Should You Pay Off Debt Or Invest In Your Business?

Posted on February 28th, 2018
Writing-Off-a-Bad-Debt

Debt can be a huge liability for most people but for business owners, it can be even more damaging.

Entrepreneurs tend to have a fluctuating income and must meet the challenge of budgeting for fixed expenses with it. Add on the fact that it’s wise to invest in your business to keep it stable and growing.

So which one should you choose?

It Can Depend on What Type of Debt You Have

If you have personal debt like student loans, a car loan, or credit card debt, you can try to pay it off before you fully launch your business or at least pay it down so you have manageable monthly payments.

When I quit my 9-5, I only had student loan debt and it was a small monthly amount. I still wanted to pay it off quickly, but I didn’t have to and could still afford to invest some money back into my business.

If your debt is high-interest and unmanageable, you may not be able to afford to invest much into your business anyway and should focus on paying it off ASAP.

If you take out debt to start your business, consider that enough of an investment and commit to using some of your profit to pay that debt off.

Is Your Business Your Sole Source Of Income?

If so, you must consider investing in your business to keep the income flowing in. You can spend money on contractors, software, marketing, and other systems without going overboard.

When you’re investing in your business, you always want to consider the ROI and constantly assess what’s working and what isn’t.

Set a budget to determine how much of your profit you want to put directly back into the business and leave some income to at least make minimum payments on your debt.

The key purpose should be to grow your business’ reach and revenue so you can eventually pay off debt and continue to put money back in.

Start With a Solid Savings Stash

Before you decide what’s best for you, you want to build up your savings as a backup. If you choose to focus more on debt payoff and your business doesn’t grow as rapidly, you want to have money set aside to help you fund the lower income months.

If you choose to invest in your business and minimize debt payments, you don’t want your debt to grow and become a huge liability for you in the future. Either way, having some cash reserves set aside for expected and unexpected situations can help you prevail no matter what you choose.

Budget For Both

A smart solution would be to budget for both so you don’t neglect any important areas of your business or personal finances.

See if you can lower some of your living expenses and develop new business revenue streams to meet both goals. Maybe you can pick up new clients, develop a new product, or establish a profitable partnership to earn more so you can afford to pay a little extra on your debt and still put money back into your business.

This mindset allowed me to take action to pay off the rest of my $11,000 student loan balance and still invest $10,000 into my business last year.

Summary

Deciding whether to pay off debt or invest in your business can be a difficult decision, but you can do both if you follow the right steps. You don’t want your business or your debt to explode so make sure you have a solid savings plan and budget in place, while carefully focusing on ROI until your debt is paid off in full.

Choncé Maddox

Choncé Maddox

Choncé Maddox is a debt expert. She helps ambitious millennials and Generation Z get our of the mounds of debt they are in following college. In 2015 she realized she couldn’t afford to do her own laundry, she was so broke. She had to make a change. Over the next three years she personally tackled $50,000 in debt and became debt free. She teaches others her passion since.

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