Business Credit Card Debt Consolidation: 6 Options and Their Personal Liability

Credit card consolidation just rolls up your existing debts from various accounts into a new one, but if you signed for the original credit lines you’re still personally responsible for repayment. It’s easier to stay organized, meet monthly payments and get clear by chipping away at a single debt when you consolidate. None of the six ways to consolidate business debt will cancel the personal guarantee you made when you signed for the card. If you’re pledging new collateral, that property will be at risk if you can’t make payments on the loan.

Your Personal Guarantee

Your business structure doesn’t get you off the hook. The important thing to remember is that opening a small business credit card requires you to sign a personal guarantee. This personal guarantee overrides the protections offered by your LLC or corporation. It’s a business debt, but if the issuer can’t get repayment from the business, they’ll come for you. Your personal guarantee means the lender can sue you if your business credit card isn’t paid as agreed. There are only a few corporate cards that don’t require a personal guarantee, and they aren’t open to sole proprietors. To get a corporate credit card you need very high revenue and a lot of cash to put into the bank.

And business cards lack the protections mandated for consumer cards. Truth-in-Lending disclosure rules generally don’t cover credit for business purposes, or issued to a business. The 21-day payment window that the CARD Act mandated may not apply to credit cards issued to a business.

Late payments can bring fees, a penalty interest rate of 29.99% or higher, harm to your personal credit, collections calls, and eventually a lawsuit against you to settle the debt or make good on the guarantee. Miss a payment and most consolidation options won’t even consider you. Call your card issuer and ask about payment arrangements and hardship programs before you’re late.

Many cards come with a 12-month 0% intro APR on balance transfers. If you qualify for a business card from your personal credit profile, transferring your balances from high-rate cards onto one of these can get you a lot more breathing room. With interest out of the way, you can pay down the principal. A balance transfer is another credit card. The first catch is that balance transfers have fees. Failing to make payments by their due date on the new card will typically trigger the penalty interest rate, canceling the 0% or low interest rate. This is a good way to consolidate debt, but this is a roll-over, not a discharge.

A business debt consolidation loan rolls all your debt accounts into one payment and one interest rate. This can be easier to manage and less expensive than individual cards. It can be hard to get. Debt consolidation loans tend to work well when you’re in good financial standing.

The SBA 7(a) is a loan program that offers up to $5 million. You may be able to roll the balance from business credit cards into the loan and pay off your cards. Most 7(a) loans carry repayment terms up to 10 years. SBA-backed loans require a personal guarantee as well. Every owner of 20% or more of the business generally must guarantee a 7(a) loan. Your guarantee on a business loan from an SBA is the same as it is on a credit card or a debt consolidation loan: if the business fails, the personal guarantee makes you liable to repay the loan.

You can borrow against the equity in your house and use it to repay your business credit cards. This will leave you with one debt in place of the original business credit card debt. Refinancing home debt to roll in unsecured debt means your house is at risk if you can’t make payments. It’s easier, because it’s all in one place, but it’s the same amount of debt.

With a debt management plan, your existing balances are consolidated into one program and one payment plan. Credit counseling agencies may be able to negotiate lower rates or repayment arrangements for your credit card debt. You are agreeing to pay back 100% of what you owe. Your personal guarantee on the card remains in place. Being in a debt repayment plan will negatively impact your personal credit profile.

A debt settlement agreement involves a negotiation with a creditor to repay less than what you owe. A legitimate debt settlement company will negotiate with creditors on your behalf. Debt relief firms often ask that you stop paying on your debts so they can achieve a good settlement. Be aware that if you stop making payments to your creditors to get them to agree to a debt settlement, your credit rating will suffer. Reaching a settlement isn’t guaranteed, or cheap. Creditors may not negotiate at all. However, if the creditor does agree to the settlement agreement, there may be tax implications to consider. Federal rules require credit card issuers to report canceled debt of $600 or more. The tax implications may be bypassed if your debt is canceled in bankruptcy, for example. Or you may not owe tax on canceled debt if you were insolvent at the time. Charges for debt settlement services often range from 15-25%. It is best practice to pay only after your debts are settled.

Bankruptcy is generally the worst option and the last resort. Companies cannot get a discharge on a debt by filing Chapter 7. Creditors can still come after you for repayment even if the business is finished. You must file for personal bankruptcy for a discharge of your business credit card debt. Discuss your options for bankruptcy with an attorney who specializes in bankruptcy.

Start with the simplest option. If you’re in good shape financially, consolidation loans or balance transfer cards are the way to go. Missed payments or low credit scores make it hard to qualify for these options. When consolidation isn’t possible, you may want to investigate a debt settlement plan or personal bankruptcy to get out of an overwhelming financial hole. The debt obligation remains the same in most debt consolidations.