What Can A Small Business Owner Do About Consolidating Debts?
Times have been better for struggling small businesses and their frustrated owners. If you’re like many, you may have taken out a loan when times were good to fund an expansion that never got off the ground once the recession hit. Or maybe you’re rotating through two or more business credit cards that initially seemed like a great way to pay off expenses over time but are now little more than a burden.
Either way, if you’re struggling just to make the minimum payments on your cards or even missing loan installment payments, you should consider small business debt consolidation options. While there are many companies out there that offer loans to get struggling folks some quick cash with which to pay off their other bills, few if any of these helpful in the long run.
The interest rates on many so-called debt relief loans are often higher than the rates on the loans or cards they are meant to replace, which means they may actually hurt your finances over time. For example, if you have $30,000 in total debt spread across three small business credit cards with an average interest rate of 19.99%, you’ll be paying $5,997 in interest per year if you don’t pay off your balances. When you take out a $30,000 debt consolidation loan to pay off the balances at 25% interest, however, you’re looking at $7,500 in interest for the following year. That’s $1,500 more!
Get Debt Relief For Your Small Business
If you’re struggling to make the minimum payments on your small business credit cards, it may be time to seek credit relief. Depending on your card, missing just one payment cycle may be enough to trigger a rise in your interest rate to the penalty APR, which can be as high as 30%. On a balance of $10,000, a 10% rise in your interest rate from 19.99% to 30% will trigger an extra $1,000 in annual interest payments. That’s a lot of money you could be investing in your business rather than giving away to a credit card company.
If you have used your card to take cash advances in the past, do not do so anymore. The penalty APR for the cash advance portion of your balance is often even higher. What’s worse, small business credit is not covered under the recent CARD Act, the federal law that protects consumers from predatory lending and deceptive credit card terms.
No CARD Act Protections For Small Business Owners
Whereas the CARD Act prevents the further accumulation of penalty interest once you’ve made your minimum payments for six consecutive statements, there is no such protection for small business credit cards. In theory, you could be charged the penalty APR indefinitely once you miss that first minimum payment. For this reason alone, one of your first steps toward consolidating your small business debt should be to stop growing the balance on your business credit cards. If you must use them, make sure you pay them off in full each month and use a regular consumer credit card to make floating purchases.
It sounds like a radical idea at first, but you might be able to turn off the credit tap entirely and still survive as a small business owner. More business owners than ever are restricting their purchases to cash and debit cards. The advantage of using cash or debit, of course, is that you’ll never again have to worry about your balances ballooning due to high interest rates.
There are drawbacks, however, even if you’re already struggling to make your minimum payments. Most crucially, you’ll no longer be able to use credit to invest in your business. Financing an expansion or purchasing new equipment is difficult using only cash on hand.
Is Small Business Debt Consolidation The Answer?
There is another way, however. As a small business owner, you can take these sensible steps to reduce your credit card burden while soliciting the help of a debt consolidation professional. Unlike the private lenders who provide debt consolidation loans that don’t really work, small business credit relief specialists have an interest in actually reducing your total debt burden.
They do this by negotiating lower balances directly with your creditors, bundling all your monthly bills into one easy-to-understand payment. Every case is different, but small business owners have in the past been able to reduce their debt by up to 50%. If you like the sound of turning a $30,000 unsecured credit card balance balance into $15,000 and cutting out $1,500 from your annual interest payments, small business debt consolidation is for you.
Although you won’t be able to use your credit cards once your credit relief professional has negotiated a settlement with your creditors, that may not be a bad thing. Your credit score will soon begin to improve, and you’ll once again be on track to financial success and personal well-being.