According to Investopedia, the last recession hit small businesses very hard. Traditionally, small businesses are the job-creation engine in the economy. During the Great Recession, from late 2008 to late 2010, 1.8 million small businesses had to close their doors. From late 2007 to late 2009, 8.7 million people lost their jobs.
At Derby Advisors, a firm that has solutions for small business owners and consumers suffering under heavy debt, we field many questions from owners of home-based businesses about how to lower their debt load. Let’s begin with why many are suffering from this problem in order to find the solutions.
The Great Credit Desert
During the Great Recession, small business owners found it almost impossible to get credit. Because of this, many began to resort to using personal credit cards or taking out business credit cards in order to buy inventory and whether the gap between performing their service and receiving compensation.
The Problem With Some Alternative Credit Sources
The average consumer credit card currently has just under an 18 percent interest rate, and the current average interest rate on Nerdwallet’s recommended business credit cards hovers around 14 to 20 percent. At these rates, business owners cannot reasonably pay off the cards. Thus, many business owners are struggling under high-interest credit card debt that is difficult to pay off.
Some Solutions
Examine All Debt and Create a Budget
Nerdwallet suggests you take stock of all of your debt, so you can prioritize which carries the highest interest. That is the debt that you need to attack the most heavily. Pay the minimum on all of the other debts. This will begin to free you from the high-interest rate payments that you are likely laboring under.
Get Lean
In order to pay off the debt faster, you need to look for ways to lower your business expenses. Look more carefully for every tax deduction that you can legitimately claim. Many home-based businesses do not utilize every tax deduction because their owners do not know those they qualify for.
See if you can avoid the expense of traditional advertising and even Google Ad Sense payments by simply using a powerful website presence and a blog as well as other SEO techniques to put you on the first page in your industry and area. Nerdwallet suggests having a responsive social media presence and responding in a constructive and consumer-friendly manner to Yelp reviews, whether positive or negative.
Reduce High-Interest Debt
Zero-Interest, Balance Transfer Credit Cards
If you can pay off all of the high-interest debt within 12 to 18 months, it makes sense to apply for a zero-interest, balance transfer credit card. During the promotional period, you will need to attack the balance that you have transferred from your other credit cards. With no interest rate payments, this should be easy to do.
Debt Consolidation Loan
If there is just too much debt to pay off in less than 18 months, you should consider a debt consolidation loan. These have lower interest rates that are fixed and allow you to have an end date to pay off the former high-interest rate debt. They will often provide you the ability to make a smaller payment each month, which will help you have more cash flow for other business needs.
At Derby Advisors, we encourage home-based business owners to consult us. We have solutions for heavy debt issues
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