Unluckily, during these days the tightening credit environment has also led to tighter terms for business credit cards, and the standards for approval for new credit cards have become more tough.
If you’re a small business owner, then what are those ways by which you can take advantage of the benefits of credit cards and at the same time avoid their pitfalls?
Tips for using Business Credit Cards
Below I have given nine tips to use business credit cards in a tight economy.
1. Keep your credit score high.
Card issuers will use your personal credit score when they are evaluating your credit card application, unless your business already has a long established credit history.
So if you want to get a business card with the best terms, then you need to keep your credit score as high as possible.
2. Use a bank with which you have an established relationship.
Those banks with which you already have an account will be more open to issuing you a credit card. There are numerous small, local banks and credit unions that issue business credit cards.
You could possibly get a low interest credit card by establishing a personal relationship with these. If the bank with which you are currently having an account doesn’t issue a credit card, then you should open an account with the one that does.
3. Keep different cards for different purposes.
You should use credit cards that are having a low interest balance transfer APR for credit card debt that you carry forward. You should use a different card for purchases which has to be paid off every month.
4. Choose the best deal.
It is not necessary that the best deal is always on a small business credit card. Generally speaking, for all credit card debt you are personally liable, whether it is on personal credit card or a business credit card. So you may choose a personal credit card for business purpose if it offers you a better deal than any other business credit card.
5. Know how much you can afford to put on.
You should incorporate credit cards into your overall financial planning. You should plan that how you have to use your credit card purchases. You should find out that how much you can put on in purchases each month and still pay off in full.
If you have decided that you have to take on credit card debt, then you have to project that how much you can take on and still pay off before that the low interest expires.
6. Know the difference between good debt and bad credit card debt.
You have to make a sensible decision about the debt you take on. Credit card debt that support the business finances while waiting for accounts receivables is perfectly acceptable debt. Same is the case of the debt that helps to increase the business income, such as a short term bridge loan for purchasing new equipment.
Accumulating credit card debt just in order to fills in gaps between income and expenses is considered as a bad debt.
7. Always Keep a back-up in place.
Don’t take any risks for your card debt. Avoid getting trapped by changing credit card terms. You should always keep ready a backup plan in place in case if your minimum payment double, interest rate increase, or credit limit get cut.
To avoid any such situations you should always have one or several unused credit cards available as back-up, or you should search for other financing alternatives, such as account receivable financing.
8. Take wise decisions while managing your business credit.
It is a basic rule of thumb for all business owners that they should keep personal expenses separate from business expenses, and of course this applies to small business credit cards as well.
Doing this you can not only keep your accounting more clean for tax purposes, but other than that it also allows you to use the extra services that come along with business credit cards in order to help you track your monthly business expenses and employee expenditures.
9. Build a communication with your card issuer.
If you have planned to make a big balance transfer, which would possibly bring your card close to the credit limit, then you should inform your card issuer that what you’re doing, for which purpose you’re taking out the balance transfer, and when you have planned to pay it off.
Otherwise, if you would have a high balance then this could create an alarming situation to card issuers that your business might not be going so well. Possibly this would in turn force them to raise the minimum required payment, lower your credit limit, or even raise the interest rate on the card.
If nothing else, the recent financial crisis has opened our eyes to the dangers of excessive credit card debt. Many consumers have long considered credit card debt part of life but when unemployment rises and foreclosures are festering, credit card debt seems like a nasty and preventable sore. Now many of us are wondering how we can quickly pay off our debt and save for our future. Try these paying off credit card debt tips.
Eliminating credit card debt takes discipline. In dieting they will tell you that you didn't gain the weight overnight or in one month and that you won't lose it in a day or month. In fact, it may take up to a year. Well with credit card debt the sad truth is that sometimes the debt is occurred in one night or one month and yet it may take years to eliminate credit card debt. Let's take a look at the most productive steps for paying off credit card debt.
Which debts should I pay off first?
Most families have more than one kind of debt. There are mortgages, car payments, student loans, personal loans home equity loans and in some cases second mortgages and of course credit cards. In most cases, the highest interest rates are on credit cards. Here's an example of the impact of making extra payments towards high interest credit cards.
Example:
Mortgage balance of $150,00 and 6% interest rate
Credit card balance of $10,000 and an 18% interest rate
If you paid an extra $100.00 towards your mortgage, you would save fifty cents on interests this month plus additional savings on principle each month thereafter. But if you send an additional $100.00 to your high interest credit card payment, you will save $1.50 this month plus additional savings on principle each month thereafter.
Paying extra toward a high interest credit card saves more money per month on interest, accelerates the payoff of high interest credit cards and increases your monthly cash flow in a short period of time. Once you've created a monthly family budget you can determine how much extra you can send towards a high interest credit card. If you have multiple high interest credit cards, start with the one with the highest interest but check out these tips for reducing credit card interest.
What Does Credit Card Interest Really Cost?
While interest rates on credit cards vary, most carry a rate that is between 15% and 22%. Store credit cards lean toward the upper end of this range. Many credit cards even have a provision that will increase the interest rate several points if certain terms are not met or if certain rules are not followed.
A common interest rate penalty results if a payment is late. Credit card companies will increase your interest rate by as much as five to ten percentage points if even one payment is received past the due date. Some credit card companies don't lower the rate back until the entire balance is paid in full. Here's an example of what charging $10,000 on a credit card really cost you in the long run if the minimum payment is $200.00 and you only pay the minimum payment each month:
Example:
Principle Balance: $10,000
Monthly Payment: $200
Months to Pay Off Balance: 94 (the last payment may be lower)
Total Payback: $18,622
Total Interest Paid: $8,622
Wow! So the television that you charged at the 25% off sale ends up costing you 180%.
How Much Does Sending Extra Reduce Credit Card Debt?
Here's the same example but now the minimum payment is $200.00 but you are sending in $300.00 a month.
Example:
Principle Balance: $10,000
Monthly Payment: $300
Months to Pay Off Balance: 47 (the last payment may be lower)
Total Payback: $13,967
Total Interest Paid: $3,967
You can see that sending only $100.00 extra above the minimum payment each month saves you a lot of interest and cuts the number of months to eliminate the credit card debt almost in half.
Paying more than the minimum payment is a great way to eliminate credit card debt. Also remember to make credit card payments on time and don't add any debt to the card that isn't absolutely necessary while you're trying to pay off the credit card.
Posted by Lisa Carey on December 13, 2009 08:24 PM | Permalink
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