Credit cards have become a staple of the business world in recent times, as they serve as a great source of instant capital and can help build your credit. However, like any other type of loan, credit card payments can start to add up.
When credit card payments add up, it can start becoming overwhelming. Some business owners ask themselves “How can I pay off my credit card?” Some might even consider taking out a business loan solely to pay off credit card debts. But is it a good idea?
In this post, we will discuss this method of paying off credit card debt, the pros and cons of doing so, and some alternatives for you to consider.
What Happens if I Can’t Pay Off My Credit Card?
Missing credit card payments will have consequences, that will ramp up as you miss more and more payments.
Even missing one payment can have a significant impact on your business score, as one of the biggest determinants in your credit score is how often you make payments on time. You also may have to pay late fees and deal with increasing interest rates.
If you continually miss payments, your credit card may be frozen. In this case, your debt might be sold to a collection agency, who may sue you and require you to garnish wages, tax returns, and other sources of income.
Bottom line, whenever you ask yourself “Should I pay off my credit card?”, you’ll know the answer: you need to pay all of your credit cards on time.
Can I Pay Off My Credit Card With a Business Loan?
If you are struggling to keep up with your credit card payments, you may wonder if you could take out a business loan to pay off your credit card.
The short answer is, you can, sort of.
It should be mentioned that this is referring specifically to paying off your business credit card with a business loan (personal credit cards and personal loans are a whole different story).
If you apply for a traditional business loan, paying off a credit card may not be considered a good enough reason to get approved. However, you can go after a debt consolidation loan. Essentially, you will apply for one loan that covers all of your outstanding debts.
A debt consolidation loan has its fair share of pros and cons:
Pay Off My Credit Card With A Debt Consolidation Loan: Pros
Easier To Keep Track of Debts
If you have multiple loans and credit cards, it can be a pain to keep track of how much you owe and when on each one. A debt consolidation loan means you will only have to make one monthly payment.
Lower Interest Rates
Debt consolidation loans typically have much lower interest rates than regular business loans. This will obviously save you money in the long run.
New Payment Terms
If you are struggling with debt payments currently, it can be a lifesaver to have the different terms that a debt consolidation loan brings. You can have a longer payment term so you pay much lower monthly payments.
Saves You Money
As a business owner, saving money can be a huge boost to your operations. This is the main benefit of debt consolidation loans. If you are smart, you can get a loan with lower interest rates and lower monthly payments so you will have more cash reserves on hand to use.
Pay Off My Credit Card With A Debt Consolidation Loan: Cons
Very Credit Score Dependent
In order to get a better loan, you will need a high credit score. If you have already missed a lot of credit card payments and have a low credit score you will have a hard time getting lower interest rates.
You Can No Longer Use The Credit Card
Debt consolidation only works if you stop getting any debts, including your credit card.
Most debt consolidation loans require collateral or some sort of property that can be liquidated for cash quickly. This can be bonds, cash reserves, a business vehicle, your house, etc. If you cannot pay back the loan, the collateral will be seized by the lender.
There is a lot of intricacies to debt consolidation, but it is well worth the research if you are struggling with your debts.
Pay Off My Credit Card: Other Options
If you know you are going to miss credit card payments and a loan is not an option for you, there are some other alternatives you can use:
Call Your Lender
It is almost always a good idea to contact the company and let them know you may not be able to make a payment. Most of the time they will work with you and either delay the payment for a small fee, renegotiate with you, or allow a partial payment.
They don’t have to do any of these obviously, but it typically is in their best interest to work with you so you don’t default on the loan and lose them a lot of money.
Enroll in a debt management plan
There are many firms out there that specialize in debt management for businesses, and this can be a great option.
Unlike debt settlement (where you offer to settle the loan for less money, which kills your credit score and takes 2-3 years), debt management is where firms negotiate with your lender on your behalf to reduce your loan and come up with an affordable payment plan to pay off your debt in 3-5 years.
While these services do cost money, it can be helpful to have an expert negotiate on your behalf because they will know what is realistic to ask for and how to haggle enough to get you a good plan. They also can provide you with education on saving money and making payments.
Credit Card Debt is Payable: There Are Always Options
“Can I use a business loan to pay off my credit card?”
Now you know how to answer that question and other alternatives you have when you run into troublesome credit card debt.
Hopefully, you don’t ever find yourself in that situation, but at least you will know your options if you do. At Camino Financial we always strive to fulfill our motto: “No Business Left Behind”, and a big part of that is offering the best financial products that help our clients.
A loan from Camino Financial can be used as a debt consolidation loan, but we offer better interest rates, longer repayment terms, and transparent pricing. Many of our members have used our small business loans to pay off credit card debt and now are out of debt and successful. Why not do the same?
Apply for a business loan with us and be free of debt.