Struggling with Business Credit Card Debt? Let’s face it, it’s a fact that both new and experienced business owners will agree that business credit cards are an invaluable source of credit for their enterprises.
Startup owners use them to build credit and make early investments, and eventually, switch to business loans as their primary source of credit but continue using the cards for day to day purchases, which is something even established businesses do.
Moderation is an absolute must; if you use the card indiscriminately, you may end up spending much more than you can keep pace with through monthly payments, thus falling into the debt trap.
If you do find yourself in such a situation, however, you are not alone. 2018 saw $50bn in outstanding debt for credit cards from business owners. We come across some interesting facts at Forbes.com, “According to data from the Federal Deposit Insurance Corporation (FDIC), Americans paid $104 billion in credit card interest and fees over the 12-month period that ended March 31, 2018.
When credit card balances go unpaid, interest and fees can accrue. With the average interest rate on a credit card at 17%, credit card interest can add up quickly. Plus, the Federal Reserve expects to raise interest rates a total of four times in 2018. Since the Fed has raised interest rates twice this year, you can expect to see interest rates increase again two more times this calendar year.”
Instead of worrying about your credit situation, you should know what you can do to get back on track and settle the debts as quickly as possible.
About Credit Card Settlement
Credit card companies are lenders who are owned by banks and private entities. They have a set of priorities, the primary being profit generation. So when they see a borrower who is unlikely to be able to repay their balance, these priorities tend to shift such that the company would be willing to make any decision to be able to recoup as much of their investment as possible.
This is done so that they don’t have to write off the entirety of your balance as a sunk cost on their statements. This is because a significant number of those would cause widespread losses, lower payouts to management and shareholders and devalued stock.
These institutions would also have to move quickly before the borrower declares bankruptcy because credit card debt is almost always entirely nullified after bankruptcy is declared due to being unsecured. In case of secured loans they can repossess or seize whatever you might have put up as collateral but there is no such option for credit card loans.
This is why most credit card lenders are willing to negotiate settlements. These settle can sometimes can amount as much as 75% of the balance. This is their way to get back at least something.
The negotiation process involves several phone calls and perhaps some letters and emails, so you will need to be conversant with that, which is the next step. Browse the Internet to examine debt settlement feedback to learn more about the process and its implications.
How Credit Card Negotiations Work
If you find that you have defaulted on several payments already and are pretty sure that you will not be able to repay the debt, you are probably in a situation where your credit score is suffering already.
Bankruptcy is the extreme step one can take in such a situation, but private deals with creditors are certainly an option you should consider. You have to initiate talks by sending a few emails or calls to the company. It is likely going to be pretty frustrating. You might see yourself having the same conversation with multiple people and being bounced around from one person to another.
Once you do get through to someone, try to be as clear as you can about your predicament. Tell them you are on the verge of bankruptcy but are unwilling to file if there is scope for negotiation for the outstanding debt. They know how these deals work, so do not mince your words- tell them that you would like for them to get some of their money back if possible. You will eventually end up with a blunt refusal or a few options to consider, like:
1. Lump-Sum Settlements
This is the easiest option because it lets you make a one-time payment and sqaush your business credit card debt. The company walks away with quite a decent amount of cash. These are payable from an inheritance, a work bonus, pretty much any small windfall you might have. It isn’t a very common option, though, but if you do end up with it, you could be paying anywhere between 25%-50% the outstanding amount, maybe more.
2. A Personalized Repayment Plan
The company would freeze the debt balance and try to figure out a structured schedule for repayment at a reduced interest rate.
The schedule would let you pay back a significant amount of the debt at a pace that you can handle. The interest rates are very decent here, as is the repayment time, simply because more time for them means more interest, especially if they have the assurance that you will be able to meet your dues this time around.
3. Temporary Agreement for Forbearance
This is a quick-fix solution that a lot of companies are willing to offer. It basically means your balance will be frozen and the interest rate capped. No penalties or late fees will be levied and you will be given some time off. During this time off there will be no monthly payments for that card’s debt.
Businesses get some time to get your act together, maybe find their way back into the black without falling further into debt due to compounding. After the agreed-upon period, you begin repaying with strict discipline.
Conclusion
Negotiating your business credit card debt is a very effective and 100% possible method for you to find your way back to solvency. This is the way to do it. You can do this without having to declare bankruptcy and deliver a significant hit to your credit score.
It is also in the lending institution’s best interest to work things out with you, so it makes a lot of sense for you to swallow any pride or hesitation and make the call today. The sooner the debt is wiped out, the quicker you can focus on the more critical business decisions.
Watch this space for updates in the Hacks category on Running Wolf’s Rant.
Like what you just read? Join The Wolf Pack! Subscribe To Our Newsletter.
Explore our website, check out our Featured Articles or scroll down to see the articles that are related to this article below. We've been around since 2008, so there's plenty of content.
If you're in South Africa and looking for something to do, check out The SA Gig Guide (on our sister site SA Music Zone).
If getting more knowledge is part of your DNA - Check out the latest posts on Interesting Facts.
