You’ve started a business and now you need to start acquiring items for that business, everything from inventory to the office supplies. Plastic in hand, you run full steam ahead toward – debt! Instead of making your dream of profit come true, you are watching said profit going out the door to pay your credit card payments that include high interest. One day, thousands of dollars down the road, you may suddenly turn around and ask yourself what happened.

Of course, simply having a business credit card is not a bad thing. It’s the type of card you end up with that counts, and the costs associated with it. Do your homework. Look into the various types of credit card products out there. Look for ones that have low APR’s (Annual Percentage Rates), low or no annual fees, and always pay very close attention to late fees and other penalties. Last look for a card that suits your business in terms of what you want to gain from it, like points for travel, rebates on products or supplies, and other benefits that have real value to you and your business.

Simple rules

It is easier to borrow money on a credit card than it is to go get a bank loan – easier but costlier, of course. Cardholders are given large amounts of credit that not every individual can handle, and human frailties apply to business people, too. The number one rule is: Don’t mix business purchases with personal purchases. Also, be sure to pay your bill on time every month. According to American Express, they collect $2.9 billion dollars a year in late fees alone. Late fees cost you money and they can increase your interest rates as well.

A very important, and often overlooked rule is to “know your own money limits” and learn how to manage you credit card. Try to purchase things with cash instead of using credit. If you do use your credit card, be sure to pay it off at the end of the month. Don’t get caught up in huge, revolving debt that you know you will not be able to carry indefinitely. Do not risk your credit rating and get caught up a vicious circle of debt. And don’t forget that, at some point after you’ve had your card and are making payments on time, you can call the credit card company and ask them lower your interest rate. They just might do it.\

Also be careful with introductory offers. Many card companies offer interest-free periods just to bait you. Once that period is over, rates can then rise to, or past, the 18.9% national average. Cash advances are also sometimes very expensive. Before you take out cash from the ATM using your credit card, check to see how much the interest rate for cash advances is going to be. Cash advance interest rates can be more expensive than rates charged for regular purchases, and there is also a surcharge of $5 or more.

Use it, don’t abuse it

Remember, try to make the most of your credit card. If you can obtain a low interest “rewards” card that promises cash back at the gasoline station, why not use it? Small businesses can save a lot of money by using their rewards correctly. A small construction company can charge materials at the local hardware store and reap the rewards benefits at the same time. It all adds up. But you have to be paying attention to the numbers!

Lastly, always use your business credit cards responsibly. Don’t fall into the traps that many people often do. Use your best judgment when deciding whether or not to charge your next purchase on your card. If the items that you are purchasing are not necessities, than pay by cash or go without. It is very easy to forget that every time you swipe that card you are incurring debt. Once that debt gets beyond control it becomes a beast to maintain.

If you use your card wisely than you are in control, as opposed to the card issuer being in control of you. You will not likely be able to charge your way to success, or borrow your way into better revenues. But the credit cards you have can finance your good ideas and help you keep working hard toward your goals. And if you end up making bad decisions that get you financially stressed, remember this old saying: It’s a poor carpenter who blames his tools. Credit is a tool, so use it – don’t abuse it.

Tags: mortgage, loans