Credit card debt is notoriously common in the United States. The average American household has $16,748 in credit card debt, and that’s bad news if you’re a prospective business owner. Entrepreneurs require a massive influx of capital to get their business ideas off the ground, fueling things like office costs, development of new technologies and products, and employee salaries. If you’re loaded with debt, that’s going to make things much more complicated. Not only will you have less personal capital to pour into your new venture, you’ll also have a lower credit score, which can affect your ability to get loans and capital from outside sources.

So what can you do if you want to start a business while you’re saddled with credit card debt?

The Ideal Solution

Ideally, you’ll be able to eliminate your debt entirely before you start a business. This will free up your personal finances, make you more available for outside sources of capital, and put less stress on you to make money immediately.

  • Negotiate your rates. First, try to relieve your debt by negotiating the rates on your credit cards. Sometimes, a simple call to the credit card company is enough to get your rates lower—and if you’re successful, you could end up paying hundreds to thousands of dollars less over the course of your payment.
  • Consolidate your cards. If you have debt on multiple cards and one of them has a significantly lower rate, consider consolidating your debts to one card. That will help you achieve the optimal interest rate and also make your payments easier to manage.
  • Create a budget. You’ll need to create a budget to reduce your expenses and establish upper limits for your spending habits, so you can use the extra money you save to pay down your debts. It’s a simple, but important step.
  • Pay more than you need. The power of compound interest means the longer it takes you to pay off your debt, the more you’re going to pay back in interest; if you don’t pay your debt off fast enough, you’ll end up paying interest on the interest, and you could end up owing more than you started with. The solution is to pay more money than you need to, funneling almost all your extra cash to paying down your principals.

Starting a Business While Still in Debt

Unfortunately, all of these debt elimination strategies take a long time to work; depending on your original debt, it could be months or years. If you’re trying to start a business sooner than that, you may need to start a business while still in debt. It’s certainly possible, but you’ll need to bear a few extra considerations in mind.

  • Start frugally. Depending on the business you want to start, it’s possible to begin a venture with less than $100. For other businesses, you may be able to reduce your operating expenses to a bare minimum while you bootstrap your venture. Doing this requires patience, and is especially stressful, but you can easily keep your business running on a few thousand dollars at a time. For these businesses, you’ll need to establish a line of revenue as quickly as possible if you want to survive.
  • Have a plan for capital. If you’re loaded with debt, you’ll need an alternative plan for capital. There are still many options available to you; you’ll likely be able to establish a secured line of credit (provided you have an asset to use as collateral), or you may be able to influence an angel investor or venture capitalist to invest in your business.
  • Prepare to compensate when pitching. If you do plan to pitch to venture capitalists or angel investors, make sure you have a strong financial model in place. If you aren’t investing any of your own money, and if your credit score is mediocre, you’ll need a strong pitch to attract additional funds.
  • Have a backup plan. Finally, you need to understand that even the best business models can—and do—fail. The majority of businesses fail within the first few years of operation, and if that happens, you may be left with even more debt than before. You’ll need to have a financial backup plan in place in case that happens, as an insurance policy to protect yourself.

You may be able to start and nurture a successful business even while swimming in credit card debt, but it’s difficult and inadvisable. If you can, eliminate your debt entirely before starting a business, and if you can’t, at least try to get it under control. The better you manage your personal finances, the greater your chances of entrepreneurial success will be.

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