Carrying credit card debt has become so commonplace, but when you launch or try to grow a startup, you realize this debt has the potential to hold you back.
Carrying credit card debt from one month to the next has become so commonplace, most people just feel like it’s their new normal. But as soon as you start trying to launch or grow a startup, you’ll realize this debt has the potential to hold you back.
The State of Credit Card Debt in the U.S.
Credit card debt is a big deal. According to a recent study of Americans, household debt has increased by 11 percent in the past decade. The average household with credit card debt has an outstanding balance of $16,748. That equals a cumulative credit card debt of more than $779 billion across the nation.
Using credit cards isn’t a bad thing, as long as you pay off your balance in full at the end of every month. This prevents you from owing interest. The danger is revolving debt. This is when you only pay off part (if any) of your balance from month to month.
While certain revolving debt is fine – such as a home mortgage – you don’t want to have revolving credit card debt. Interest rates tend to be extremely high, with the average household paying $1,292 per year in interest on a carried balance of $6,885 (assuming an annual percentage rate of 18.76 percent).
One scary trend – at least for entrepreneurs – is that self-employed individuals tend to pay the most credit card interest annually. Households led by self-employed individuals spend $1,631 per year, while those led by individuals working for someone else pay $1,211.
3 Ways to Start Tackling Debt
Credit card debt holds entrepreneurs back in multiple ways. For starters, it means a larger percentage of your monthly income has to go towards paying off debt. That’s less money that can be used to fund your business. Secondly, it means lenders and investors are less likely to give you more money.
The good news is there’s a way out – you just have to find it. Here are some of the top options for escaping debt.
- Begin by Consolidating
If you have lots of different debts, the first thing you need to do is consider consolidating them into one larger debt. There are many benefits associated with doing so.
“The first reason people choose to consolidate is to bring down their rates,” Consolidation.CreditCard explains. “If you have three credit cards at nine-percent interest, then consolidating those cards into a single payment at three-percent can save you money every month. You should be looking for enough of an interest rate cut to make the process worth your while.”
- Don’t Go Into More Debt
Entrepreneurial people tend to be ambitious and optimistic. This is often a good thing, but can have negative ramifications when situations don’t go exactly as planned. A lot of entrepreneurs try to escape their personal debt by building out their businesses. But in order to build their businesses, they go into more debt. Don’t do this! More debt is not the solution to getting out of existing debt. Find ways to make more money without taking on additional payments.
- Work on Debt Settlement
If you honestly have no way of paying off your debts, then you might consider debt settlement as a last-resort option before bankruptcy. Depending on the type of debt and the age of delinquency, a settlement may reduce the amount you owe by as much as 60 to 80 percent.
Don’t Let Debt Hold You Back
As an entrepreneur, few things can hold you back quite like personal debt. Not only does it hurt your ability to fund your business, but it could ultimately lead you down a painful path towards bankruptcy.