Wednesday, Nov 30, 2022
Outlook Money

Restore, Revive, Rewind: Eight Ways To Get Out Of A Debt-Trap

Falling into a debt trap because of a business venture not taking off successfully is not unheard of. In fact, the real problem is not just about falling into the debt trap. The bigger question is how to come back from a debt trap, and most importantly, how to make sure to never fall back into it, again

It is not uncommon to find oneself in debt as a result of a failed business venture.

In December 2012, I was under a debt of Rs. 45 lakh, and had a loss of Rs. 70 lakh. My confidence was at an all-time low. My parents stopped stepping out of their home, and I had lost all hopes of making it big as an entrepreneur.

One of the most troubling times in an entrepreneur’s life comes when there is debt because of a business venture. 

I always say this, that when you lose money, you don’t just lose money, you also lose confidence. You are constantly looking over your shoulder, you are angry, blaming everyone around you and yourself for the situation you have landed in. These feelings come naturally with the pressure of debt. 

Entrepreneurs go through a lot when they take out a loan, whether it is from the bank or from family and friends. Borrowing money to build a business is a common practice, but it often entails incurring debt. On one hand, it does provide the initial money required to launch and cover operational expenses until the firm takes off, but taking a loan does not guarantee that your company’s finances will always be in your favour. 

Far too many businesses and entrepreneurs have collapsed as a result of debt build-up and the inability to repay on time.

If you went into a debt trap in your business, then you are not a criminal; you did not use that money for your personal joy! 

When I started my journey of recovering from the phase of debt and walked towards paying it off and stabilising my business, I learned, applied, and recorded some steps that became a part of my growth journey that took me out of the trap! 

Many businesses and entrepreneurs have failed due to debt accumulation and an inability to repay on time.

These are the eight steps that will help entrepreneurs get out of the debt trap, which enabled me to live with my head held high and will help you to live guilt-free, too: 

1] Accept The Situation: There is a huge difference between knowing that you are in debt and accepting that you are in debt. You just need to accept the fact that you are in debt and it is absolutely fine to be in debt. Don’t escape or avoid the situation. 

2] Forgive Yourself, Forgive Others: Once you start accepting the fact that you are in debt, you will start blaming yourself. Stop blaming, and start forgiving yourself first. Then stop blaming others, and start forgiving them, too. You need to bounce back mentally and emotionally before bouncing back financially.

3] Be Aware Of The Trap Of Desperation: This is the time when there might be many ‘get rich quick’ pieces of advice or schemes coming your way. I too fell into this trap of grabbing any opportunity to make money. I had become a copper wire trader for a while, as I desperately grappled with my situation and tried every means to make money quickly. Needless to say, it didn’t work out. Be patient, don’t look for ‘get rich quick’ schemes, and be optimistic that you will be able to repay everything back. 

4] Communicate With Courage: Communicate to the people you owe money. Tell them you need time to pay back when they ask. Try not to break their trust; thank them for helping you in your tough times, and promise them that you are trying your best to give them their money back. 

5] Rebuild Your Business: On the basis of your strengths, you have to rebuild your organisation, and the rapport in the market to get sustainability for your product/service. For example: Learn more about management, team building; do everything you can to build capabilities.

6] Repay Your Debt But Not From Everything You Earn: This is a common mindset that whatever we earn, we have to repay. This way, you are not giving yourself a second chance to save money for yourself. Always keep a part of the money you earn to rebuild your business.

7] Learn From Your Mistakes: The lesson is to value money and utilise it wisely. You need to learn from past mistakes where you had to take money from people. Learn how you can manage your money this time.

8] Have A Money Discipline: If you’re taking out a new loan to pay off an existing one, consider how it may affect your finances. To cover your liquidity demands, you might take out a loan against collateral, such as gold or property. Remember that another unpaid loan might result in the loss of your property or the deterioration of your relationships with friends and relatives. Create a money discipline and stick to it no matter what.

These are some of the proven ways I have learned that helped me get back on my feet and establish successful businesses, which now have a strong financial discipline, strong fundamentals, and profitable methods to grow and scale. 

The problem is not just about falling into the debt trap. The bigger question is how to come back from a debt trap, and most importantly, how to make sure to never fall back into it, again. 

The author is a business coach and founder of Quantum Leap

(Disclaimer: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.)