If you walk around a college campus, you’ll likely spot credit card stands set up to entice students to sign up for credit cards. The professionals assigned to these booths know exactly how to draw you in. Give them 5 minutes, and in return they will give you a shirt, a card limit of $1,500, and zero instructions on how to manage money.
While this may seem like free money to the inexperienced credit card owner, financial debt can really pile up over time. In fact, it can become one of your biggest struggles in life if no one guides you in the smart behaviors of credit.
Opening Credit Cards for Your New Business
It’s similar to the HVAC business owner that starts a business and applies for every credit card they can get their hands on. Visa, Chase, Discovery, and American Express are more than happy to loan you money — at a very high interest rate!
Sadly, many HVAC business owners gladly snatch up the cards and begin to use them with glee and abandon. They justify the use of the cards with thoughts such as, “I’m getting points!” or “This is only temporary” or “This is building my credit” — and the big one: “I’ll pay it off at the end of the month.”
Credit cards sound like a great way to get access to easy money. A simple line of credit that we can use to operate our lives on. However, many of us find that credit cards end up being the thing that causes us the greatest grief.
Why are credit cards dangerous?
Most people don’t use credit cards properly — or they don’t know how to. They get themselves in deep trouble with deep debt that follows them their entire lives. Many Americans and business owners file bankruptcy because of credit card debts. Many lose their houses, cars, and dreams to poor credit management.
However, taking out credit is a part of most people’s lives, and you’ll probably need to at some point if you are starting or running your own business. So, how do you avoid all of the pitfalls of credit cards? Luckily, there is a very simple set of rules that can help you properly use credit cards.
Best Practices for Credit Card Use and Management
#1: Pay your credit card in full every month
Credit cards are NOT low interest loans. If you treat them this way — by not paying your bill in full every month — you will be drowning in compiled interest alone. Credit card interest will absolutely kill your finances!
≥This company was using credit cards in their HVAC business to purchase vehicles, buy replacement equipment and pay operating expenses. This may seem like the ordinary course of business, but if you can’t follow rule number one, you’re going to struggle.
This company was being hit with a monthly interest of 24.9% on some cards, and 19% on others. On average, they were paying over $200,000 a month in interest! This is exactly the situation you want to avoid by paying your debt every month and avoiding paying a single cent in interest.
#2: Review your credit card expenses every week
You should know every single cent that is being charged to your credit line. If you don’t have a chunk of your week set aside for looking over the charges made to your credit, start now. Being aware of the amounts and types of purchases you are making ensures you are fully aware of what you are spending. You can also prevent mischarges and fraud by being so attentive and aware of each charge on your account.
If you’re going to borrow money every month to run your business, you better be absolutely sure where it’s going and how much you’re going to have to pay off at the end of the month.
#3: Treat credit card debt like negative cash flow
Think of your credit cards as negative cash flow — because that’s what they are! At the end of the month, every cent you charged to your card needs to be paid as if you took the cash from your pocket and used it. If you start to think of credit as free or delayed charges, you can quickly get distracted and lazy. Stay focused, and make sure you are treating your credit as carefully as you would cash.
What to do if you are in big credit card trouble
The rules above are the best way to stay out of credit card debt and live a lower stress financial life, but you may have already made some missteps. Not everyone is in the position of great credit management. Many are in the position of credit debt and stress. If you are struggling, make a plan that will navigate you out of your credit card debts and into financial freedom!
The process is not a difficult one to map out, but it may be a tough one to execute. Getting out of credit card debt is never as easy as getting into debt, but being out of credit card debt is wonderful!
Need help with a credit card debt plan?
If you need help in creating your plan to get out of credit card debt, Service Excellence’s business coaches can help. Your management sessions with our industry experts are the thing you need to start managing your debt and credit flawlessly. It’s never too late to change your perspective about credit, and it’s never too late to ask for help when you need it. Contact us today to make an appointment with your current business coach or to start the journey with Service Excellence’s team!
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