Dealing With Debt: The Foundation Of Your Real Estate Business


Whether you run a household or run a business, you will most likely have some amount of debt to deal with. How well you handle any debt will go a long way in determining the financial strength of your investing business. You can be closing deals and bringing in money, but if it is going to pay down debt, your bottom line will not be impacted. Increasing revenue and lowering liabilities is the simplest way to reduce debt, but it is not always that easy. Fortunately, there are a few steps and methods you can follow that will help you avoid or eliminate debt altogether.

The biggest reason that many homeowners fall into foreclosure or businesses end up closing is because they avoid debt instead of facing it head on. This starts with knowing every dollar that you spend every month. Not only do you need to know what you are paying, you should know the interest rates attached. If you do not have an idea of your liabilities, you should get an updated copy of your credit report. This will give you most of the larger debts that you are responsible for every month. There are also many items that are omitted from the report that are part of your monthly bills. Keep every account statement and every receipt for a full 30 days and then review where your money is going. If you don’t know how much you are spending or what kind of obligations you have it is difficult to tackle a debt problem.

Once you know what your debts are, you can work on getting rid of them. If you are saddled with a lot of debt, it can feel very overwhelming and you want to try to get out of it all at once. Instead of trying to pay them all off, prioritize your debts and work on one at a time. Start with the accounts that are the highest interest rates or the accounts you have the least available credit in. If an account is almost maxed out, it will lower your credit score even if you pay on time every month. By slowly working a balance down, you will start to see results and it will have a real impact on your credit score. Getting out of debt won’t happen overnight. It may take weeks, months or even years, but the process has to start somewhere.

When you are running a business there is always going to be some debt that is carried. This is the nature of the beast and part of the process. It is important that you evaluate which debts are used to grow your business and bring in future revenue. If the debts aren’t being used for any good purpose you should stop using them and close the account. Once you pay down an account and pay it off you should close it immediately. What takes a while to pay down could quickly be run up again in a matter of minutes wiping away all of your hard work. If you close the account you will but it behind you and start to rely more on savings than credit to live. This will impact your buying decisions and slowly start to change any bad habits.

If cash flow is not the problem then spending must be an issue. Whether you are doing a rehab or balancing a checkbook it is important to stick to a firm budget. The minute you go over your budget you are taking money from somewhere else to compensate for it. This begins a juggling process that slowly eats away at any potential profits that come in. Instead of having a certain amount that you though you would realize from your check you have a lower amount and something will be shorted. Often times this means not paying a bill instead of not paying yourself. If you work with a firm budget and have the discipline to stick with it you can avoid these problems altogether. Things will always come up that cause you to have to spend unexpectedly but if you can keep these times to a minimum and remember the big picture you can avoid adding to your debt balances.

One of the reasons that finance is often avoided is because it can be very intimidating if you don’t know what you are doing. There are many differing opinions on how to approach and handle debt. To get the best perspective you should listen to every opinion you can find and read as much as you can on the topic. The more you know how negative bad debt can be the more you will do to avoid it. If you understand interest rates, compounding interest and as much as possible associated with debt you will have a better handle on it. You won’t become an expert overnight but over time you can educate yourself on exactly where you money is going every month.

Running a business engulfed with debt is not a very pleasant experience. This can not only impact your business but every other area of your life as well. If you are drowning in debt it is important to take one account at a time and work from there. If you run away from your obligations you will only make the problem worse. Know your liabilities and take them on one at a time. Before you know it you will be debt free and right back on track.