The world of credit is a mystery to a lot of people. A common idea is that having debt is bad and that you should avoid it at all costs, but the reality is different. Financial institutions aren’t the devil that wants your soul, but a tool that you can use to work for your dreams.
Yet, it’s not all rainbows and puppies. It takes some personal and business management to be on the good side of debt. Because, yes, there is such a thing as good debt which is the money you borrow to fulfill plans that otherwise you couldn’t. The most important thing to remember is that credit comes with a cost but there are tools that can help you manage that, like a business loan calculator that will give you a good idea of a possible debt.
Good debt is basically the one you take to pay for things with a long term value like machinery, technology and achieve business goals that will help you take your plans to the next level. And the truth is that going into some debt can be useful because you:
- Create a credit score
- Demonstrate that you are serious
- Get to own things that otherwise you couldn’t or would take serious savings like Real Estate
- Deduct taxes
So here are some tips you can apply if you want to have and manage good debt properly when running a business.
Pay on Time
Keep your eye on the ball and never default on payments to a financial institution because this can affect your credit score and turn you into a not so reliable credit subject. Have a reminder in your book or iCalendar or even program an automatic payment.
Don’t Take More Than You Can’t Afford
Or even more than you need, the idea is that you can borrow money to put it to good use and, if you don’t have a good management you could end up overspending and with an unpayable debt. And to that note…
Calculate Your Debt
Use a business loan calculator to know how much you would owe, how much you’d have to pay each month and how long would it take you to pay it all back. Doing this before taking on debt can help you realize how much money you can actually borrow and doing it regularly after you have the money can give you a sense of accomplishment because you will see how your debt gets reduced. Trust, it works.
Use the Money You Borrow to Grow (and have it pay by itself)
Having this new pocket of cash can be tempting, after all your hard work deserves a good beach holiday, right? Wrong. Never use the money you get for your business for personal things that will forever live in a picture and your memories but won’t have an actual return. Invest it wisely in your business and pay it back with the fruit of your labor.
Always Know How Much You Owe
This should be personal and business finances basics but sometimes people forget. But you know who doesn’t forget? Credit report companies. Owing more than you can’t pay can be seriously harmful for your business finances and for your credit score, and ruin the chances of having more leverage in case you need it. Keep tabs on what you owe and have a strategy to pay it all back.
Don’t be afraid to use a business loan calculator to compare your options when you have a decision to make. They will be your best friends when it comes to analyzing terms, costs and future basic income. You’ll only need the amount you’ll be borrowing, the term in month or years and interest rates and you’ll be on your way to manage your very good debt.