Why It’s a Good Idea to Clear Your Debts Before Starting a Business

If you want to start your own business but have a lot of personal debt to repay, a sensible option would be to spend some time getting this debt under control and paying as much of it off as possible before you launch your new company. Personal debt can stand in the way of entrepreneurs in a lot of ways. Not only could it make it more difficult for you to get finance for your business in the early stages, but you also want to avoid as many personal money struggles as you can in the first year of business where you’re likely to be living on a reduced income. 

Starting a Business

Your Credit Rating:

Did you know that your personal credit score can affect your ability to take out a business loan? While you can still get a business loan with bad credit - more information on that here: https://advancepointcap.com/can-i-get-a-small-business-loan-with-bad-credit-short-answer-yes/ - it’s always going to be easier to get the financing that you need with a good credit score. And the more personal debt you have to pay off, the less favorably lenders are going to view you when you apply. Paying off as much debt as possible before you get started will improve your credit score, allowing you to choose from a wider range of business finance options if and when you need them and enjoy lower interest rates too. 

Avoiding Financial Struggles:

It’s no secret that businesses don’t usually start bringing in tons of money straight away. Unless you’ve got a really unique business idea with massive demand and products or services that are going to start flying out as soon as they are launched, don’t expect your business to solve all your money problems overnight. In fact, many businesses operate barely breaking even on even making a loss for at least the first few months, and for business owners, this often means taking home a very minimal wage. The last thing that you want is to be struggling with debt on top of getting your new business off the ground, so paying off as much as you can now is something you’ll be grateful for in the future. 

What are Your Options?

There are several options to consider if you want to pay off your debts. The debt snowball method is a popular idea, where you pay off the debts from smallest to largest, and put the extra money that you’re saving once you’ve paid the debt off towards paying off the next one up until they are all paid. If you are struggling to afford to pay your debts, you may be able to make arrangements for reduced payments with your creditors and have interest frozen. Or, if you have a lump sum of money, contact your creditors to negotiate a settlement offer which could see your debt being cleared at a cheaper rate. 

If you’re thinking of starting a business, clearing your debt will not only allow you to make a fresh start financially but will eliminate future money worries and make it easier for you to get business funding. 

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