Debt Relief for Business Owners
- UpdatedAug 22, 2024
- Many small business owners incur personal debt for their business.
- If this debt is unsecured and unaffordable, consider debt settlement to pay it off.
- Debt settlement can help you stay in business.
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Most entrepreneurs will do anything to make sure their business succeeds—even if that means taking on personal debt. In fact, 24 % of business owners fund their businesses using personal credit cards.
Whether you funded your small (or not so small) business with a loan, took out a credit card, or did both, you may be wondering how to deal with all that debt. This is especially true if you are the owner of a struggling business.
Luckily, there is a way to get out of credit card debt and certain kinds of business-related debt without filing for bankruptcy. It’s called debt settlement, and it could help you save money and get out of debt in about 24-48 months. Read on to learn more about debt relief for business owners.
What is debt settlement?
Debt settlement is a process where you or a company you hire works with your creditors to get them to settle a debt for less than you currently owe. You may be surprised to learn that financial institutions and credit card companies will often accept a lower payment on a debt; it’s really a matter of negotiation.
Many people end up choosing to hire a debt settlement company to avoid the headache of negotiating with creditors on their own. Since debt settlement companies employ professional negotiators, they could help you get a great deal that saves you money, reduces your debt, and helps you become debt-free faster than continuing to make minimum payments.
How does debt settlement work?
If you choose to work with a debt settlement company, you could fill out an online form to see if you qualify. Then, a representative from the company would call you to explain their program. Here’s what happens if you decide to enroll in a debt settlement program:
Build: You make monthly deposits into an FDIC-insured savings account you own and control.
Negotiate: After saving enough money into your account, the debt settlement company negotiates with each of your creditors to resolve your debt.
Settle: Every time your debt settlement company and your creditors reach a settlement agreement, the debt settlement company contacts you for approval.
Freedom: After the full settlement amounts are paid on all of your accounts, your debt is behind you.
Debt settlement companies charge a fee ranging from 15-25% of your debt—but they’re only allowed to charge you after they have reached a settlement agreement with a creditor and you have signed off on it. Even with the fees, this type of debt relief for business owners could still reduce your total debt.
How do business owners qualify for debt settlement?
Secured debt, such as a mortgage or company car loan, doesn’t qualify for debt settlement. Neither do federal student loan debt or tax debt. The best way to see if you qualify for a debt settlement program is by requesting a free debt evaluation from a debt settlement company.
Here’s how to tell if you could qualify for debt settlement:
You have $7,500 or more in unsecured debt, like credit card, personal loan, or other debt not tied to collateral.
If enrolling debt from your business, you must be the sole proprietor of the business and the debt in your name only.
You got into debt because of a financial hardship, including the insolvency of your business, loss of a job, or taking on personal debt to keep your business afloat.
You are struggling to make payments on your debt, or you’ve already fallen behind on payments.
Don’t deal with small business debt alone
If you’ve turned to credit cards and other forms of unsecured debt to keep their business afloat, you’re not alone. Thousands of business owners have gotten into debt to help their business succeed. That’s why there are programs that offer debt relief for business owners.
If you’re in so much debt that you are having difficulty keeping up with your payments, it may be time to get debt help. A debt relief company like Freedom Debt Relief could offer the solution you need to get out of debt faster. With help from experienced Certified Debt Consultants, you could put your debt stress in the past and move on to your next financial goal.
Learn More
10 Stats That Explain Why Business Credit is Important for Small Business (Small Business Administration)
5 Strategies to Help Manage Small Business Debt (Freedom Debt Relief)
10 Ways to Reduce Small Business Costs (The Balance)
How to Ask Creditors for Loan and Credit Card Forbearance (Freedom Debt Relief)
Debt relief by the numbers
We looked at a sample of data from Freedom Debt Relief of people seeking debt relief during July 2024. This data reveals the diversity of individuals seeking help and provides insights into some of their key characteristics.
Credit utilization and debt relief
How are people using their credit before seeking help? Credit utilization measures how much of a credit line is being used. For example, if you have a credit line of $10,000 and your balance is $3,000, that is a credit utilization of 30%. High credit utilization often signals financial stress. We have looked at people who are seeking debt relief and their credit utilization. (Low credit utilization is 30% or less, medium is between 31% and 50%, high is between 51% and 75%, very high is between 76% to 100%, and over-utilized over 100%). In July 2024, people seeking debt relief had an average of 77% credit utilization.
Here are some interesting numbers:
| Credit utilization bucket | Percent of debt relief seekers |
|---|---|
| Over utilized | 24% |
| Very high | 30% |
| High | 21% |
| Medium | 12% |
| Low | 11% |
The statistics refer to people who had a credit card balance greater than $0.
You don't have to have high credit utilization to look for a debt relief solution. There are a number of solutions for people, whether they have maxed out their credit cards or still have a significant part available.
Personal loan balances – average debt by selected states
Personal loans are one type of installment loans. Generally you borrow at a fixed rate with a fixed monthly payment.
In July 2024, 45% of the debt relief seekers had a personal loan. The average personal loan was $11,169, and the average monthly payment was $367.
Here's a quick look at the top five states by average personal loan balance.
| State | % with personal loan | Avg personal loan balance | Average personal loan original amount | Avg personal loan monthly payment |
|---|---|---|---|---|
| Connecticut | 44% | $14,232 | $22,030 | $497 |
| Massachusetts | 42% | $14,902 | $21,939 | $500 |
| New York | 38% | $13,803 | $20,758 | $460 |
| New Jersey | 43% | $14,025 | $20,583 | $466 |
| Maryland | 41% | $13,307 | $19,632 | $409 |
Personal loans are an important financial tool. You can use them for debt consolidation. You can also use them to make large purchases, do home improvements, or for other purposes.
Regain Financial Freedom
Seeking debt relief can be the first step toward financial freedom. Are you struggling with debt? Explore options for debt relief to regain control of your finances. It doesn't matter how old you are or what your FICO score or credit utilization is. Take the first step towards a brighter financial future today.
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