Running a small business is tough enough without the burden of high interest credit card debt weighing you down. If you’ve racked up substantial balances across multiple cards – some with rates over 20% or even 30% – just keeping up with the minimum payments can feel impossible. The good news is there are options to reduce or even eliminate crippling credit card debt. This article explores strategies to regain control of your finances and successfully move your business forward.
Understanding What Got You Here
When cash flow gets tight, it’s tempting to rely on credit cards to cover short-term expenses. But those expenses have a way of piling up until suddenly you owe tens or hundreds of thousands of dollars spread across several high-interest cards. How’d it get this bad? Here are some common culprits:
-- Unexpected emergencies – Equipment breakdowns, natural disasters, lawsuits – stuff happens that requires an immediate cash outlay. If profits are slim, credit cards get swiped.
- Seasonal cash crunches – Many businesses go through predictable slow periods. For example, landscapers have a tough winter. Credit cards bridge the gap.
- Poor budgeting – Failing to budget leads to overspending and dependence on credit cards to stay afloat. It creeps up slowly.
- Lack of working capital – Solid working capital – cash to cover regular expenses – prevents reliance on high-interest debt.
Of course hindsight is 20/20. Now the priority is digging out of this hole.
Should You Just Pay Down the Balances?
When facing five-figure credit card debt, some business owners just buckle down to pay it off as rapidly as profits allow. That path requires discipline, patience and access to sufficient working capital. Without that capital cushion, even modest income disruptions put you back on the credit card rollercoaster.Seriously attacking credit card balances is smart only after implementing strategies to shore up cash flow and access to working capital. For most businesses struggling with overwhelming high interest debt, alternative approaches deliver faster and more sustainable relief.
Seeking Outside Financing
Securing a business loan or line of credit to consolidate credit card balances can save a fortune in interest payments. With a 20% APR credit card charging $2,000 monthly interest on a $100k balance, switching that to a term loan with a 7% rate cuts the monthly interest to just $583.That frees up $1,417 to pay down principal every month. Even better, instead of 5+ years to pay off credit cards, the same monthly total would eliminate a consolidation loan in under 3 years.Banks typically won’t help high risk businesses – Traditional banks avoid lending to businesses with recent struggles. Thankfully, specialized alternative lenders fill this gap by focusing more on a business’ future potential rather than past hiccups. With fast online applications and funding in days, it’s easier than ever to secure financing to tame credit card debt.Check business loan requirements – Lending criteria varies widely across alternative lenders. Checking eligibility and pre-qualifying with multiple companies helps find the best fit. Interest rates generally correlate with risk, so businesses with strong revenue and profitability can secure rates under 10% while more distressed situations may pay 14% or more.Consider using business assets as collateral – For lower rates and larger loan amounts, some lenders allow pledging business assets – machinery, equipment, accounts receivable, etc. – to secure financing. It requires more paperwork but unlocks additional capital with better terms.Watch out for prepayment penalties – If paying off a consolidation loan early, check for prepayment fees which add to the overall cost. Ideally refinance with no such penalties.
Negotiating with Credit Card Companies
Rather than taking a consolidation loan, some businesses successfully negotiate directly with credit card issuers to lower interest rates or even forgive portions of the balance owed. This works best when balances remain relatively low. With professional guidance, surprising deals can sometimes be reached even on larger debts.Dispute errors or unfair charges – Comb carefully through credit card statements to identify billing mistakes or improper charges. While not huge savings, every dollar counts. Disputing legitimately unfair fees or unwarranted interest hikes occasionally succeeds.Request lower interest rates – Especially for long term customers with previously solid payment histories, directly asking credit card companies to reduce absurd interest rates sometimes works. Offering to close the account if they won’t play ball strengthens your negotiating power.Propose settlement offers – Similar to debt settlement for consumers, businesses can negotiate lump sum payoffs at significant discounts compared to the full balance owed. This works best after demonstrating real financial hardship. Most credit card companies would rather get $80k today than chase $100k over many years from a struggling business.Seek expert help – Experienced business debt relief providers adeptly negotiate with credit card companies to dramatically cut interest rates or settle balances. They earn fees but easily justify those costs through the savings achieved.
-Cutting Expenses & Boosting Cash Flow
Whether taking out a consolidation loan or negotiating with credit card companies, the path to freedom from oppressive high interest debt relies on improving business performance. Cutting unnecessary costs, boosting revenue and improving working capital enables aggressive debt reduction.Slash discretionary expenses – Review every expense and challenge what delivers real value to the business. Eliminating nice-to-have but non-essential spending provides critical breathing room in cash flow.Tighten inventory management – Careful attention to right-sizing inventory limits the cash tied up while avoiding stock-outs that impact revenue. First in / first out management also prevents losses on obsolete items.Renegotiate lease, vendor & contractor deals – Explore any opportunity to cut monthly outlays through improved payment terms, lower cost providers etc.Review pricing – If profit margins allow, even modest price increases across the entire customer base generate impressive revenue gains with no additional effort.Expand marketing reach – Ramping up marketing and lead generation to grow the customer base brings huge long term dividends. This only works if operations can smoothly handle increased business.Improve invoicing processes – Ensure billing happens promptly and that staff diligently follows up on unpaid invoices. Where cost effective, accept credit cards to get paid faster.Lease unused equipment – Instead of selling off unused machinery and equipment, leasing it out generates income until you need it again. This turns unused assets into working capital.Pare down staff – As a last resort if necessary, reducing staff payroll by eliminating underperforming positions preserves cash flow. But this only makes sense if remaining staff can handle the same workload.The key is boosting income faster than expenses. Even modest gains allow meaningful progress paying down high interest debt each month.
Rebuilding Your Credit
Years of reliance on credit cards eventually wrecks the business credit scores reported to agencies like Equifax and Experian. Thankfully scores rebound relatively quickly as balances decrease and on-time payments continue. Also dispute any erroneous information dragging down credit reports.Within 6-12 months of serious debt reduction, most businesses regain scores qualifying for affordable mainstream credit. MasterCard, Visa and American Express also track separate small business scoring models. Their algorithms focus more on recent account management, so scores bounce back quicker when balances drop.
Moving Forward Debt Free
Escaping the soul sucking financial quicksand of high interest credit card debt liberates struggling business owners to reconnect with their entrepreneurial passions. By methodically implementing the right combination of financing strategies, expense control tactics and cash flow boosting initiatives, freedom is within reach no matter how ominous debts appear today.With discipline and commitment, imagine 12 months from now operating your business energized and unburdened by credit card debt. No more draining interest payments consuming profits. No more staff cuts or panic sales just to fund debt service. Instead that hard earned money propels growth and greater profits.The sense of relief and renewal is hard to grasp until you experience life after eliminating all that toxic debt. It’s time to start mapping out your path to shedding credit card debt for good!