Effective Debt Management Strategies

Yesterday I shared how debt nearly destroyed my business. Today, let’s talk about how to use it the right way. Here’s what you need to have in place before taking on debt: 1. Forecasts: Build realistic, margin-based projections to understand when and how the debt will be repaid. 2. Rules: Define exactly what the debt is for, why you’re taking it, and your limits. Without clarity, costs can creep in. The Three Main Types of Business Debt: 1. Lines of Credit: These should go to $0 for at least 30 consecutive days each year. If not, lenders will see your business as risky and mature the loan. Maturing means it's no longer a line of credit - you now have to pay it back on their terms. 2. Term Debt: SBA loans, equipment loans, and business term loans fall here. Only use these if you’re confident the investment will increase productivity or revenue to cover repayment. The more seasoned you business the more sure you can be about this. 3. Credit Cards: Never carry a balance you can’t pay within the statement cycle. Businesses with credit card debt often have interest payments the size of a major P&L line item. The goal is to get your company to two months of core capital [cash]. This cash is what bridges the gap and funds the regular course of business. Every business has highs and lows throughout the year. Having cash reserves steadies the ship and allows you to operate without unnecessary stress. Debt should be the exception, not the rule. It’s there for extraordinary situations—not everyday operations. For business owners in their first few years, especially in capital-intensive industries, this can feel nearly impossible. Without personal assets to back a loan, most approvals come with high-interest rates, personal guarantees, and terrible repayment terms. So, look at debt through a long-term lens. Even if it fuels growth now, what does it cost you later? A business that cash flows [without debt] builds your wealth faster. Growth might feel slower now, but it’s profitable. As you scale, so does your profit, cash, and wealth. Debt is nuanced—it’s not inherently bad, but it can be seductive. Don’t get trapped. You’re an entrepreneur for a reason—you’re smart and capable. Bet on your ability to navigate the nuances and build something sustainable without relying heavily on debt. Hope this helps! Ask yourself: → Who’s in my corner to help me think through my debt strategy? If you don’t have someone, it’s worth finding the right expert to ensure you’re set up for long-term success. P.S. With the help of a capable bookkeeper, they can do 80% of this legwork to get you the data you need. Ultimately though, YOU have to make the decision. — I help entrepreneurs understand their business financials, create more profit, and fuel their long term wealth. → Get weekly profit boosters delivered straight to your inbox - newsletter link in profile

The way to get out of debt isn't by borrowing more. Do this instead: Debt can be a huge burden for a lot of people, especially when it's taken to fund consumerism. If you're in this position and ready to get out of debt, these are the steps I advise. 💡1. Understand why you got into debt in the first place. Was it due to lifestyle inflation, bad spending habits, funding education, or social influences? 💡2. Get organised. Make a list of everything you owe, to whom they're owed, the interest rate on each loan (or interest amount), minimum payments required and when you're expected to complete payment. 💡3. Get serious with your 'why'. Why do you want to get out of debt and why now? How will this decision affect your life and happiness? 💡4. Make lifestyle adjustments. ➡️ Figure out how much you can dedicate to repaying your loans monthly ➡️ Cut costs creatively and adopt a minimalist lifestyle. Think: Live Lean ➡️ Any expense that is not an absolute necessity should be cut off ➡️ Any extra savings from cutting off unnecessary spending should go into paying off more debt. ➡️ Set a realistic hard target for when this loan will be paid off ➡️ After each paycheck comes, pay debt first, spend what's left. ➡️ If you're actively investing, pause it, but don't sell off anything in your retirement account. ➡️ Always maintain a month's worth of emergency savings. You should save this first before paying off debt. ➡️ Do NOT borrow to offset another debt. ➡️ Find new ways to earn more money. Any extra cash will make reaching this goal quicker. ➡️ Stop comparing yourself to other people. ➡️ If you spent on things that can be substituted, sell them. It's more money to clear the debt. 💡5. Start tracking your spending. There are many good budget and expense trackers online. Pick a decent one and track every penny you spend for the next 30 - 90 days. This activity gives you a sense of accountability over your money, and you get clearer view of where you're sabotaging your efforts. 💡6. Finally, use one of two methods to pay off the debt: ➡️ Snowball Method - here you order your debt from the smallest to largest balance and work on clearing them in that order. Do not factor in the interest rate. ➡️ Avalanche Method - you order the debts from the one with the highest interest rate to the lowest (irrespective of the balance on them), and work on paying them off in that order. Neither is superior to the other, but I believe if debt is a behavioural problem for you, then using the snowball is better. Hope this helps you get some control. ----------------------- #Financefriday

