Prioritize Your Debt

Jan 4, 2024 | Uncategorized

Borrowing money comes at a risk, because we’re obligated to pay it back. While we all intend to make the timely payments as they come due, that’s not always reality.

Whether from lack of organization, poor decisions, or things outside someone’s control, sometimes there’s not enough cash to make all the payments. So what’s the best way to respond if that happens?

I recently spoke with a farmer who’s got the following payments coming due:

  1. Financial Company: $50,000 December 31
  2. Fertilizer Company: $85,000 December 31
  3. Mortgage w/ local bank: $65,000 January 15

And he’s got $100,000 to work with.

Without diving into the loan covenants, terms and conditions, and the fine print, we discussed a practical approach to weathering this storm. First, communication is key. I’ve spoken with many lenders over the years and generally they want to be flexible and help out. But, they can’t help when the borrower doesn’t communicate. Keeping the lender in the dark leads to frustration and the likelihood of them calling the note. So, reach out and explain the situation and ask for potential options.

Second, we talked about prioritizing the payments. For him, the mortgage on the home farm is the primary priority. By making that payment, not only does it protect his 4 walls, but it maintains the positive relationship with the local bank who may be his best option for an operating line to take care of the other two payments.

Third, there needs to be a solid plan to not only clear up these payments, but a path forward to prevent this situation from happening again.

The bottom line is that open and honest communication when we’re in a tough spot is the best approach to cleaning up the mess.

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