Getting Rid of Business Credit Card Debt - The Rundown

ByG. Dautovic
May 31, 2022

As a small-business owner, you’ll likely need to borrow money from time to time to maintain a steady cash flow and keep your company afloat. However, maintaining that situation can lead to financial difficulty. If that has been the case for you and you’re trying to discover how to get rid of credit card debt most effectively, you’ve come to the right place.

How Common is Business Credit Card Debt?

Business credit card debt is one of the most common forms of debt, as cards are one of the most frequently used tools for paying bills and financing business growth. Moreover, there are many potential contributing factors to consider, ranging from the fallout of defaulted client accounts, to transferring personal card debt to business accounts.

Whatever the reason for your debt, you are far from alone. This is a widespread issue, as these stats show:

  • Two out of three small businesses have credit cards for their commercial ventures and owe a cumulative total of around $50 billion.
  • The average small-business credit card account has a limit of $56,100 compared to just over $30,000 for consumers.
  • A significant 21% of businesses actively seek funding via their business credit card accounts.
  • 20% of business credit card issuers allocate payments unfairly by not using funds above the minimum payment to cover high-interest accounts first.
  • Around one in three businesses with credit card debt aren’t aware of the real cost of their debt.

Getting rid of credit card debt has become a priority for many SME owners - particularly those who have been forced to take drastic action during the pandemic. Now is the time to make it happen.

The Importance of Clearing Your Business Card Debt

Most businesses will encounter various forms of debt as they finance their ongoing operations. Some items, such as monthly payments on your telecom or utility bills, don’t require too much thought. However, managing credit card debt is a responsibility all SMEs should embrace - especially when they have fallen behind on their payments.

In truth, there are several incentives for prioritizing your credit card debts, including but not limited to:

  • High interest rates: Even if you have a good credit history, it’s likely that the APR will be between 10% and 20%. In many cases, it’s even higher.
  • Business credit card debt can make it difficult to access funding for additional business expansions.
  • Failure to clear your debts could see your accounts frozen, and lead to legal action and debt collection.
  • When you fail to ​​settle your business credit card debt, the fallout can impact your personal finances, too.

Above all else, the longer your debts go untreated, the more they will cost you. Therefore, learning to recover from business credit card debt must happen as quickly as possible.

How to Combat Business Credit Card Debt in 2022 & Beyond

There are several possible avenues to consider: Obviously, you could default on the payments, but this will lead to significant problems, including suspended accounts (and no access to credit), damaged credit scores, and potential debt collection charges. In short, it’s vital that you do something, so here are the six best solutions at your disposal.

Reduce Your Expenses

When looking to manage your business debt in style, it’s not just about clearing your business credit card balances. You need to ensure your company finances remain in good health for the long haul, and reducing your expenses is a great starting point. 

You probably know that 82% of business failures can be attributed to poor cash flow management. Overspending is one of the key contributors and, despite all their positive features, credit cards make this a lot easier. You can help combat the problem by consciously reducing your expenses through the following steps:

  • Run price comparisons on insurance, utility bills, and software services. Try to be as strict with your company finances as you would with your personal capital.
  • Use modern tech to cut down on paperwork, hardware requirements, and other ongoing costs.
  • Consider transferring to remote work, as this will save you plenty in office space rent and utility bills.

These savings will allow you to make larger payments on your business debt, which means clearing your accounts sooner. Moreover, it will lay the foundation for a sustainable approach to managing your finances.

Speak to Your Credit Card Issuer

When facing business debts, especially when you give a personal guarantee for business debts, one of the most important steps is to prevent things from getting worse. Speaking to your credit card issuer to negotiate repayment terms is highly advised.

It’s doubtful that your credit card issuer will simply write off the debt - unless you plan to go down the route of bankruptcy or debt relief - but it may be possible to gain support from a hardship program. This is even more likely when you have a long history of making regular payments but fell behind due to issues out of your control, like the pandemic.

Some of the benefits that may be gained from this approach are:

  • Waived late payment charges
  • More affordable interest rates
  • A temporary freeze on interest
  • Removal of annual account fees

Consider Consolidation Options

Any opportunity to reduce your total repayment is a step in the right direction. Consolidation is an ideal strategy for getting rid of business credit card debt and may extend to other business debts.

