Around 62% of individuals believe that starting a business is a good career move, according to Babson. If you’re planning on starting a business, you will need to take a hard look at the state of your finances — especially if you’ve got personal debt. Here are some solid reasons why managing your personal debt should come first before you launch a business.
Having Debt Limits Your Options
Lack of capital is one of the top four reasons why new businesses fail, according to Investopedia. In normal circumstances, you can take out a business loan to supplement your savings. Having debt limits your options for obtaining more capital through loans, as banks are hesitant to approve small business loans to clients that are already riddled with debt, says finance writer Miriam Caldwell. If you are unable to secure sufficient capital, your business may fail before it fully begins. Managing your debt before you start a business gives you more options in the future.
Managing Debt Builds Good Financial Habits
When you tackle your debt head-on, you get a good look at what habits may have led you to this situation and how you can improve them moving forward. For example, opting to consolidate your debt can offer you lower interest rates and give you a chance to get out of debt faster. It can also give you a definite payment schedule, allowing you to reduce your payments to one: since 35% of your credit score is based on your payment history, this is a much less risky repayment strategy. Spending time to review your finances and paying off your debt is a good financial habit that can help secure your financial future.
It’ll Be Good for Your Health
Around 60% of Americans feel constant stress about their finances when they have debt, according to the American Psychological Association. So keeping debt is not only bad for your credit score, but it’s also bad for your physical and mental health. Financial stress can show up in the form of anxiety, insomnia, depression, and many other mental health difficulties. So managing your personal debt before you start your business ensures that you’ll be in a better physical and mental state overall.
Debt may be a regular part of life, but it doesn’t always have to be there. Educating yourself on how you can manage your personal debt can better equip you for the larger financial responsibilities that come with being a business owner. So when it is time to launch your business, you’ll be in a better financial position to cultivate it well.
