Pay Down Debt or Invest In Your Biz?

pay-down-debtYou want to pay down your debt.  But you’ve been making the same money for the past 2 years.  You know that something has to change.  Or it’s just going to be same sh** different day.

You totally want to upgrade your website, hire an employee, get a MacBook Pro, and invest in social media. But your credit cards/ other debt are killin’ you. Why, because you are spending $200 a month in interest.  That $200 could go to a new logo or some software you really need.

You feel stuck because you are not sure what to do – pay down debt or invest in your biz. If you rack up more debt, you will just dig a bigger hole for yourself. If you make the minimum payment on your debt, you won’t chip away at reducing it. Total deer in the headlights. Ridic.

Everyone’s financial situation is different. What I am about to tell you is general in nature. This is not individual advice but I want to get you thinkin’.

If you had me in a headlock and gave me a noogie (who is still reading this and knows what a noogie is,) and said, Justin, help! What should I do? Pay down debt or invest in my business? My answer would be . . . drumroll please . . . I’d tell you to do both.

To pay down debt or invest in your business means you have some extra cash and you have a choice. If you don’t have the extra cash, then you will need to review all of your expenses, both business and personal. See where you can cut back without it affecting you big time.

But if the only way to pay down debt is to grow your sales, and not cut your expenses, then you have no choice but to make smart bets and invest in your business. Smart bets are where you have a pretty good shot at making a 3X return on your money within 3 to 12 months.

A smart bet is also investing a small amount of money that wont break the bank. Once you test and you see if the investment pays off, then you can go bigger. And what do you do with the profits? Take the cash and pay off that debt.

Here’s what you need to know and understand:

  • What’s the value of each client/customer you have?  Let’s say your average client relationship is worth $1000.  Would you spend $300 to make $1000? Of course! But you don’t know for sure if you will get the client. So you really need to think off the odds and what a customer is worth to you.  Remember, make small bets and test. Rinse and repeat. Take 2 tylenol and call me in the morning.
  • What’s the rate of interest you are paying on your cards?  Let’s pretend it is 10% interest. Think of it this way. If you paid off your debt, you would be effectively making 10% on your money. That’s because you wouldn’t have to pay interest anymore.
  • Can you lower your borrowing costs? If your rate is 10% on your credit cards, and you can take out a home equity line (HELOC) at a lower rate, that might make sense. You are lowering your borrowing costs. Most of the time, you can deduct the interest on a HELOC. Also, you should be able to lock in a rate to protect you in case interest rates rise. You could also try to do a balance transfer to a different credit card. Your credit score could go down and there are usually fees to do this.
  • You need to be aware of how you feel about debt. Are you willing to be strategic and borrow money when your gut says it makes sense? Do you feel comfortable borrowing money at 3% to try and make 5%?  Or does owing people money give you the freakazoids?
  • Ya gotta do something. Why?  Because more of the same equals more of the same.

Tell me your 1st step. Whatcha gonna do? Enter your answer in the Facebook comments below. We are all in this together. No judging. It’s our community. We’re just a cool bunch of people all merging our money with our lives.

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Pay Down Debt or Invest In Your Biz?

  1. Great advice Justin! I especially agree with your advice that you need to invest some in order to make some gains. As a business coach, clients often come to me with with a lot of fear about investing in themselves or their business. Yet without that, as you say, it’s more of the same. Smart investments and tracking strategies are the key to growth. Thanks for sharing so many good ideas.

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