5 Top Debt Consolidation Strategies for Startup Businesses to Avoid Further Debt Trap

Business plan and money image

People of the 21st century live more on credit, than actual earnings. Whether they are a college grad, full-time employee, entrepreneur, or even jobless, one is bound to accumulate debt for various reasons. Being indebted to someone itself creates a lot of pressure, which gets doubled up if you fail to make the repayments properly and fall into a debt trap ultimately.

Debts of start up businesses

Unlike an employee or someone with a fixed-income job, entrepreneurs cannot rely on a consistent monthly paycheck or income. When it comes to a start up business, this inflow of funds is more unpredictable. Entrepreneurs usually take all their resources out to invest and reinvest into their startup businesses.

Simply, in other words, entrepreneurs put their money more into business and not towards the debts they acquired. This is why one of the biggest considerations start-ups should make is to stay clear of debts at the first place.

Option of debt consolidation

Sometimes, these debts may go out of control, and it becomes difficult for entrepreneurs to handle the situation effectively. When it comes to a start-up business, entrepreneurs may get tied up mostly with the administrative, marketing, and accounting activities where this troublesome process of multiple loan payouts may be an unwanted overhead.

If you find that difficult, then the ideal option to think of is of debt consolidation, which is an ideal way out from the multiple debt chaos. When it comes to start up businesses, most of the lenders offer a debt consolidation loan if:

  • The business is exiting for at least 6 month or more.
  • The entrepreneur has a personal credit score of 500 above.
  • The business has an annual turnaround of $100,000 or more.

If you get an affordable consolidation loan for your startup business, the major advantages you will get to enjoy are:

  1. Lower payments – With only a single loan to repay, it naturally brings down the cost, and most of the lenders also charge lesser interest rates for consolidated loans.
  1. Get additional funding – With debt consolidation, you get an additional working capital on top of what had been already borrowed for business establishment and growth.
  1. Get more time – As discussed, consolidated loans offer a lesser interest rate by stretching the repayment to a longer term. So, you get a breathing space at the first point by getting out of a troublesome financial situation to think of a more strategic approach to business finance management to avoid further troubles.

Debt consolidation strategies

When you think of consolidating debts, it is more of a strategic decision to make. Consolidation may not be the most ideal way out at all times. You need to do a thorough evaluation of your current situation and also do a forecasting and planning about the future to decide whether debt consolidation is an ideal move to make. You can do an intensive research online to read the reviews of best debt consolidation companies and proper ways of doing it. Next, we will discuss the major 5 points to note in terms of deciding to go for debt consolidation.

  1. Do proper homework

Sit back and weigh all available options when you are caught up with multiple debts. When it comes to a startup business, there are many specialized loans, crowd funding options, and incubator cash advance available to be explored. The key question to ask when you go for consolidation is whether you will be able to properly pay back the loan.

On planning to go ahead with the consolidation, you need to go ahead and do some research to find out the right loan option matching to your business. There are a few questions you need to crack for this.

  • Is the financier putting forth the right loan for your purpose and business situation?
  • How will the new loan affect your budget?
  • Is the lender demanding any collateral?
  1. Prepare a budget and stick to it

A perfect strategy is needed to plan and pay back your loan in order to maintain a good financial health and credit rating. Budget it perfectly to determine how much you can spend each month until you pay the loan off in full. Here’s a five-step approach that you can follow:

  • Step #1 – Keep a track of all income sources and figure out a way to ensure and maximize the income each month.
  • Step #2 – Determine all the fixed costs. Note down all recurring bills and billing cycles of each.
  • Step #3 – Determine all possible variable expenses. Also keep a track of the fluctuation each month.
  • Step #4 – Try to predict all the one-time expenses.
  • Step #5 – Once you complete all the above analysis, combine all these to prepare a perfect budget.
  1. Avoid any additional debt

You are already trying to get out of the debt pit and stabilize your economic health, so don’t take up additional burden. Most importantly, try to avoid making any additional credit card debts, which may largely impair your financial well being. Limit your purchases to a bare minimum and always think of cost effectiveness while buying. Also make sure that you make the payments at the earliest in case of credit repayment.

  1. Try to increase your earnings

Try to start earning a little bit of money at one end even when you are waiting for a start up to make some profit. Some additional earnings can come in from various sources such as selling out some unused items or getting a part-time job to make some extra cash.

  1. Prioritize your monthly payments

Along with ensuring all the receivables on time, give priority to your monthly paybacks. Do proper accounting and keep a track of your debt consolidation repayment and also the other business payouts you have to make monthly. Taxes and employee payrolls are the top in the list of monthly payouts, which you cannot compromise or delay at any cost.

Above 5 are just the major points to discuss, and there are a lot more minute things that you have to consider to reap the best results of your debt consolidation overtime. Maintaining a good relation with the lender is also important.

Hi, I live in Cardiff, South Wales and I am the co-owner of Vectorcentral.com. My interests are...internet marketing, music and staying sane in business.