To ensure that your business stays afloat, situations that would require that you take up a loan might arise. These loans could either be long-term or short-term. As you take advantage of the numerous credit offerings available to you, it is vital that you are aware of the dangers associated with excessive borrowing and having multiple loans running simultaneously. This situation is otherwise known as the debt trap.
We understand that being in a debt trap is a source of concern to small business owners. As such, we have highlighted strategies to ensure that you do not end up in a debt trap. These strategies are also helpful if you are currently figuring your way out of a debt trap.
Do your own research
Before agreeing to take up a loan, it is essential to do your own research and be fully aware of the terms of the facility you are about to accept. It is advisable to read the terms and conditions of any loan offer. Doing this might expose any predatory lending practice or vague conditions that may affect your ability to manage the debt effectively.
Budget, Budget, Budget
Drawing up a budget on how you intend to repay your existing loan is another important strategy in managing your debt. As a business owner, it is important to record your income, recurring expenses, and one-off costs that might arise during the month. Keeping your records provides a clear picture of how much you have available to repay your loans, which leads me to the next point.
Prioritize your debt
It is advisable to rank your debt based on its level of urgency. By doing this, you can allocate more effort into repaying the most pressing obligations while keeping the less pressing ones within a reasonable limit.
A good example is agreeing on a new repayment period with a friend on a personal loan while utilizing your current cash flow to meet your credit card debt.
Do not take up additional loans
Your financial service provider offering you the best loan terms after sliced bread or a digital lender offering to double your current credit limit might appear to be the motivation you need to take that loan. However, before you proceed, you need to ask yourself if you really need a loan. Being offered a loan does not necessarily mean that you need to utilize it. Instead of taking a loan, you could decide to adjust your current spending habit by cutting down unnecessary costs, hence freeing up more cash flow.
Keep track of loan due dates
While managing your debt, you do not want to incur extra charges because you defaulted on your loan repayment. To act as a deterrent to late repayments, default charges tend to be relatively high. It is in your best interest to keep track of the dates your loans fall due to prevent dealing with an increased loan obligation..
Conclusion
Managing debt can be overwhelming to both your mental health and financial well-being. That’s why it is important that you have a clear head while figuring your way out or preventing being caught up in a debt trap.
So dear business owner, kindly take a deep breath in…and out.