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How to Prioritize Paying Down Business Debt

How to Prioritize Paying Down Business Debt

Assess All Debts and Interest Rates

The first step is to make a list of all outstanding business debts so you know exactly what you owe. This includes:

  • Loans from banks and online lenders
  • Business credit cards
  • Equipment financing agreements
  • Lines of credit
  • Personal credit used for business expenses
  • Back taxes

Next to each debt, note the interest rate, minimum monthly payment, total balance, and term length. This will help you understand the full scope of what you owe and the cost of carrying various debts.

Weigh the Pros and Cons of Different Approaches

There are three common methods for prioritizing business debt repayment:

Highest Interest Rate First

Paying off debts with the highest interest rates allows you to avoid accruing more interest over time. This is usually the best strategy, but it depends on the type of debt.

Lowest Balance First

This “debt snowball” method focuses on eliminating debts with the lowest balances first. You’ll be able to pay off several smaller debts quickly, which provides a psychological boost to keep going.

Most Pressing Cash Flow Issues First

If certain debts have onerous minimum payments that are straining cash flow, you may decide to prioritize those first. This relieves immediate financial pressure so your business has breathing room.

Create a Debt Repayment Plan

Once you’ve assessed interest rates, balances owed, cash flow constraints, and other factors, map out a debt repayment plan. This should outline:

  • Which debts to prioritize first, second, third and so on
  • Timeline for paying off each debt
  • Amount that will be put towards each debt each month
  • Adjustments to budget to account for debt payments

Tips for Paying Down Debt Faster

Here are some additional tips for accelerating business debt repayment:

  • Increase revenue
  • Reduce expenses
  • Refinance debt
  • Use balance transfer offers
  • Tap retirement savings
  • Consider debt consolidation

When to Seek Professional Help

If you are struggling to keep up with payments or debts are severely impacting cash flow, it may be time to speak to a professional.

Final Tips

* Prioritize high-interest debts but also account for other factors like cash flow constraints and penalties.

* Automate payments towards debts so you chip away consistently.

* Explore ways to increase income and reduce costs to accelerate repayment.

* Seek professional help if you are struggling with repayments.

Resources

* How to Make a Debt Repayment Plan – Reddit thread with tips on creating a plan.

* Which Debts Should I Pay Off First? – Article exploring different prioritization methods.

* How Do I Prioritize Paying Down My Debt? – Avvo Q&A with a financial advisor on approaches.

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