Wednesday, June 18, 2014

Credit cards

     Free daily tips, information and advice for people in small business
     from someone who has been there, done that in several operations.

     One of the great inventions of the 20th century was the credit card. It freed people from carrying cash needed for daily expenses.

     I first heard of credit cards when I was in college. That was the mid-1950s, and at that time, credit cards were largely a future possibility, an experiment yet to happen.

     Later, issuance and use became widespread. Everybody seemed to suddenly have a credit card--or multiple credit cards. Customers used them to buy goods and services, and small businesses discovered the ease of getting loans by using their credit cards.

     Example: Mary wanted to start up a pet supply store. She had good credit, and she had several credit cards. She charged everything to get the store open--stock, supplies, even the sign out front. Suddenly, Mary was at the limit on two of her credit cards. No problem, she thought, as she wrote a large check to herself on a third credit card. The scheme quickly unraveled. The cash flow from the traffic in her new store did not support payments to the credit cards. She found herself in a downward spiral--unable to keep up with even minimum payments. She blamed the credit card companies rather than herself.

     Just about everyone I know in small business has used credit cards to bridge temporary shortages of funds. It's a quick and easy way to provide small amounts of funds.

     But you are putting your reputation on the line. You are putting a debt in place, and it must be repaid. It is a loan, and the loan carries interest--significantly high interest. 

     If you are only making minimum payments every month on your credit cards, you are headed for trouble. Most of your payment goes to satisfy the interest charged by the company that was good enough to trust you in the first place. Don't blame them. They helped you in good faith.

     Stop using the card and begin making payments amounting to more than the minimum. Soon, you will be in position to use the credit card again--when it's really needed.

     I don't know what happened to Mary and her pet supply store. The last time I looked, the store was closed and empty.

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