How to Reduce Your Business Credit Card Debt
In the business world, there comes a time when entrepreneurs experience difficulties with business finances. When such times hit, some even opt to give up and stop their enterprises. Most of the time, financial crises are brought on by debts accrued through loans, creditors as well as payments.
Unfortunately, entrepreneurs who use this method as their main payment mode get stuck. This is because the inventory purchased sometimes does not move as fast as expected, making it difficult for an entrepreneur to pay off the outstanding business credit card debt.
When credit card debt accumulates to a very high level, business owners enter panic mode, not knowing what to do in order to get out of this looming financial danger! This is expected, however, there are clever ways to deal with such a situation and lower business credit card debt. Here is a quick breakdown of how entrepreneurs can reduce debts on their business credit cards and enjoy life once again.
Ask Creditors for Lower Interest Rates
A simple phone call to your creditors can save you hundreds of dollars nowadays. The content of the phone call should be precise and to the point. If you have a very good credit rating i.e above 700, it is easier for you to convince creditors to give you any form of financial assistance, like a lower interest rate.
This is because, with a high personal and business credit score, many creditors believe that you have the ability to pay off your credit lines on time.
As an entrepreneur, you need to make prompt payments on your card accounts. Identify one creditor and be in partnership with them for a very long time and make sure you make your payments as expected.
This will make it easier for you to negotiate for lower interest rates on the account. If you have low interest on your business credit card, it means defaulting in payment won't accrue as much extra money compared to loans with high interest rates.
Clear Off One Card First
Often, many businesses have different business credit cards, although this depends on the size of the company. If your business has multiple credit debts, it is good to evaluate the impact of paying off one card instead of another. What goal are you going to achieve if you make payments on all cards or a single card? If your answer is paying off one card's debt totally, then do so. It is also good to consider whether to pay off the card with the highest interest rate or the lowest interest rate.
If your goal is to boost your credit score, it is good to pay off the card with the highest utilization ratio (your balance divided by the card's limit). Statistically, if you use more than 25 percent of your available balance, bringing down utilization ratio to less than 25 percent can actually increase your score. Alternatively, if your answer is paying less in interest, then choosing the one with the highest interest rate first is advisable.
Card Balance Transfer
Another alternative is to transfer the balance from the card with a higher interest rate to a card with a lower interest rate. It's a smart move that has saved many Americans hundreds of dollars annually. When you do this, you should be careful, and at the same time committed to clear off the debt within the low interest rate window. Make all the monthly payments on time.
Failure to do so could skyrocket the interest rate even higher than the one you did away with. However, do not try and make purchases with the new card since the lower interest rate could not apply to them. Beware that a 3-4 percent balance transfer fee could be charged on the total amount on the business credit card that was transferred. This means that you need to be very cautious when transferring debts from one credit card to another.
Peer to Peer Lending
You can pay all the outstanding credit card debt in full once and be free. Since many of us cannot do that, it is good to consider applying for peer to peer lenders, especially those that are based online. You can borrow money from peer to peer lenders such as prosper.com or lendingclub.com. These sites offer loans at very low interest rates compared to most credit cards. This means that taking money from peer to peer lenders to clear off the business credit card debt can save you a substantial amount of money.
This is more like the peer to peer lending option but it does not involve taking a loan from peer lenders. It is taking a loan from one financial institution at a low interest so as to clear off the credit card debt which has a high interest rate. Before deciding on the total amount of the business loan that you need, do your calculation carefully, including the debt plus the interest rate. While this is a viable option to clear off the credit card debt, it is not the best since you will only be transferring debt from one place to another.
As an entrepreneur, you should be wise and apply the above credit card debt reduction methods which will help you save you thousands of dollars you can use to put back into your business.