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Home » Business And Finance Articles » Debt Consolidation May Be An Important Resource For Home Business Owners

Debt Consolidation May Be an Important Resource for Home Business Owners

One of the main reasons that viable and otherwise sound businesses fail is that owners lack financial resources to weather the first difficult months and even years. Starting a freelance or other home-based enterprise can be a lucrative venture, but it is highly unlikely the rewards will roll in early in the game.

Most business advisors recommend that a new business owner sock away enough money to support himself for a year or more before embarking on a business.

This does not mean that the business will not take in money, even early on. The usual course of small business is that business starts slowly at first and builds, often in fits and spurts. However, small businesses will have a disproportionate amount of expenses in these first months and years.

You'll be surprised by the expenditures you'll have in the first year; you have to buy all of your equipment, supplies, permits, software, and so on. These seemingly minor items can end up costing you thousands of dollars. Covering those expenses can be tough. Even when a new business starts to earn money, it is not unusual for it to post losses in the early months because necessary expenditures simply outpace earnings.

Besides saving money for the day you start your business, you should also work very hard to reduce your personal expenditures. Anything that can be paid off before you start your business should be paid off. Besides, it will be good practice for the new business owner to practice living more frugally! Most new businesses will take a lot of financial flexibility and learning how to live on less is a great skill that just about every business owner will tell you is important.

If you have debt (and who doesn't?) you may want to consider something known as debt consolidation. Before you get riled up, debt consolidation is not bankruptcy or debt settlement. It's a perfectly legal, ethical way to roll your many small debts together in one package and then negotiate a better loan on the large amount. The idea behind debt consolidation is that you may be able to restructure (consolidate) your debt in such a way that you will have to pay less interest to pay it off.

Debt consolidation won't hurt your credit report. In fact, it could actually improve it! That's because debt consolidation means you get a big loan to pay off your smaller debts. Paying off a debt usually improves your credit. And if you manage the larger debt consolidation loan well, that will help your credit, too.

By the way, a good credit score is essential for a new business owner!

But how does it work? In theory, you gather your debts. Let's say you owe $5,000 on a department store credit card that charges 22% a year interest. That may sound exorbitant, but it is not all that unusual. The interest on a loan like that is $1,100 a year!

Let's say you have some other loans. For the purpose of illustration, let's say you have one credit card maxed out to $10,000 at 16% ($1,600 interest a year) and another credit card that charges 14% where you've charged $3,200 ($448 a year in interest).

Put these three amounts together and add them up. You'll end up with $18,200 in debt. Now let's just say for theory's sake that you can find a new loan for $18,200 that charges just 12% interest. You get that new loan, use it to promptly pay off your three charge cards, and now you pay off the one new loan. By the way, 12% of $18,200 is $2,184 in interest a year.

Consolidating that debt saves you $964 a year in interest. You have to pay $80 a month less. If you are really savvy, you'll take that $80 and apply it toward the principal. You spend the same exact amount of money, but you will get out of debt significantly faster.

That's a small picture of debt consolidation. You can also roll in car notes, student loans, medical bills, and other debts.

Of course, debt consolidation can be tricky. First, it may not work for you-you may owe money but at rates that are already as low as you can get. Second, you might want to get a lower-interest-rate loan but cannot qualify. It helps if you own your own home, but even if you do not, there are other ways to consolidate your debt.

If you can consolidate and pay off your debt, you'll have a tremendous business edge, one that is hard to appreciate until you've been in business for a while. The lower you can reduce your expenses and the more adjustable you are to living modestly during the early years of your business, the more freedom you'll have and the more time you'll have to give your business the start it deserves!

And here is another random article you might be interested in...

Write It And They Will Come: 5 Ways Written Information Products Can Build Your Business

Whether it's a downloadable report available from your website, a book sold in the bookstore or a brochure that you hand out at a trade show, information product is just that a product that contains information.

A well-written information product is valuable to your potential customers because it offers them insight, tips, solutions or awareness into the issues that most concern them. A written information product is valuable to you because it can help you to build your business. Here's how:

1. You can create a targeted list of names and email addresses. By offering a written information product available at your website, such as a free e-course or special report, you're giving your visitors something valuable in return for their name and email address. When your information product is created especially to address the needs of your target market, you know that the people who request it will be interested in what you're doing.

2. You're the expert. A written information product demonstrates your expertise in the topic that you specialize in. It will make you more attractive and credible to prospective clients and customers as well as to referral sources and the media.

3. You stay on their minds. A written information product such as a brochure or handout is something people can take away with them, when you meet them at networking events, trade shows or in line at the grocery store. Because it has useful information, they will want to keep it and look at it again.

4. Your visitors have an attractive variety of options. For customers or clients that are unable or unwilling to pay for your top-level consulting or in-person services, written information products offer a cost-effective option for you and a valuable and satisfying option for your clients.

5. You're open 24/7. Your prospective clients and customers can take action and get a response from you 24-hours a day. A message or series of messages delivered automatically from your website can provide a hands-off way for you to provide a sample of your services, sales information or answers to frequently asked questions.

And that's not all! Consider the added value to your customers and clients (and the added revenue for you) of adding e-books, tutorial packages, learning guides or other products. The possibilities are endless!

(c) Copyright Linda Dessau, 2006.

You have permission to publish this article electronically or in print, free of charge, as long as the bylines are included. A courtesy copy of your publication would be appreciated.