Debt consolidation through a balance transfer credit card can create a period (often 36 months) where you won’t pay interest. This will allow you to make a significant dent in the principal sum. For even quicker clearance, you could:

  • Consider another line of credit with lower interest terms
  • Negotiate better terms with long-term suppliers
  • Secure savings for instant payments
  • Gain an extension on accounts from 30 to 90 days

Individually, those supplementary ideas may not make the biggest impact. Cumulatively, though, they will support your consolidation endeavors and encourage a greater sense of financial control.

Increase Revenue

There’s no denying that your business debt liability will be easier to clear with greater revenue, since you’ll be able to make larger payments rather than fall victim to the dangers of only making the minimal requirements.

If increasing revenue were simple, every company would do it with ease. Embracing the world of eCommerce can instantly open your doors to new audiences. Additional ways to increase revenue include but are not limited to:

  • Reaching out to new customers with direct and indirect marketing
  • Promoting add-ons for existing clients
  • Focus on increasing productivity

It may also be possible to create new revenue streams via content creation or affiliate schemes. Whether increasing the profit margins per unit or sales volume, increased sales revenue can lead to quicker credit card clearance. And once the balances are cleared, the rewards of greater profits will become even bigger.

Get Paid Faster

Even with sufficient revenue, negative cash flow can make it difficult to cancel your business credit card debt. Credit card readers and fancy marketing campaigns count for little if your working capital is too low. If you can successfully find ways to get paid faster without compromising your sales figures, you should. The best options include;

  • Turn 60-day B2B invoices into 30-day invoices
  • Bring the first payment forward on repayment plans
  • Promote reduced terms on repayment plans from clients
  • Consider discounts for cash payments on big assets

The sooner that revenue hits your account, the sooner it can be used to get rid of credit card debt. Again, this could lead to reduced interest while simultaneously putting an end to nuisance calls or debt collection.

Seek Outside Help

Whether you want to consolidate your business credit card debt or negotiate better terms on it, you do not have to face the challenge alone. Reaching out for expert support can often unlock the best solutions and tailored plans.

The good news is that debt-settlement services aren’t limited to consumers and can be used by businesses too. By working with an experienced professional, you will be able to consider all possible outcomes and find the best products.

Depending on the circumstances, this could include:

  • Debt-management plans
  • Debt relief from creditors - not just credit card issuers
  • Legal support like business grants
  • Bankruptcy

You can also work with a nonprofit credit counseling agency like the National Foundation for Credit Counseling.

The Last Word on Getting Rid of Credit Card Debt in Business

Facing significant credit card costs can be daunting, but if you commit to repaying your business debts as quickly as possible, you can see substantial results in a short time. Aside from reducing your interest payments, it’ll aid your credit score and positively influence your personal financial situation.

Clearing high-interest debts and accounts will help your venture finally gain the foothold needed to build a brighter future.

FAQs

What happens if you don't pay off a business credit card?

+

Failure to clear your business credit card can lead to a series of issues, including late payment fees, increased APR (without warning), and significant damage to your business and personal credit scores. Credit card issuers may also remove access to credit, which could cause significant disruptions and cash flow issues for your company.

What happens if you default on a business credit card?

+

If you default on the business credit card, it will appear on your credit report for six years and could stop you from accessing alternative forms of credit. Furthermore, the credit card issuer may pursue legal action through debt collections. This is in addition to the cancellation or suspension of the business credit card in question.

Do credit cards ever forgive debt?

+

It is unlikely - although not impossible - that banks will forgive business credit card debt. However, it is worth talking to credit card issuers as they may be willing to discuss hardship programs and other forms of relief. This could include a freeze or reduction on interest payments, meaning you only have to cover the principal sum.

What is the quickest way to get out of credit card debt?

+

When figuring out how to get rid of credit card debt, the harsh reality is that it may take several months. However, reducing your expenses, increasing your earnings, and using consolidation tactics can work wonders. In the meantime, speaking to credit card issuers to see how they can help may also instantly lift a weight from your shoulders.

About author

I have always thought of myself as a writer, but I began my career as a data operator with a large fintech firm. This position proved invaluable for learning how banks and other financial institutions operate. Daily correspondence with banking experts gave me insight into the systems and policies that power the economy. When I got the chance to translate my experience into words, I gladly joined the smart, enthusiastic Fortunly team.

More from blog


Leave your comment

Your email address will not be published.


There are no comments yet