Here at Interstate Associates, we see many small business owners are most easily able to get business loans through business credit cards. In a way, it is good to have a business credit card because it helps you separate your personal and business expenses. Also, if you can pay off the card each month and solely use it as a buffer against clients who pay late, you usually won’t end up in trouble. The problem is that one can quickly go overboard and purchase more on the card that does not end up benefiting the bottom line.
The Problems Inherent in Business Credit Cards –
Personal Liability Clauses: According to Forbes, when you took out the business credit card if you signed a personal liability clause, your business entity type will not save you from being personally responsible for the debt. Also, if your business closes, you are still personally liable for the debt, and it will impact your personal credit score.
High-Interest Rates: This is how people end up in trouble. The interest rates for these credit cards can be just as predatory as the rates for the personal cards. They can easily be as high as 27 percent if your credit is not perfect.
No Federal Protections: Forbes also stated that federal consumer protection laws that keep customers from getting multiple bills within a billing cycle or interest rate hikes with no warning do not apply to business credit cards. It is like the Wild West out there.
How to Dig Out of the Debt –
Get the Higher Interest Card Paid Off First –
Pay the minimum on all the rest and save yourself interest fees by getting as much as you can pay down on the higher interest card first.
Try to Negotiate With the Card Company –
It is expensive to file a lawsuit for the money you owe, so the card company may offer you a bit of help in changing your payment date, lowering interest rates or reducing the principle a bit. If your payment record is good, they will more likely provide more help. They want to keep getting your business and profiting off of those interest rates.
Tighten Your Budget –
CreditCard.com speaks of a brand new startup called GreenPal that was in quite a bit of credit card debt. They had employees brainstorm how to reduce some costs. Each employee that provided a cost-saving measure would get a percentage of the saved cost. Find some places to get a bit leaner and pay off the debt faster.
Apply for a Debt Consolidation Loan –
Companies, like Interstate Associates, can help their customers get a debt consolidation loan. The payments can be spread out over a few years, the interest rates will be lower than the credit card’s and there is only one payment to make. Also, the interest rate will be the same for the term of the loan. It can’t spike up, as your credit card interest rates can. As long as you have tightened your budget and don’t overspend, debt consolidation can be a great way to quickly pay down the debt and maintain your personal credit score.
Get a Zero-Percent Balance Transfer Card –
According to NerdWallet, if you don’t qualify for a debt consolidation loan, you may likely qualify for a balance transfer card with a zero percent rate that will give you a 12 to an 18-month reprieve from interest rates. Pay off as much as you can during the no-interest period.
File for Bankruptcy –
This is the most extreme option. According to The Balance Small Business, the Chapter 11 option of bankruptcy will allow your business to stay open and financially re-organize. Chapter 7 will be personal bankruptcy. This is the one you will pursue if you are closing your business. The business credit card debts accrued that you are personally liable for will be wiped out, but you will have a bankruptcy on your personal credit.
It is important to take action now if you are in heavy business credit card debt because it can impact your personal credit as well. Speaking to debt professionals, like those at Interstate Associates, can help you rein in the debt before it harms your personal credit as well