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How much debt is safe to carry?

Discussion in 'Business Operations' started by 32vld, Jul 5, 2013.

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  1. 32vld

    32vld LawnSite Gold Member
    Messages: 3,983

    How much debt is safe go carry?

    New truck costing $600 a month. Making $6,000 month.

    I would guess that if business dropped ten percent. I would continue to guess that the truck payments could still be made.

    At what point is holding on to too much debt?
  2. Pierre2013

    Pierre2013 LawnSite Bronze Member
    Messages: 1,237

    A better way to look at it is; how many months could you go with zero income and still be fine? That's the way I have always approached life.

    If you can have 12-18 months of saving, then you are fine and have plenty of time to react to almost anything that could happen to you. Just my 2 cents.
  3. Stars & Stripes Landscaping

    Stars & Stripes Landscaping LawnSite Member
    from CT
    Messages: 246

    I don't know if that is a question anyone else but yourself can answer... Like you had mentioned in a alternate thread, if the market tanked for 5 years will you still have the monthly payment and still be able to provide those who rely on you with the necessities?
  4. dKoester

    dKoester LawnSite Gold Member
    Messages: 3,346

    I refuse to have any debt. Owe no man anything.
  5. Stars & Stripes Landscaping

    Stars & Stripes Landscaping LawnSite Member
    from CT
    Messages: 246

    I will be financing a mower, the only way I am doing this is if it is the 0% for XX amount of months...why? Because you're not losing any money, nothing goes to intrest.
  6. monoshock

    monoshock LawnSite Bronze Member
    Messages: 1,325

    Maybe get a cheaper used truck. Just an idea.
    I haven't had a car/truck payment in over 35 years.
    I couldn't imagine paying $600 a month.
    Last edited: Jul 5, 2013
  7. Jaybrown

    Jaybrown LawnSite Bronze Member
    Messages: 1,160

    I had 0% interest and I missed my second payment by one day because I did it online. Now my interest is 29.9% which is another $12000 I have to pay now.
  8. larryinalabama

    larryinalabama LawnSite Fanatic
    Messages: 19,478

    In my opinion debt is dumb, especially when used to cut grass.

    A 600$ per month truck is a redicilouse purchase to use in this business.

    I have leveraged some debt in the past for my realestate business, but seldome do anymore. Im currently looking at a house that Im 7k short on the deal and may not due it, that's how sick of debt ive become.
  9. Will P.C.

    Will P.C. LawnSite Senior Member
    Messages: 966

    This is a good point for people just getting into carrying some debt with a loan of CC. These places will jack up your interest rate in a major way for just one late payment. They say it once in the fine print, but not many people read fine print.
  10. seabee24

    seabee24 LawnSite Senior Member
    Messages: 619

    That's how I would do it after making a ton of mistakes and learning. If you are taking on debt like a truck payment I would ask myself the following.

    1. Is there any other method of getting the same thing? Can I buy used and still have good results?

    2. If I purchased it today, and took a hit, had to sell it tomorrow, can I pay it off the note knowing I will loose 30% the day it's purchased

    3. Can I stop all operations, stop working, and make all my current fixed payments plus this new one?

    4 do I really need it?

    If you can answer yes to at least 3 of these, and your currently profitable, have savings, Then yes I would buy it.

    In my mind- bad debt is when you can't afford it. You think you need it, must have it, but you can't afford it, and would be screwed on the re-sale

    Good debt- you have the money to pay for it cash or most of it cash but rather than clearing out your bank accounts for the purchase to leave you with liquid funds to spare which can be used for other savings in business like bulk discounts, or time/labor saving tactics.
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