Canberra Centre stores open after COVID-19 lockdown. Photo: Thomas Lucraft.
After enduring eight interest rate hikes since May, and with analysts predicting more to come, the financial pressure on individuals and business owners is set to continue.
Personal budgets and business cashflows have already taken a hit due to increasing loan repayments, especially frustrating given the additional amounts do nothing to reduce the principal of the loan.
RSM Australia Business Advisory principal Thiru Kandiah recently urged business owners to consider raising their prices to ensure they survive in the current economic climate. Beyond this, there are other avenues to reduce the growing financial burden.
At a time when borrowing has become more difficult, and lenders are increasingly cautious, there is one simple way to boost cashflow while simplifying your finances and freeing up a little extra capital – consolidating debts.
RSM principal Thiru Kandiah says bundling your debts can have many benefits. Photo: Liv Cameron.
Debt consolidation involves presenting all of your debts to a lender and asking for a single loan to pay them all out.
“Bundling your debts in this way can have many benefits, like eliminating multiple repayments, reducing the effort to manage your debt, having a specific end date for your debt and potentially negotiating a better interest rate,” Thiru says.
Often, debt consolidation will also reduce your monthly repayment amount. For example, you may have been paying $9000 a month to meet the minimum repayment across four separate debts. After debt consolidation, the minimum monthly repayment may be only $5500.
In essence, this frees up cash to put back into your business, which could be the difference between winding up, surviving, or thriving in the near future.
“Replacing multiple loans with a single loan makes it much easier to develop an achievable budget. You know what your minimum repayment is going to be, and you can factor this into your financial planning,” Thiru says.
“If you have a lot of random debts and aren’t sure which ones to pay off or consolidate, our advice is clear and simple – pay off any debt that you can’t claim as a tax deduction ASAP. Especially if these debts are relatively insignificant, it’s worth paying them off quickly and then seeking to consolidate larger debts.”
Ideally, taking a measured and intentional approach to managing your debt will give you the best chance of success.
Sometimes you may need the support of your accountant or an adviser, simply to work out all your options so you can develop a solid plan moving forward. This not only applies to business owners, but also individuals who are struggling to manage debts across their mortgage, personal loans, and credit cards.
“Your accountant or business adviser will be able to help with several financial goals and can work with you to assess your total financial situation, understand your debts, evaluate your income, including pricing and expenses, and develop a budget or cashflow plan.”
To book a free business health check appointment, or to chat with an experienced business adviser, contact your local RSM office.
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