Credit card debt surpassed $1 trillion in 2017, according to a report by the Federal Reserve. Getting out of this kind of debt can be challenging, but there is one group that can help show you a way out; entrepreneurs. They understand that debt involves having more liabilities than assets according to Forbes. In general terms, debt can be defined as owing more than you own. Owing something to someone else can be beneficial to your productivity, prosperity and value creation. When you cannot use debt for these benefits, then debt becomes a burden not an opportunity.
Learning to negotiate your way out of debt
When even the smartest entrepreneurs get into debt because a certain product did not sell well or because of a downturn, they often find ways to negotiate better rates and monthly payments with their lenders or creditors. Creditors do not refuse to negotiate because if the business fails, the creditors will not get their money. Similarly, your creditors want you to continue paying your debts because if you stop paying, it may force them to litigate.
Most creditors prefer to receive smaller amounts rather than to receive nothing at all. This process of negotiation may be brought before a third neutral party called an arbitrator to resolve any debt repayment dispute. This is often done to avoid spending time and money going to court to resolve the dispute. During time period of debt repayment after the debt negotiation process, your cash flow may stabilize.
Cash flow can be irregular
An illusion of invincibility may envelope you when cash inflows start exceeding outflows, but that quickly dissipate when irregular cash flow unexpectedly sets in. Some people turn to more credit cards when this happens, but credit cards may only make you dig yourself deeper into debt.Entrepreneurs ensure that they do not sell anything at a loss when they are experiencing more cash inflows than outflows. Another way entrepreneurs keep the cash flow regular is by offering no discounts and adding more value by creating bundles of products or services. So maintain your former budget, but do not add any more expenses. You will also need to prioritize your debt.
Tackle loans with large interest rates first
Entrepreneurs prioritize debts that affect their business relationships and those with large interest rates and penalties before other loans. Penalties include having to lose an asset which you placed as collateral for a loan from a lender. So you can start repaying the loan that has either your house or your car as collateral because losing those properties can plunge you deeper into debt.
Debts can affect your relationships if you borrowed the money from relatives, friends or co-workers or when the debt is putting a strain on your marriage. Failing to pay the debt on time can actually end these relationships making you more vulnerable the next time you get into debt. For entrepreneurs, a supplier or vendor may refuse to deliver certain products to a business because of a debt that wasn’t paid.
Generally, you need to have a debt repayment plan, which involves drawing up a budget and sticking to it with the discipline of an entrepreneur. The changes you make may be hard on you and your family but that sacrifice will lead to a more secure future.