We often avoid certain topics that cause stress. For farmers, agricultural debt is the primary stressor. Creating a debt management plan is a good steppingstone on your journey to getting out of farm debt.
Here are four ways to start your farm debt management plan.
Examine Your Farm Finances
A contributor to the stress associated with agricultural debt is not knowing exactly how much you have. The first step to farm financial management is gathering all debt and income information. After collecting your financial information, start reviewing the difference between your income and debt. It may be easier to break it down by month to put it more in perspective. Connecting with a financial advisor may help you review your financial situation and create a roadmap to your financial goals.
Create a Financial Budget
After assessing your financial situation, create a budget. Budgeting is a good way to track how much money is coming in and out, especially if it fluctuates. The goal of a financial budget is to make you aware of what you’re spending, and hopefully try to have more coming in, than out. This may prompt you to start assessing some of your expenses and to see where else you can bring in revenue (agritourism is one potential option).
Consolidate or Refinance
After creating your financial budget, you may be searching for ways to lower your monthly loan payments. If your agricultural loans have high interest rates or high monthly payments, consider consolidating your farm loans into one. With current interest rates, this may not only keep things more organized, but may provide a lower interest rate than on your standalone loans.
If you have other loans, consider refinancing. This can be done by taking a 15-year loan and stretching it to 30 — meaning you’ll have a lower monthly payment. Keep in mind, when you stretch out a loan, you will pay more in the long term due to interest. Consider discussing debt consolidation and refinancing with a financial advisor to see how this impacts your financial goals.
A more fast-paced route to pay off farm debt is by selling off some assets and using the proceeds to pay off agricultural loans. Keep in mind, you may have to pay taxes on any depreciating assets you sell. When canvasing future assets, make sure to consider how much income the asset will bring in, and if that will cover the cost of the asset.
Make a Plan
Thinking about farm debt may be overwhelming, but it doesn’t have to be. Meet with a financial advisor to discuss the best farm debt management plan for you.