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Do You Need to Pay Off Personal Debt Before Starting a Business?

Updated on January 17th, 2022

You dream of starting your own business. But your debt is like an albatross around your neck. It just won’t go away. You find yourself wondering; do you need to be free from personal debt– those student loans or your medical debt- before you start a business of your own?

You Don’t Need to Be Debt Free to Start a Business

There are really no rules when it comes to when you should start a business. If you’re waiting for the heavens to open and tell you that now is the right time, you’ll wait forever.

The US debt situation is pretty stark. The average American household carries almost $16,000 in credit card debt, $50,626 in student loan debt and $182,421 in mortgage debt. It’s a rare person who is completely debt free in the United States. So if you’re waiting to wipe out that mortgage before you start a business, that day might never come.

If you’ve got a dream and more to the point, a plan for profitability, you might just have to go for it while still carrying personal debt. Luckily, there are no laws against starting a business when you’re in debt. No one will stop you from becoming a sole proprietor or an LLC if you so choose.

But You Should Know What Your Budget Can Handle

That doesn’t mean you get free reign to jump into any business idea that occurs to you in the shower. Starting a business means legal and financial changes to your life, and you need to be prepared for that. Personal debt can impact the type of small business loans you are eligible for, and it might turn off potential investors or business partners.

Personal debt can create additional stress as you start your business too. Will you be able to reinvest your early profits and grow your business, or will you need the money to pay off those debts?

Personal debt can complicate your business finances. When you’re just starting out, do you want your finances to be complicated? Or would you rather have them be as simple as possible?

You can build a business while paying off debt. Many people in the US find wealth when they start their own business, since there is no salary limit the way there is at a desk job. It all depends on how you handle your personal and business finances as you start a business.

So don’t let your debt hold you back, but don’t ignore it either. Be smart, be cognizant of it, and work to eliminate it as soon as possible. Your business might depend on it.


Kara Perez

Kara Perez

Kara Perez is the founder of Bravelygo. Kara discovered her love of finances courtesy of her quarter-life crisis. Broke, underemployed and saddled with student loan debt, she realized that her lack of financial education was crippling her adulthood. She now connects individuals with how to save and make money. She freelances in the areas of personal finance.

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