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The Business Owner’s Guide to Paying Off Personal Debt

Even if an international business owner is using tools from an online foreign exchange services to help minimize currency fluctuation costs, his or her personal debt back home can have a big impact on the business's financial future. In fact, debt plays a major role in what lenders look for in a business's credit worthiness, says Emily Chase Smith, a debt solutions attorney in San Clemente, Calif.

A high debt load can make it hard to obtain loans and financing, and if a business hits rough times or an unfavorable exchange rate it may take years for debt repayment.

Here are some tactics that can help business owners put their best foot forward when paying off debt.

“The snowball strategy considers human psychology and gives individuals the best opportunity to succeed.”

— Emily Chase Smith, a debt solutions attorney

Why Debt Accumulates

Small business owners are prone to above-average amounts of personal debt because they tend to use loans and credit cards to fund business ventures like marketing strategies or additional locations, says John Ulzheimer, president of consumer education at, a financial management service in Atlanta.

Because lenders ask business owners to sign personal guarantees for these loans and credit cards, owners are held liable for potential debts. Missed payments and loans that enter default status can appear on business owners' personal credit reports, limiting options for future financing. "The business debts essentially bleed over into the principal's personal credit file and are treated as personal debts, such as a car loan or mortgage," Ulzheimer says.

Some small business owners make the mistake of subsidizing their international businesses with personal funds. Doing so can deepen the debt and deplete personal savings, Smith says.

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It's why entrepreneurs, like those in the U.K., have higher debts - an average of £30,514 pounds(GBP) - about £10,000 GBP more than what is owed by other professionals.[1]

The Debt-snowball Strategy

Entrepreneurs who need help paying off debt should consider using the debt-snowball method. There are different approaches to the debt-snowball method, but one popular approach is to pay off the smallest balances first. This builds momentum that enables individuals to pay off their largest balances.

"If you try to tackle your biggest debt first, it can feel like shoveling sand," Ulzheimer says. "But knocking out the low-hanging fruit first makes visible progress."

How It Works

To start, individuals should list every personal debt largest to smallest, ignoring the interest rates charged.

Once the list is made, individuals should pay the minimum on every debt and determine how much extra can be paid toward the smallest debt. As soon as the smallest debt is paid in full, that amount is added to the minimum payment on the second smallest debt. This process of paying off debt is repeated until each balance is paid off. "The snowball strategy considers human psychology and gives individuals the best opportunity to succeed," Smith says.

If a business owner is abroad, he or she can sign up for email market-rate alerts from a trusted online foreign exchange provider for sending money overseas toward personal debts. "Firstly, you have 24-hour access to an online platform so you can buy currency at any time of the day," says Nawaz Ali, U.K. market analyst for Western Union Business Solutions. "Secondly, you have products online so you can track and target specific currency exchange rates, which makes a difference when you're paying off debt."

[1] "Small business owners owe over £30,000 on average," April 9, 2012, The Independent

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