Chances are if you are reading this then you already know the dangers of debt. The fact of the matter is that debt is a two edged sword. Debt can cripple anyone if they aren’t careful and some people have even shied away from debt entirely. Having debt can creep up out of nowhere on a person or a business and they can find themselves owing a lot more than they originally intended.
When most business owners think about debt, there are pros and cons right off of the bat. There are absolutely some advantages with debt, some of the most noticeable being a mortgage on a building, a car loan, financing options, or even a student loan from their personal life. Debt is a tool that allows you to get what you want ahead of time, and as long as you are able to do it in a responsible way you truly can come out ahead.
Where debt can become scary in no time at all is with credit cards.
Credit cards are basically floaters. The reason that the bank (or another lending institution) will offer you money for other loans is that you typically have some sort of collateral to post in exchange. For example, if you default on your mortgage, they take your building. If you stop paying on your car, they’ll tow it. But how does a financing company deal with you if you stop making payments on your credit card? They can’t get back the business lunch you bought, the gas you put in your tank, or even the triple-shot-lattes (with extra foam) that you had to start the morning off.
With more risk on their end, credit card companies are still willing to lend, but they do so at much higher interest rates than secured loans. Even with recent consumer credit reform kicking in to high gear over the past few years, the amount that credit card companies are able to charge hasn’t gone down as much as expected. Some people are still finding themselves holding (and using) cards in the 20% rate range, if not even higher!
If this doesn’t scare you, then you truly need to take a deep breath and re-read that last statement. If you were to put money in even the highest interest yielding banks across the country, you would be lucky to get a 1% rate of return on your money. If you were to take out a property mortgage then you could possibly take one out for less than 5% at today’s current rates. And yet, while it may sound crazy, your simplest needs and smallest operating expenses are costing an extra 20 cents on the dollar because of credit cards. Can you really afford to add an extra 20% to your budget and only receive the same items?
It’s time that you take back your credit power, and one potential strategy is to fight fire with fire.
Credit cards are competitive. They know that their ability to sustain success as a company is dependent upon getting new members, and they also need those members to take on debt (how else can they collect interest?).
They also know that one way they can receive new members without having to wait for a balance to build up is to offer other company’s card users to transfer their existing balances over to their company. The company receives a new customer with an existing balance which immediately grows their cash flows.
As a savvy business owner, what you need to do is learn how and when to take advantage of these situations and offers. Obviously you need to weigh each specific situation to ensure it works best for you and your needs. However, oftentimes you can take advantage of these trends and the general competitive nature of credit card companies to take back your debt and reclaim your financial freedom. Whether you are the one providing a product/service or you’re the one who’s purchasing it, having the terms in your favor can mean all the difference. Getting your firm’s cash flows in your favor can mean a significant advantage to your company’s budgeting, profitability, and overall growth and success.
If a credit card company is offering you a lower rate in general, it makes sense to try and get on board with it as soon as possible (assuming the rest of the card is the same, of course). Yes, you might have to pay a balance transfer fee, but for a small price up front you can really save on the back end. Either you can start paying less per month if you are in a cash flow bind, or you can pay the same amount but it will pay off your balance faster in order to improve your financial statements. The strategy is yours alone when it comes to implementation, but the fact is lower interest rates actually mean less coming from your hard earned profits and less going directly to the bank each month.
If you are aware of refinancing when it comes to other loans, then this concept shouldn’t be foreign to you at all. By transferring your credit card debt to another company, you still have a credit card and maintain all of the benefits and flexibility of owning a card. Your day to day operations won’t suffer, and anything that may come up but wasn’t budgeted for won’t cause a bottleneck in your operations. At the same time you are able to get a better deal on the table, and as any investor will tell you, even a percent or two can make a huge difference. What’s more, some companies are even starting to bring back the all but forgotten “no balance transfer charge, zero APR” credit cards just to entice new members to transfer their debt over. If a few percent is a good deal, wouldn’t a zero percent option be a steal? If you offered your customers no APR financing, would you even be able to compete on the market? And yet you can capitalize your financial statements by taking advantage of a deal like this.
The important thing with any and all debt is to make good decisions regarding it. The first good decision in this line of thinking is that you’ve decided to commit to cleaning up your financial statements and finding just one more way to get ahead of the competition. Now what you need to do is research the best possible card that makes sense for you and your company’s operating budget. A few minutes finding the right card and completing a balance transfer process could save you literally hundreds, if not thousands, of dollars. And, with the average credit card debt hovering around the 15 -16 thousand dollar mark, even a one percent reduction on the overall balance could mean a $1,500 difference in the first year alone!
You have the correct mindset and are asking the right questions.
Now do the math and research the best card that fits your needs to transfer your balance and give yourself a little more breathing room when it comes to your cash flows.
Turn bad debt into an asset.