"Pay your smallest debt first"  is costing you thousands. Here are 4 steps that actually work. 1) Map All Your Debt Balances Create a complete inventory of every debt you owe. You can't navigate what you can't see. 2) Know Your Interest Rates Interest is the silent wealth killer. Higher rates (like those 20%+ credit cards) deserve your immediate attention. 3) Track Minimum Payments Understand what you must pay monthly, but remember—minimums are designed to keep you in debt longer. 4) Build a Strategic Timeline Target either highest-interest debts first (saves money) or smallest balances first (builds momentum). As each debt disappears, roll those payments into the next priority. The difference between struggling with debt for years versus becoming debt-free isn't just how much you owe— It's having a clear strategy.

Are you neglecting a massive market? 🔍 A fascinating case study in transforming debt into capital... In 2018, financial advisor T.S discovered something unexpected about traditional debt elimination. Like most advisors, he was skeptical at first. But he decided to test a modified approach to the debt snowball method on his own finances. The results were eye-opening: • Eliminated his debt more than 15 years ahead of schedule • Built significant capital during the debt payoff process • Recently purchased his dream farm with that accumulated capital But here's what makes this so interesting to me... The Spectrem Group reports that 83% of clients actively seek credit management help, yet only 3% are satisfied with current solutions. [Source: Spectrem Group Research - https://lnkd.in/geCzbsAN.] Why this matters: Traditional debt snowball success stories usually end at "debt-free." But that's only half the story. What about the inevitable future purchases they are going to make? Let's look at a typical debt elimination scenario: • Client becomes debt-free through snowball method ✅ • Celebrates their freedom 🎉 • Needs to make major purchase • Returns to borrowing ⬅️ This is the problem What made T.S's approach different: • Modified the traditional snowball method • Built capital simultaneously with debt payoff • Created funding for future purchases by re-capitalizing. • Never needed to return to borrowing 💡 Quick Insight: True financial transformation isn't just about getting out of debt - it's about staying out of debt while building wealth for inevitable future needs. The numbers tell the story: • 42% want to reduce debt (CFP Board, 2024) • 21% need to save for major purchases • These goals need not be mutually exclusive Think about your clients: How many have become "debt-free" only to return to borrowing? How many asset management clients do you have with family members (kids, grandkids) who are in debt and what if your could create a gifting plan to help them? They'd likely stay with your firm when they inherit your primary client's assets - right? What if there was just a better way? #FinancialPlanning #WealthManagement #FinancialAdvisors

"Pay off debt first!" As a financial planner, the reality of debt repayment is a lot more nuanced than just telling folks to pay off anything they owe. The truth is that debt isn't inherently bad. It can be a tool to help you achieve your goals, like buying a house or starting a business. Here's how I approach debt payoff with my clients: 1️⃣ Don't Neglect Savings: Building an emergency fund and saving for future dreams (hello, dream vacation!) is crucial. You never know what life might throw your way, so having a safety net is key. 2️⃣ Interest Rates Matter: Knowing whether or not you are earning more in your savings account or paying more interest can inform your decision about where your money should go. 3️⃣ Not All Debt is Created Equal: Learning different types of debts and how to leverage them can help you to build wealth over time. 4️⃣ Debt Payoff as Part of Your Master Plan: Debt payoff shouldn't derail your client's other financial aspirations. Work together on a personalized plan that allows them to tackle debt while meeting their other financial goals. Remember, there's no one way to manage debt. Check out my blog post at Guiding Wealth for more details on how we work with clients on debt management: https://lnkd.in/gBESJ3us

Debt is keeping your business stuck in survival mode. Yet you keep pushing, hoping sales will save the day. Too many businesses fall into this trap: Pushing for more revenue, hoping it will solve all problems. But more sales just mean more costs and more stress. Debt isn’t just a financial burden, it’s a "growth killer". It drains your resources, no matter how much effort you pour in. If you’re serious about getting out of debt, here’s what you need to do- 1. Consolidate your loans into a single, lower-interest loan ⤷ This simplifies your payments and reduces financial stress. 2. Forecast your cash flow at least 3-6 months ahead ⤷ This will give you a buffer for those slower months. 3. Stop chasing every sale  ⤷ Prioritize services with the highest profit margins instead. 4. Map out your debt repayment timeline ⤷ Assign monthly payments to hit your debt-free target faster. Throwing money at your problem won’t solve it. But strategically planning your way out can get you your financial freedom back