How To Articles

How to Reduce Your Bad Debt

If your small business has bad debt, clean it up as soon as possible. Many forms of bad debt, usually from credit cards, can seem like a great idea and an easy way to access some much-needed cash. Unless you settle these debts promptly, however, they'll probably come back to haunt you, usually in the form of high interest rates and poor credit scores.

Not all debt is bad. Some types of debt, like a bank loan to help you expand your business, are good. Other types of debt, like student loans or mortgages, are even considered excellent debt (usually).

What makes debt bad? Here are a couple of questions you should ask yourself. Is your debt manageable? Or was it used to purchase things that will appreciate rather than depreciate? If you answered no to both of them, then your debt is most likely bad. The basic rule of thumb here is that you shouldn't take on any new debt unless it will actually help grow your business and you have a realistic plan for paying it back. If you have bad debt, here are some tips to help you start reducing it and ultimately eliminating it.

1. One of the first things you should focus your attention on is spending less. It seems like a no-brainer, but spending too much is what got you into this mess in the first place. At the very least, your expenses should be less than your income. That way you can start building up a little bit of a savings.


2. Only making minimum payments on credit cards will leave your debt active for a long time. With bad debt it?s really best to pay it off as soon as possible. Making more than the minimum payment is the only way to eliminate the debt quickly.


3. If you have debt on credit cards with extremely high interest rates, try transferring that debt on to credit cards with lower interest rates. This will drastically slow down the growth of your debt.


4. You can also attempt to negotiate with your credit card company for a lower interest rate. They are typically resistant to negotiations with customers, but if you explain that you are a good and loyal customer and that they are in jeopardy of losing your business, they may be more open to the idea.

Bad debt is a huge problem for both businesses and individuals because it can negatively affect so many facets of their lives. The best advice, of course, is to not become entangled in it in the first place. When it does happen, however, don't be afraid to seek help from an experienced professional who deals with bad debt and financial management and can help you get back on your feet again.