Being an entrepreneur isn’t easy and another thing that isn’t easy is getting out of debt. Which is why it is crucial to take precautionary steps so that you never fall into the debt trap.
Entrepreneurs cannot rely on a stable paycheck to get by. In fact, most entrepreneurs invest their savings into their startups. This makes it even more important to steer clear of debt.
Here are five simple ways entrepreneurs can avoid debt.
1. Research Right
Begin by doing your homework – consider all your options before finalizing anything (such as applying for a loan). It is important to consider factors like whether you’ll be able to repay it or not, interest rates associated with it, etc.
It is wise to go with other options such as startup incubators or crowdfunding if you feel loan isn’t an option for you. Whatever method you decide, make sure you’ve done in-depth research and are confident with your decision.
2. Make a Budget
Strategize how you’re going to pay back your loan by figuring out how much you need to pay every month to maintain (at least) a minimum payment.
Begin making your budget by writing down your income and expenses including fixed costs, and other expenses such as insurance and repair. Once done, think of all the one-time expenses like hiring copywriters to publish a press release or replacing a faulty device (laptop).
Create your budget based on all the previous steps. Identify areas where you can save money such as switching to public transports for the commute, switching to regular coffee rather than Starbucks or quitting bad habits such as smoking and drinking.
If you’re having trouble setting a budget and sticking to it, then you can consult a professional to help you set a budget that is easy to follow and benefits you in the long run. It will cost you a small sum of fee but in exchange, helps you stay out of debt by sorting out your finances for a really long time.
3. Steer Clear of Credit Cards
A fantastic way of staying out of debt is to not spend more than you can. Credit cards propel individuals to spend more as individuals cannot “feel” the actual money slipping away from them. Additionally, they come with high-interest rates that might seem small at first, but significantly add up later.
However, if you are using your credit cards to establish a credit score to avail benefits like travel miles, then stick to using credit cards for making small purchases such as buying groceries or gas.
4. Increase Your Sources of Income
Trimming costs sound like an amazing strategy until there comes a point when it’s impossible to trim any further. To overcome such a situation, figure out ways you can generate more income.
Minting extra money isn’t as hard as it seems. In fact, you can start earning a decent amount of money simply by selling extra items you no longer need such as furniture, clothes, accessories, etc. on sites like eBay and Olx.
You can also enrol for a part-time job. Yes, it will initially be tough to juggle between jobs but isn’t it better than falling into debt?
5. Prioritize by Consolidating Your Bills
You might have a couple of bills to pay or unpaid taxes that need to be taken care of. How do you decide what’s more important? You can either use the debt snowball method or prioritizing the monthly payments.
In other words, you can either pay back smallest payments such as credit card receipts or largest such as payroll and taxes.