How to Deal with Farm Debt

The farm debt crisis is real, and farmers across America are facing difficult economic times. Thinking about agricultural debt relief, whether through farm debt consolidation or other means, is on the minds of many. Agricultural debt can be a primary stressor for many farmers and addressing it is a way to begin relieving that stress. 

It can be bewildering — and just as stressful — to not know where to start. But creating a debt management plan is a good steppingstone on your journey to getting out of farm debt. 

As you move toward a debt-free farm, reach out to Farm Bureau to discuss how to protect your farm against other risks, too.

Step 1: Examine Your Farm Finances

As with any plan for getting out of debt, the first step is to figure out how much debt you’re in and how you got there. The stress often comes from not knowing exactly how much agricultural debt you have and the fear of taking a close look at your finances. 

So, here’s the first step to farm financial management: Take a deep breath and gather all of your debt and income information. Then review the difference between your income and debt. It may be easier to break it down by month to put it more in perspective.

Once you know the big picture, you’ll breathe easier, even if the picture is a scary one. At least you know where to go from here. Connecting with a financial advisor may help you review your financial situation and create a roadmap to your financial goals.

Step 2: Create a Financial Budget

After assessing your financial situation, create a budget. Again, this is a lot like household financial management: Budgeting is a good way to track how much money is coming in and out, especially if it fluctuates.

The goal of a budget is to make you aware of what you’re spending and ideally have more coming in than out. If you see that your expenses exceed your income, you might start thinking about ways to bring in revenue and boost that side of your balance sheet. For instance, you could pursue opportunities in agritourism.

Step 3: Consolidate or Refinance

After creating your budget, you may want to think about ways to lower your monthly loan payments. Consolidation can help you out in several ways: It can take many separate payments and put them into one payment, and it can take a number of high interest rates and turn them into one lower interest rate. 

So, if your agricultural loans have high interest rates or high monthly payments, consider consolidating your farm loans into one. If interest rates are lower now than they were when you initially borrowed, or if your credit is good, this may not only keep things more organized but may provide a lower interest rate than on your stand-alone loans.

If you have other loans, consider refinancing. You might consider stretching a 15-year loan into 30 years — 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.

Step 4: Sell Assets

There are faster ways to pay off farm debt. For instance, you might sell off some assets and use the proceeds to pay off agricultural loans. Remember, 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. Reach out to Farm Bureau to discuss the best farm debt management plan for you.