credit cards

Use business credit cards wisely

Capital is hard to come by when you initially launch your business. Depending on the industry you are in, startup costs could range from hundreds to thousands of dollars. Most new entrepreneurs simply don't have this kind of cash to launch their business, so they must turn to business credit cards to get the ball rolling. If you use or are considering using business credit cards, here are some tips on using them wisely.

Tip No. 1: Only buy what your business needs

The problem with business credit cards is how easy it is to spend money on things you might not need. The term "need" should be looked at strongly. As a business owner, you might want a nicer desk or a personal assistant, but taking on debt for these luxuries may not be worth it initially. Try to only buy what your business needs, not what you want. Just because it's a business credit card doesn't mean you should rack up debt.

Tip No 2: Spend money to make money

You have probably heard the phrase "you must spend money to make money." Whatever you are purchasing with your business credit cards should be helping you make more money than you originally spent. When you go into debt using business credit cards without seeing a return on your investment, you not only lose money, but you also lose momentum.

In many situations, such as advertising, you may not see the direct link between your investment and your income, but it's important to track any spikes or dips in your income that took place around these seemingly untraceable investments.

Tip No. 3: Break the habit

Once your business gets off the ground, wean off the business credit card. Credit card use is habit-forming, and can cause you to spend more than you make. As the cash comes in, build your business nest egg in a checking or savings account. Save enough cash to handle all fixed operating costs, and get in the new habit of saving for future expenses instead of leaning on the business credit card to make the purchase.

Tip No. 4: Pay at least twice the minimum payment

Once you have the cash coming in, pay as much down on your credit card balance as possible without hurting your business nest egg. Strive to pay at least twice the minimum payment to get in the habit of paying more than what's necessary. Paying twice the minimum will also greatly reduce your payments and the amount of time it will take to pay down your debt. You can see the actual difference using Bankrate's credit card minimum payment calculator.

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