Running with credit cards

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     Buying materials and running your small business using credit cards can be dangerous. It's common. Everyone has done this, but it can get out of control.

     Example: Judy runs a pet supply store. In months when cash flow is not flowing, she uses her personal credit cards to buy materials for resale. She has several credit cards and she has good credit--never late and always paying the monthly charge--or more. The problem is that the amount outstanding has been steadily creeping up. It needs to be going in the opposite direction, but Judy cannot make more than the minimum payment.

     Example: Emma is a Pilates expert. To get her certification, she used her personal credit card. To get the equipment she needed, she used the credit card again. Then there were the incidentals that she needed. By the time she got into business, Emma was in over her head with credit card debt.

     Example: Tom needed several thousand dollars worth of new computing hardware and software. He put everything on his credit card, along with some office furniture and other items. In his excitement of expanding his operation, Tom overspent--all of it on his credit cards.

     Credit cards are a marvelous invention. They represent a way to get a loan without the hassle of applying to a bank or credit union. Used wisely, credit cards can help you get into business, expand, and grow. But sooner or later, the bills must be paid.

     If you have several credit cards and all of them are killing your monthly budget, it's time to get a handle on the situation. There are several ways to do this. The method I like is to target the one with the smallest total, then double or triple the payments each month until it is paid off. Then tackle the the next one with the smallest balance. Eventually, you'll be left with only the biggest one. Keep paying as much as possible until it's gone. 

     Credit cards give owners of small businesses some flexibility in managing money. That's the good side of the equation. The bad side is letting things get out of hand. 

     The thing to keep in mind with credit cards is this--you are using other people's money.  Sooner or later they will demand repayment. Ain't no such thing as a free lunch.