5 Ways to make sure student debts don’t hold back your business plans

Posted on April 11, 2017 by ATB Chartered Accountants

A study by the Kauffman Foundation found that over half of millennials either aim to start a business, or have already started one. Despite these dreams, many millennials are graduating from higher education with significant levels of debt, often quashing these entrepreneurial goals. This brings the question, what can millennials do to ensure this debt doesn’t hold back their business goals?

1.CONTROL YOUR DEBTS

It is crucial that you remain in control of your debts by keeping on top of them. The first step in doing so is to be aware of how much you owe, both in student debts and any other loans you may have. An effective way to manage these repayments is to set up automatic payment options. These are available with most lenders, and can save you a great deal of time and money in interest charges for late payments.

2. CHANGE YOUR REPAYMENT SCHEDULE

For student debts in Australia, they are repaid on an income-based schedule which is automatically deducted by the government. However in terms of other debts you may hold, such as credit card debts, the repayment schedule set by banks is to automatically deduct the minimum balance from your account. In this respect, you should aim to pay of all debts in full where possible to save the money you would lose on interest charges. It is not recommended to pay extra debts off of your student debts however, given that you are highly unlikely to make a great deal of income in your first few years of starting a business, and so you should try and minimize stress on your cash flow in this respect.

3. REFINANCE YOUR DEBT

Debt refinancing occurs when individuals’ debts are replaced by a new borrowing from a company. While this does not affect student debts in Australia, it could have benefits for other existing debts you may hold.

4. WHEN YOU CAN AFFORD TO, PAY EXTRA

Voluntary repayments are a way people can pay off their student debts quicker. If you can afford to, and plan on repaying your debt in full, the ATO recommends doing so before you lodge your tax return to ensure it is not credited to your account and actually goes to your debt. Please note that there voluntary payment 5% onus no longer applies as at 1 January 2017.

5 HAVE AN EMERGENCY SAVINGS ACCOUNT

It is surprisingly common that a large percentage of millennials do not have a savings account for emergencies. This is particularly important to have when starting your own business. This fund will be a safety blanket to ensure that you have the financial means to pay for personal and business bills in the event that you are having financial difficulties. Without this fund in place, any financial issues within your business could mean that you might need to choose between paying a supplier, and repaying your debts. Missing debt repayments could negatively impact your credit score, and this will impact your ability to qualify for personal and business loans in the future.

While managing student debts and your own business may seem like an incredibly difficult feat, it is not impossible. With the right money management skills, your debts don’t have to hold your business back.