Starting A Business? Settle Your Personal Debt First
Today, 60% of millennials consider themselves as entrepreneurs. However, despite the growing interest in the world of startups, only 35% of Millennials make up the percentage of entrepreneurs under 30 – making them the least entrepreneurial generation. So what’s the cause for the gap between the expectations of young entrepreneurs and the reality of starting a business? Student debt is definitely part of the blame.
While over 70% of college seniors left with debt after graduation, the national student loan debt is now $1.48 trillion. That is more than a 150% increase within the past decade. Not to mention, research claims that 19% of students said to have delayed starting a business because of their loan debt, according to the 2015 Gallup-Purdue Index. So, can personal credit really make an impact on your startup ventures? Unfortunately, yes. Check out these strategies on how to settle your personal debt before starting a business.
Audit Your Position
The initial step is to run a full audit of your current position. If you have existing loans, it will have an unfavorable impact on your credit report. How much are you currently earning every month? What are your monthly expenses and savings? How much debt do you currently hold? Before you can move forward with your startup, you will need to answer these questions and become aware of your current financial position.
Eliminate All Debts
As one of the biggest obstacles when starting a business, you must get rid of all debt before starting a business. If you’re tied to monthly payments, you’ll have less financial flexibility. In fact, high amounts of debt can also increase your personal financial risk if the business falls. As a business owner may already have a sizeable amount of personal debt, reducing the chances of getting your business loan approved. If your credit history is low, expect to pay a higher rate for interest. You can also take out a consolidation agreement to reduce your total interest rate or pay off the monthly premiums.
Remove Risk to Income-Generating Assets
As most are concerned with revolving debt, the risks from secured loans can be even greater when you’re in business. Should you fall behind in monthly loan payments; the company will hound you mercilessly – even when you’re experiencing low cash flow. Eventually, they’ll place your account in a collection or secure a court judgment against you. This will not only damage your credit but also remove the income-producing assets from your name.
No matter why old or new your business may be, the success relies on long-term thinking and planning. Thus, it is important to stay on top of finances and consider delaying the opening of your business until you are able to pay down debt, clear your previous loans, and have comfortable savings for your startup.
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