How to Start a Business—Even If You’re Drowning in Debt
If you feel like debt is taking over your life, take a look at household debt statistics from the New York Federal Reserve. Student loan debt stands at over $1.3 trillion, and credit card debt is rising.
Even if you feel like you’re drowning in debt, you don’t have to give up on your dreams of starting a business. I know what it’s like to start a business with over $100,000 in debt. When I founded Student Loan Hero (now LendingTree), my six-figure debt threatened to drag me down.
I got through it, though. And in the end, my business helped me pay down my debt and become debt-free. Here’s how I took control and became an entrepreneur despite my debt—and how you can, too.
1. Get your debt payments under control
The first step is to get your debt payments under control. In many cases, you might not have the monthly cash flow to build your business. Making your debt payments can take almost everything you have.
To free up cash flow and start building your business, consider strategies for reducing your monthly debt payments.
2. Consider income-driven repayment for federal student loans
One frustrating thing about student loan debt is that servicers don’t always share all the options. I ended up defaulting on my student loans, adding over $33,000 in interest and penalties to my balance, because I didn’t know my options.
If you have a low income and federal loans, you might be eligible for income-driven repayment (IDR) plans. When you take advantage of one of these plans offered through the Department of Education, your payments are capped at a percentage of your discretionary income.
Capping your payments frees up more money for you to invest in your business. Once the business is up and running and you see increased income, you can put more toward paying down your debt. Sticking with IDR can cost you more in interest over the long run, so once you’re on more stable footing, tackling that debt is important.
3. Refinance student loans
If you have good credit, you might be able to refinance your private and federal student loans. Refinancing to a lower interest rate and longer terms can help free up monthly cash flow for your business.
Student loan interest is tax deductible, so it’s one way to lower your payments, reduce costs, and get a tax break while you work on your startup.
4. Consolidate credit card debt
Credit card debt and its interest rates could be a huge problem when starting a business. The average balance-carrying household owes about $16,048 in credit card debt, according to a ValuePenguin study.
One way to manage credit card debt is to consolidate it. Use a no-fee balance transfer to save on interest and make your debt more manageable. You can also get a personal loan at a lower rate to eliminate credit card debt faster. Personal loans are attractive because they are unsecured—meaning you don’t need collateral. Credit card consolidation can also lower monthly payments, freeing up money for your business.
If you have a home, you might be able to get a home equity loan to consolidate debt. But that could put your living arrangement at risk if something happens and you can’t make payments. So, manage debt payments using strategies that emphasize unsecured loans.
5. Look for ways to cut other costs
Once your debt payments are under control, look for ways to manage your other costs. Lowering the cost of living can help better manage cash flow and put more money into your business. It’s a myth that you need to live in Silicon Valley or Seattle to create a successful startup. In fact, getting out of those areas can be beneficial.
First of all, the cost of living is much lower outside those areas, allowing you to save money on housing, food, and transportation, and boost investments in your startup. Additionally, it’s easy to get caught up in what everyone is doing in startup-heavy areas. Getting out can help you think outside the box and make the most of your creativity and innovative tendencies—without getting caught up in “doing it right.”
Cut spending on groceries, entertainment, and transportation. The money you save can all be put into your business.
6. Build alternative income streams
Business success doesn’t come overnight. While you work on your startup, it’s not always enough to cut costs. Once you have your debt payments under control and you cut back on spending, build alternative income streams.
After my first business idea was discarded, I founded Student Loan Hero in 2012. It wasn’t an immediate money maker, so I had to keep income coming in. I listed my apartment on Airbnb and freelanced. You can try other side hustles to boost your income.
Don’t wait until you’re out of debt to start a business
It’s tempting to wait until everything is perfect to start your business. However, if you wait until you’re completely free of debt to begin, you might not ever make the leap. Start your entrepreneurial journey even though you have debt. It won’t be easy, but assuming that you will make it work can help. Get your debt under control, support yourself while building your business, and eventually see results. It’s possible to build a successful business even if you have debt. I’m the proof.
Hello!
I’m Andrew Brooks, a seasoned finance consultant from the USA and the mind behind phonenumber247.com.
My career is built on a foundation of helping individuals and businesses thrive financially in an ever-changing economic landscape. At phonenumber247.com, my aim is to demystify the complex world of finance, providing clear, actionable advice that can help you navigate your financial journey with confidence. Whether it’s personal finance management, investment strategies, or understanding the nuances of market dynamics, I’m here to share insights and tools that can propel you towards your financial goals.
Welcome to my digital space, where every piece of advice is a step closer to financial clarity and success!