At White Mountain Partners, they are frequently asked by small business owners and consumers struggling in debt how things got so bad financially for so many in this country. Until recently, they were told on the television that the recession was over, and the economy was doing great. But, everyone can see shuttering stores, throngs of homeless people and once-thriving cities with empty homes.
The following explains how small business owners and entrepreneurs got sucked into double-digit credit card debt and provides a few solutions.
The History of a National Travesty
A decade ago, this country and the world went through the Great Recession. During that time, the banks were less inclined to lend money to small businesses and credit mostly dried up. Many small firms ended up laying off employees in the economic downturn and some had to shut down.
Simultaneously, people who were laid off of their jobs and did not consider themselves entrepreneurs found that the job market dried up as well. They found themselves having to cobble together micro-businesses in order to put bread on the table. In fact, the Huffington Post reported that 500,000 new businesses were created in 2010 alone, at the height of the Great Recession.
Of course, we know that it always takes some money to make money. These new entrepreneurs as well were struggling to get some credit to launch their micro-enterprise, but the banks were not willing to lend to them.
In both cases, both the mom and pop enterprises and the micro-businesses led by freelancers, they had to turn to some easily available form of a credit to either get them through the downturn or help them fund a startup. For many, the only form of credit available was either personal or business credit cards.
According to Nerdwallet, in 2008, the average consumer credit card interest rate was around 13.5 percent. Today, the average consumer credit card interest rate is hovering around 22 percent, according to The Balance’s October 2019 survey of credit cards. The average business credit card interest rate is close to 20 percent.
One has to ask why the interest rate on credit cards has increased when we were being told that the economy emerged from the recession and was doing fine. Credit card interest rates signify the risk that the issuers foresee when they lend money.
Thus, small businesses and micro-businesses were forced to turn to double-digit interest rate credit cards to fund their enterprises, as many in the aftermath of the Great Recession struggled to survive. No one seemed to think to bail out the very businesses that are the engine of employment and prosperity in our country. They bailed out the “Too Big to Fail” banks instead. These same banks are often the ones who are issuing the credit cards at such high-interest rates today.
According to the Huffington Post, large businesses only employ 38 percent of all workers in the United States. Small businesses employ 53 percent of the nation’s workers and create 63 percent of the new jobs in the country.
What Is Happening Now?
Besides the interest rates for these credit cards that are around 20 percent, the U.S. Small Business Administration found, in 2017, when we were told the economy had recovered, that 27 percent of all small business owners were still unable to get credit for their enterprises. The majority in this position reported that they were going to have to delay business growth plans, due to the lack of credit. Also, the SBA found in 2017 that 46 percent of small businesses used personal credit cards to fund their business.
Now, the mainstream media is finally beginning to tell the truth that the country is likely headed for another recession. Some in the economy never emerged from the last one.
What Can Entrepreneurs Trapped in Debt Do?
Budget
The majority of small business owners with less than 10 employees have no formal budget. One can’t find the door if they can’t see down the hallway.
Pay Off the High-Interest Debt First
Pay off the debt that has the highest interest rate first. Make the minimum payment on the rest. You need to get that balance paid down to eliminate the high debt servicing.
Lower Expenses
Looking at your budget will help you see where money can be saved each month. Put that towards the principle of the high-interest credit card.
Lower Interest Rates
You can pay off the credit cards with either a zero-interest, balance transfer credit card or a debt consolidation loan. Either will allow you to lower your interest rate. The latter will provide an end date when the debt will be paid in full. The balance transfer credit card will work for those that can get the temporarily, interest-free debt paid off in a year or so. The debt consolidation loan will afford you a few years in which to pay off the debt. The latter will help your cash flow, with lower monthly payments servicing the debt.
If you are struggling with high-interest rate credit card debt, now is the time to act. Call White Mountain Partners today. They have solutions for small business owners struggling under exorbitant interest rates on credit card debt.
