Dealing with Debt

In a previous life, I was a bankruptcy lawyer. When I tell people that, they often cluck-cluck and opine that it must have been a terrible way to make a living because the people and businesses I helped were obviously in such distress.

But actually the opposite was true; helping people get out of debt beat suing any day of the week. I never received a thank you note after a lawsuit, but I sure did after many a bankruptcy because those clients were able to get their affairs in order and finally breathe easier.

What I learned about debt in those years was that no one ever plans to get in over their head, but circumstances, as they are wont to do, change. It may be losing a big client, or getting stuck with a bad lease, or even an unexpected medical emergency. Whatever the case, big changes in your business and life can have profound negative consequences on your business.

So how can you avoid this unenviable fate? Here are a few ways:

Play it cool, boy: Back then I found that, surprisingly, people would get into more financial trouble during boom times than bad times. Because the money would flow in so easily, they thought little of (over)spending. It didn’t seem like overspending to them at the time, and it probably wasn’t, but as soon as those ‘ol circumstances changed, covering that now bigger nut became much more difficult.

So I am reminded of the lines from West Side Story:

Boy, boy, crazy boy

Play it cool boy!

Breeze it, buzz it, easy does it

Turn off the juice boy!

Cut the expenses, especially now: I just read a story by Richard Branson that said he loved expanding during recessions because “everything is on sale.” Here, during leaner times, it is far easier to cut your costs – reduce your rent with less expensive digs for example, or negotiate a better deal, cut labor costs, look for less expensive insurance and phone deals, or even find a better and quicker way to handle expense reports (time is money after all.)

Pay down your creditors: A very common scenario I encountered back in the day was where people would run up their credit card debt with little thought for how they would pay it off. Then the interest would accrue, and things would get out of hand. Here’s what to do instead:

  • Transfer card balances to the card with the lowest interest rate

 

  • Work to pay that debt down as quickly as possible, paying as much more than the minimum as possible

 

  • Pay down other large balances

The danger of debt is not that you can’t handle your overhead now, but that you may not be able to if something bad happens. A little extra action now can pay huge dividends down the road. Take it from an old bankruptcy lawyer.

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