Managing Business Credit Card Debt[yoast-breadcrumb]
Managing Business Credit Card Debt
Running a business often means relying on credit cards to cover expenses before revenue starts rolling in. But credit card debt can quickly snowball if you’re not careful. Here’s how to get a handle on business credit card debt and keep your company financially healthy.
Why Do Businesses Use Credit Cards?
There are a few key reasons why credit cards are so common for small businesses:
- Cash flow – Credit cards provide quick access to capital when you need it. This can be helpful for covering short-term cash flow gaps.
- Rewards – Many business credit cards offer generous rewards like cash back or travel miles. This can help reduce expenses.
- Floating credit – You don’t have to pay the full balance each month, allowing flexibility in when you pay.
- No collateral – Credit cards don’t require collateral like a loan. This makes them quicker and easier to obtain.
Used strategically, credit cards can be an effective financial tool. But they come with risks, like high interest rates, that you need to manage carefully.
Know Your Credit Card Debt
Getting a handle on your credit card debt starts with understanding exactly what you owe. Make a list of all your business credit cards along with these details:
- Credit limit
- Current balance
- Interest rate
- Minimum payment
- Due date
This credit card debt overview will help you see your total debt burden at a glance. From there, you can start strategizing the best way to pay it down.
Pay More Than the Minimum
Credit card companies set minimum monthly payments around 2-3% of your balance. But paying only the minimum keeps balances high and prolongs interest charges.
Instead, try to pay well above the minimum whenever possible. Even an extra $20-50 can make a difference in lowering your overall interest costs. Automating higher payments is an easy way to ensure you pay more over time.
Consolidate Multiple Cards
If you have debt scattered across several cards, consolidation can help streamline repayment. There are two main options:
- Balance transfer card: This type of credit card offers an intro 0% APR period, usually 12-18 months. Transferring all your balances to this new card stops interest for a time, allowing you to pay down principal.
- Debt consolidation loan: With this type of loan, you pay off your credit cards and make just one monthly payment to the lender. Interest rates are often lower than credit cards.
Weigh the pros and cons of each option before deciding.
Use Business Revenue to Pay Down Debt
As your business earns revenue, redirect some of that income toward credit card bills. Even an extra few hundred dollars a month can make a dent. Some strategies:
- After covering essential operating expenses, pay down debt before other discretionary spends.
- When you get paid for outstanding client invoices, use a portion to pay credit card bills.
- If you have an especially profitable month, make an extra debt payment using the surplus income.
The key is being intentional about allocating revenue to debt repayment until balances are under control.
Reduce Business Expenses
Cutting expenses frees up more cash flow you can redirect toward credit card debt. Look for savings opportunities like:
- Renegotiating vendor contracts
- Switching software tools
- Cutting underperforming advertising channels
- Reducing energy use
Even small cuts of $100-200 per month add up. Track your spending to identify areas to trim.
Refinance High-Interest Debt
If you have credit card debt with an interest rate above 15%, refinancing can potentially lower your rate. Options include:
- Intro 0% APR cards: These cards offer 12-18 months with no interest. Only beneficial if you can pay off debt in full during the intro period.
- Business loans or lines of credit: Unsecured loans or lines of credit tend to have lower rates than credit cards.
- Secured loans: Backed by an asset like equipment, secured loans can feature low single-digit rates.
Run the numbers to see if refinancing makes sense for your situation.
Avoid Racketing Up More Debt
While paying down existing balances, be cautious of taking on new credit card debt. Some tips:
- Cut up cards you don’t need for everyday expenses. Out of sight can mean out of mind.
- Remove cards from digital wallets to add friction when making purchases.
- Set spending limits and alerts to control usage.
- Shift to cash or debit as much as possible to curb mindless swiping.
Changing spending habits and being more intentional about purchases prevents balances from ballooning again.
Explore Debt Management Programs
If you feel overwhelmed by high balances, nonprofit credit counseling agencies offer confidential debt management help. They provide services like:
- Custom debt repayment plans
- Lower interest rates from creditors
- Consolidated monthly payments
- Free budgeting and money management resources
Getting expert guidance can put you on the path to becoming debt-free.
Know When to Seek Professional Help
Don’t be afraid to seek additional assistance if business credit card debt becomes unmanageable. Options include:
- Accountants: Pro advisors can audit finances and suggest ways to improve cash flow.
- Business coaches: Experts can help strengthen business operations to boost revenue.
- Legal counsel: Lawyers can advise on debt reduction options, including bankruptcy if needed.
- Therapists: Financial stress takes a toll. Seeking counseling can help.
You don’t have to tackle business credit card debt 100% on your own. Support is available.
The Bottom Line
Credit cards can be an asset for small businesses when used strategically. But leaning on them too heavily can lead to financial disaster. Keeping balances low and payments on track takes diligence and discipline. But it’s worth the effort for the health of your business – and your own peace of mind.