When we use debt, we are essentially borrowing from tomorrow’s happiness to pay for things we can’t afford today.
- How much interest are you paying each year?
- How is debt affecting your cash flow?
When debt is destroyed your business will be more profitable. I know this doesn’t sound possible but I’ve seen it work with many of my coaching clients and with my own business.
While there are select and strategic ways to use debt, this is an area that becomes a slippery slope if not managed properly. Here are some tips to help you eradicate debt.
Institute a Debt Freeze
Determine how much you owe – make a list that includes interest rates and monthly payment amounts.
Identify expenses that can be cut (ask yourself – is this expense absolutely necessary) and be willing to make some tough decisions and possibly some uncomfortable cuts.
Create A Debt Snowball
- List debts in order from smallest to largest dollar amount.
- Take the extra money you found by cutting expenses and use it to pay down the smallest debt. This creates the quickest win. I know it seems counterintuitive to not pay based on the highest interest rate, but it works.
- When that debt is paid off, take the payment amount and add it to the minimum payment of the next debt on the list.
- Maintain minimum payments on all debts.
- Rinse & repeat until all debts are paid in full.
- Utilize most of the quarterly profit allocation to pay down debt (be sure to pay yourself 5-10% of profits each quarter).
Make Better Decisions With The 10-10-10 Method
Before making a purchase, ask yourself – What will I feel like in the next 10 minutes if I make this purchase and what will I feel like if I don’t make this purchase? Get clear on your feelings.
Then ask yourself – What will I feel like 10 months from now if I make this purchase or if I don’t make this purchase? Will you even remember the purchase? Will it affect your bottom-line profits? If it won’t affect profits, then my question to you is: Do you really need to make the purchase? (Think: Is this a want or a need?)
Lastly, ask yourself – What will I feel like in 10 years if I make this purchase or if I don’t make this purchase? Is it something that will be life-changing? Or, will you even remember the purchase?
We call this utilizing the 10-10-10 Method. This is a great way to make a more informed decision and it will help you to not make quick impulse decisions.
Avoid Co-Signing or Guaranteeing Others’ Loans
I know it’s hard to say no, especially if it’s family, but it doesn’t just affect your business, it also affects you personally. Personal debts always affect the business in some way so be very careful in this area.
Avoid Credit Cards or Manage Them Carefully
There is a right time to use credit cards, but they can easily be leaned on too heavily, miss managed and then before you know it you are swimming in debt with huge interest fees that are eating into your profits.
They are only a good idea if you can keep your spending in check. I always recommend to my coaching clients that credit cards are to be paid in full each month. When you do this, they become a good tool for your business.
Be sure you are only buying items for your business that you CAN afford.
Ignore those rewards they tease you with! They will not make you rich.
If you’ve found value in this topic and would like to discover how our Profit Implementer Program will help you kick debt to the curb, please reach out to me to book a Profit Planning Session Today.