Credit cards are a necessary evil, especially when used to invest in your business.
We all have them, sometimes in multitudes, and use them on a regular basis. But they cause deep trouble in the way of D E B T at high interest rates (anywhere between 12% to an obnoxious 41% APR) when used irresponsibly.
What’s an entrepreneur to do when you needs cash and can’t get a loan? You figure out a way to play the system to your benefits.
By carefully managing 0% APR and bonus point offers, I’ve seen entrepreneurs finance up to $200,000+ through multiple credit cards without losing their shirts. But be careful! Because if you aren’t numbers- savvy, you can go bankrupt by using credit cards to finance your business.
Here are a few tips:
- Do your research. Make sure you can get enough money from the credit card to really help your business. How much money you garner from credit cards ties directly to your credit standing and income.
- 0% credit cards always go up. Take advantage of the time period that the discounted APR is offered, and then either pay off or transfer your debt before the regular interest rate kicks in. Make sure you know when the 0% offer ends!
- YES! to bonus points. Credit card companies send out special offers to entice you all the time. 50,000 bonus point can equal $500 in cash back, or an upgrade business class ticket that’s worth $3000.
- Late fees can really hurt. Make sure you stay on-time with paying your credit card bill or all the benefits can go up into smoke. Remember, credit cards are meant to be short-term debts, not long-term. Once you are incurring a high interest – you are losing the game.
- Pay credit cards first. If income doesn’t allow you to meet your expenses, choose who to pay first carefully. You are better off paying down the highest interest rate (usually credit cards) first.
- Keep everything organized. The extreme example that I’ve mentioned above required a complex spreadsheet system to make sure the company stayed up-to-date on each card’s status. You have to decide if the benefit is greater than the work required to pull this off.
Using credit cards can increase your credit score, an advantage when seeking additional funding in the future, but they also leave you personally liable for debt, regardless whether you got a card via personal or professional means. Whatever you decide to do, go in with your eyes open.