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Wouldn’t it be great to have a dragon for a pet? You’ll be able to soar up to the sky, scare opponents with its roar, and in your society, get known as “The One Who Tamed a Dragon.”

The reality, however, is much bleaker than imagination – there’s no dragon to tame. But there’s something just as fierce and effective for your business.

It’s DEBT.

Good debt can help your business grow, and you’ll be able to reach your goals quicker. But what happens if it gets out of hand?

What happens if the dragon goes bad? If you don’t act, you will soon be devoured. We can agree it’s just bad for business.

But don’t worry; bad debt is much more forgiving than a bad dragon if you take the proper steps. Follow these tips to get out of business debt and emerge stronger than ever!

Analyze your Debt

To deal with bad debt, you need to know its nature – you need to know what it is that you’re up against. So, before choosing your weapons – the debt reduction strategies – find how much debt you currently have and the types of debt, including the interest rates and the payment terms.

By knowing your debts inside out, you’ll be able to implement the strategies we’ll talk about effectively.

Along with your debt, you also need to review your budget.

Here’s how to do it

  • Work with a financial advisor and/or your business’s chief financial officer to account for everything.
  • If you can’t take the help of a professional, consider using financial management software to keep track of your business’s finances. With the program, you can keep a close eye on every aspect of your business finance – your income, expenses, debts, and debts, and which debt you should tackle first.

Remember: Don’t leave the analysis for when debt gets too much to handle. It should become a routine.

The goal of such analysis is to know exactly how much you owe and decide how much cash you can allocate to paying off debt each month. Based on this knowledge, you’ll be able to select your strategy.

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Optimize your Business Expense

While reviewing, you might realize your expense isn’t as optimized as you would like it to be – you may find you can cut some corners to reduce your business cost.

That’s a good thing, as if you can reduce your cost, you can put that amount into addressing your debts.

So take the necessary steps like minimizing inventory to maximize cash flow or negotiating lower subscription prices or contracts.

Create a Repayment Strategy

Once you have a good idea about your financial situation and how you can optimize your business expenses, it’s time to implement a debt repayment strategy that works for you.

There are various strategies that you can choose from.

These include

Extra Monthly Payments

If you have any installment loans or loans extended by vendors, you can direct more money (that you save by optimizing your business expense) towards paying them off.

The surplus may be credited to a future payment, or it might be deducted from the capital. This strategy, however, isn’t great if your cash flow is already tight.

Snowball Method

This method involves paying off smaller debts first and gradually making your way to clear off the larger ones. With this strategy, you’ll be able to witness your progress faster and reduce your debt stress quicker.

Here’s how to do it –

  • Make the minimum monthly payments of all the debts to avoid late fees and taking a hit on your credit.
  • Make extra payments towards the smallest debt on your list and once it’s paid off, shift the amount you were putting toward that old payment on top of the monthly payment for your next smallest debt.
  • Move on to your next smallest debt and keep repeating the process until you’re debt-free.

 Avalanche Method

The avalanche method involves paying off your debts in order of highest to lowest interest rate, regardless of the balance. This approach can help you save money on interest costs in the long run.

Here’s how to do it –

  • Make the minimum monthly payments of all the debts to avoid late fees and taking a hit on your credit.
  • Make extra payments toward the highest-interest debt until it’s paid off.
  • After paying off the debt with the highest interest rate, move on to the next highest on your list. Keep repeating the process until all of your debts are paid off.

Business Debt Consolidation

Business debt consolidation is a good idea if you’re looking to make your multiple high-interest debts manageable.

The strategy involves combining multiple debts into a single loan with a lower interest rate.

With debt consolidation, you can save money and boost your cash flow while simplifying the repayment process.

Here’s how to do it –

  • Bank Loans – If you need a debt consolidation loan for your business, banks, and credit unions are two of the accessible options to get one.
  • SBA Loan – SBA loans are administered by the federal government specifically for small companies in financial need. Hence, it is one of the best ways to consolidate debt if you don’t have a good credit score or your financial standing isn’t stable.

Negotiate for Debt Restructure

If your debt is huge and none of the above strategies prove effective, you can try negotiating with your vendors and lenders to restructure your debt.

Ask your vendors if you can extend payment terms on any outstanding invoices. If you have a good working relationship with your vendor, you can also negotiate for a larger discount for early bird payment on new purchases.

Similarly, suppose you have a good credit history. In that case, you can talk to your lender about your financial hardship and request flexibility with late fees, restructuring payments, and lowering the interest rate.

Remember: Renegotiating a business loan’s terms is likely to affect your credit score. Using this tactic is best when you’re not planning to apply for additional credit in the next year or so.

Successful debt restructuring demands good negotiation skills. So, if you have doubts about yours, you can work with a debt settlement firm, and they can negotiate with collection agencies and creditors on your behalf to extend or change your existing credit agreements.

Conquer Your Debt

If handled right, your debt can take your business to greater heights. But if not tamed properly, it can turn against you. Try the strategies outlined in the article, and you’ll be able to take control of your debt.

And if you need help, work with a financial professional.

They cannot guarantee that they’ll be able to help get your imaginary dragon under control, but they can surely be of great help when it comes to debt.