If you have an overwhelming amount of business debt, you may qualify for a debt relief program. While debt relief isn’t a quick fix and it’s often difficult to qualify for, it’s sometimes the solution to serious financial issues.
Keep reading to discover four things you need to know before seeking debt relief for your business.
What Is Debt Relief?
Debt relief is the restructuring of debt. A debt relief plan may alter the loan terms or amount of debt you have, allowing you to regain your financial footing more quickly. However, debt relief isn’t for everyone, and it’s important to understand everything it entails.
Business debt relief may involve getting rid of your debt altogether through bankruptcy. It could also mean having your interest rate or the amount you owe reduced. Debt relief will have a negative impact on your credit score. However, your credit score will also suffer if you’re unable to make your monthly payments. As you can see, deciding to seek debt relief has far-reaching implications. Therefore, you should do thorough research if you’re serious about utilizing it.
When to Seek Debt Relief
Debt relief isn’t a simple fix. It’s a complicated, stressful process, so only look into it when you’ve exhausted all other options. If you can pay off your unsecured debts — credit card debt, personal loans, and medical bills — by budgeting and changing your spending habits, you should.
Consider debt relief if you can’t pay off your unsecured debt within five to seven years, even with severe cuts to your spending. Another way to decide if you should seek debt relief is to calculate your debt-to-income ratio. If your outstanding debt exceeds half your annual gross income, you should consider debt relief.
Your Income and Assets Matter
It’s relatively difficult to qualify for debt relief, and there are no guarantees. You may think you can’t afford to pay back your debt, but your creditors may disagree. They will examine your income, savings, and assets before agreeing to work with you. If you have a high income or money tucked away in a savings or retirement account, they may refuse to provide assistance.
Tax Debt Relief Is Possible
It’s a common misconception that the IRS refuses to work with people who owe back taxes. While it’s a complicated process that often requires professional guidance, the IRS often works with people who owe back taxes. If you qualify for tax debt relief, the IRS may offer you an Offer in Compromise, which will allow you to settle your tax debt for less than you owe.
Alternatively, the IRS may allow you to set up a payment plan or provide relief from penalties and liens. In some cases, tax debt is dischargeable in bankruptcy, but this is an extreme option that involves many factors.
Business debt relief is an option that may provide a way to save your business and secure a solid financial future. It’s not a quick or an easy fix, but it may offer a solution to difficult financial issues for some business owners.