Nothing is as sad and frustrating for me than trying to help a business in their asset acquisition endeavors, and hitting up against unfavorable interest rates and outright refusals due to what I think of as catastrophic debt.
Used in the right way, other people’s money can launch a fortune.
But, you have to account for the expense of having the money, and paying it back.
If you’re one of my property owners, you know it ain’t free, or cheap!
I know that a lot of these tips are going to seem obvious to some, but having them to reference just HAS to be an invaluable service to somebody.
For that reason, here now I present you with a guide to massive-debt rehabilitation.
Assess Your Financial Situation
List all your debts along with interest rates, minimum payments, and due dates.
Prioritize debts by interest rates, focusing on the highest ones first.
Calculate your monthly income and expenditure to determine how much you can allocate towards debt repayment.
Create a Budget
Cut unnecessary expenses to increase the amount you can pay towards your debt each month.
Stick to essential expenses like housing, utilities, food, and transportation.
Allocate any extra income or bonuses directly to high-interest debt repayment.
Devise a Payment Plan
Utilize the debt avalanche method: Focus on paying off the highest-interest debt first while making minimum payments on other debts.
I’m going to tell you right now that you’ve already figured this out.
Credit cards. Carryover credit card debt is an arterial money hemorrhage. Stop the bleeding as soon as humanly possible.
And of course, make sure to make all payments on time to avoid late fees and additional interest.
Negotiate with Creditors
The answer to the unasked question is always no!
Approach creditors to discuss lowering interest rates, waiving late fees, or modifying loan terms.
Consider transferring balances to a lower interest credit card but be cautious of transfer fees.
Monitor Credit Score
Do this. It’s much easier in the internet era than it was back when I was an unsettled youth.
Experian will provide you with a free account that will take you to your current credit score in seconds.
Just have a little patience when it asks you to upgrade, and click “continue with my current account.”
Behaviors Measured by Credit Bureaus
✓ Payment History (35%): Pay all bills on time.
✓ Credit Utilization (30%): Keep balance low in relation to the credit limit.
✓ Length of Credit History (15%): Longer credit history is beneficial.
✓ Types of Credit in Use (10%): A mix of credit types is advantageous.
✓ New Credit (10%): Opening too many new accounts in a short period can be risky.
Rebuild Credit Score
Consider taking out a secured credit card to rebuild credit but maintain low utilization.
Regularly monitor your credit score and report. (See above – this is easy!).
Set up alerts for bill payments.
In fact, set up auto-payment for every single bill that allows it. More on this in a minute…
Pro tip: ALL credit cards have some form of auto-payment. It is your friend.
Once Credit Cards are Paid Off
Ah, the good life!
Make sure you stop and celebrate the small wins.
But…don’t spend too much!
Let’s now talk about how credit cards are actually a powerful weapon in your campaign of empire building.
You have arrived!
You’ll be helping yourself to maintain a good credit utilization ratio, which can improve your credit score.
You’ll build a positive credit history by making small purchases and paying them off in full.
And one of my personal favorite things of all:
The opportunity to earn rewards, cash back, or miles.
Pro tip #2: credit card rewards are NOT taxable. Say that again to yourself. Not taxable.
Truth.
That includes statement balance transfers, and direct transfers to personal accounts.
This last thing is what you should do, by the way. The transfer to your personal spending account.
There is no reason why that ever has to get near your books for either accountability or tax purposes.
You’re welcome.
Finally, by using credit you can set up those small annoying SaaS subscriptions much more easily AND legally delay cash payment an average of 3 weeks.
See? Credit cards ARE your friends, when used properly
Auto-Payment of Statement Balance
There are myriad upsides to this. The biggest of course is the no-brainer factor.
It just happens, without that uncomfortable sucking feeling of wondering if you’re late again.
All you have to do is make sure the business checking account that payment comes out of has sufficient balance.
Have you ever heard me say I like to see people keep a 2X to 3X cushion in their business checking account, meaning two to three times the typical average monthly expenses of the firm?
This is a HUGE reason why.
Now, you’ve ensured you never miss a payment, you’re contributing positively to your payment history, and no interest accrues when you pay the full statement balance.
Making your credit cheaper to use.
By following these steps and best practices, you can work towards rehabilitating massive indebtedness, improving your financial stability, and manage your cash flow like a major player.
Would you like to learn more about how a client accounting services advisor can ensure this is working for you as a part of a comprehensive business financial plan?
Reach out now through the social media you may be reading this on, or just click here and book a Work With Me conversation now.
If you have any questions about anything profit, cash flow, or tax-related, now’s the time to find out more.
We empower property investors with an accounting-on-steroids approach.
We do still have 2 slots open for Advisory Services clients this month.
Let’s talk, soon!