reduce your payments each month. Still another possible debt payment scheme is to snowball your debt, meaning you pay off the smallest debt first, followed by the next-smallest, and so on. This is a way to keep motivated paying debts, as you see those amounts disappear one by one. Take note, if you obtain the services of a credit repair company, you may get a negative mark on your credit history.
5) Discuss your options with an advisor. Look for a reputable one and he or she may be able to help you make your repayments more manageable. Ultimately, though, you’ll have to be the one to follow through with any suggestions the advisor might make.