Top Personal Finance Blogs
Wednesday November 13th 2019

Using Credit Cards to Finance Your Startup

Credit cards should never be considered your first choice for raising capital for your startup business. The risks in running your credit balances up are too high for a business that has not yet proven itself stable. That said, there are some situations that could benefit from the short term or carefully structured use of a credit card to cover certain costs. If you plan to use credit for business funding, track your purchases carefully and pay the cards down as soon as possible.

Recognize the Risk Up Front

A personal credit card can seem like a convenient way to cover many of the costs of starting your business. The trouble with using your own card for a brand new business is that you have no guarantee that your business will be able to pay the balance down within a reasonable amount of time. The safest way to gain capital for a startup is through a traditional small business loan through a bank you trust. The interest rates on credit cards can be as much as 10% higher than a standard loan’s interest rates, which means you will pay 10 times as much for your credit card loan over the long run.

Use Balance Transfers to Your Benefit

If you choose to carry a high balance on your credit card after purchasing items such as desks, office chairs, printers, computers, and other operating equipment, watch your balance and interest rates carefully. If you have more than one credit card, you might benefit from transferring the balance from one card to another. Many credit card companies offer special discounted rates for customers who transfer balances. The balance transfer could save you several months of high interest rates on your card’s balance.

Create a Plan for Paying off the Balance

Before you swipe the card for the business purchase, have a plan in place for paying the card off. You should be able to project your expected company earnings for the near future. Figure out how soon you can pay off the card’s balance in full based on your sales projections. Once you make the purchases, pay the minimum required payments on the card until you reach your expected payoff date. Always have a backup plan in case your company does not do as well as you expect it to do within the time frame you have selected.

Credit to Cover Cash Flow

One of the most powerful uses of a credit card for a business is as a stop gap cash flow resource. When you submit an invoice to a client, you never know how long it will actually take the client to pay you back. You can loan your company the amount of the invoice by using your credit card during the time between submitting the invoice and receiving payment. When the payment is received, you can use it to cover the charges you had to make with your card. The credit card can keep your company solvent without depending on the payment time frame of your client. Of course, this method relies on timely payments from your clients.

The bottom line is that using a credit card to finance your startup is a risky endeavor. Use your credit wisely and be careful to maintain full control lest the credit cards begin to inhibit your business growth.

Do it Now: Five Steps You can Take Now to Fix Your Broken Finances

When you find yourself in a financial hole, it can be overwhelming to dig your way out again. These five tips can get you past the initial sense of hopelessness and in motion toward erasing your debt and living within your means once again.

1. Create a Daily Spending Journal

Dieters who are serious about dieting write down everything they eat in a day. If you are serious about correcting your finances, you need to write down everything that you spend in a day. You may be surprised how much you are spending for small, incidental items. If you spend a couple of dollars every day on a snack from the vending machine, that adds up to ten dollars in a regular work week. Write down everything you buy for at least a week so that you will be able to see where your money is really going.

2. Write Down a Budget

It sounds simple, but writing down your budget is the best way to track your spending. Begin by listing all of your regular bills and the dates they are due. Then give yourself spending money for other thngs that you buy regularly, like groceries and gasoline. Make sure you give yourself some extra cash to spend on fun things as well as the necessities. Your budget should also include a certain amount toward savings every month, even if it is a small amount.

3. Check Your Credit Report

Everyone is allowed to check their credit reports once a year through three different services. Take advantage of the opportunity to see where your credit rating is and why. Look through the listings to make sure that all of the information is accurate. Understanding your current credit rating will help you make changes that will improve your numbers.

4. Stash Some Cash for Different Purposes

Keep some envelopes or jars in your house where you can keep cash that you might need during the week. One stash could cover unexpected expenses from your kids. Another stash could be kept for play money that you can use to eat out or go to a movie. Having these separate stashes ensures that you will have the money you need for certain purposes without needing to stray from your budget. Sometimes just knowing that you have a little money set aside for a fun activity will make you feel less urgent about going out, so you might actually save that money for another day.

5. Clear the Clutter From Your Home Office

Go through your home office or computer and clean it out. Keeping your files organized will help you keep your finances organized. If your paperwork is a huge stack on the edge of your desk, bills and other important documents can get buried or lost. Create a place where you can keep bills that need to be paid, and put your bills in that place as soon as you bring them in from the mailbox. If you make it a habit, it will be easy to stay organized.

Put a Leash on It! Top Five Tips for Controlling Your Debt

Americans are facing an unprecedented level of debt. From credit cards to second mortgages, the majority of the country is in over its head. Here are five ways to get a handle on your debt and keep it under control.

Understand Good Debt vs. Bad Debt

There is such a thing as good debt. Investing in a mortgage or purchasing a car are ways that you can increase your credit rating and purchase expensive items that you need. Make sure you research the best rate options before you sign on for a large loan. Bad debt that should be avoided is usually in the form of high interest rates from credit cards. Try to pay for daily items with cash, and never buy anything with a credit card that you won’t be able to pay for by the end of the month.

Organize Spending Habits

Have a plan for your money. All of those small items that you pick up during the week are inexpensive one at a time, but they add up quickly. Make a realistic budget that includes all of the things you expect to purchase on a regular basis – including that danish with your coffee on Friday mornings.

Always Pay More than the Minimum

If you are carrying a revolving balance on your credit cards, always pay more than the minimum every month. Usually the minimum will only cover your interest payment on the balance. In order to make some headway into the principle balance, you will need to pay more than the minimum requirement.

Be Ready for Emergencies

It is important to be prepared for unexpected emergencies. Most financial planners recommend that you keep a savings account that is large enough to cover your expenses for three months. This safety net will provide you with the money you need in an emergency without having to resort to credit cards or other financial pitfalls.

Pay Debt Down in the Proper Order

How you pay your debt off is important. Begin by paying off the loans or credit cards that have the highest interest rate. Your debt will drop much faster as you reduce the balances on those loans because the interest that you are paying will be reduced right away. A good strategy is to make larger payments on one high interest loan and at least the minimum on your other loans. As you pay one off, you can start on the next one in the list.

Step-by-Step Guide to Lower Credit Card Interest Rates

Credit card companies compete with each other using their individual interest rates. The following is a method in which you can use a credit card company’s competitive mindset to lower your credit card interest rates.

Getting the Best Rate

Credit card companies are in the business of making money. If they could charge you a hundred percent interest rate they would. However, credit card companies are constantly competing with each other for customers on a daily basis. No one would use a credit card that charged a hundred percent interest, thus a credit card company with a hundred percent interest rate would become bankrupt in a matter of days. Just how much you do pay can depend on how far you’re willing to go to get the best rate.

Gather Your Information and Start Calling

First off you need to get your credit card statements together and call the customer service number that is list on your credit card statement. This will call will take a while and probably try your patience but it could save your hundreds of dollars in the future so stick with it. Go through the recording and push the necessary numbers until you get a hold of one of your credit card company’s representatives.

Negotiating a Better Rate

Now that you have an actual person on the phone you can start step two. Simply ask the representative to lower your credit card’s interest rate. Make sure you point out that you constantly pay your bill on time. If you make a lot of late payments you may be unable to lower your interest rate at all.

Be Nice

It is absolutely essential that you keep a polite tone. You are trying to get the credit card company to do you a favor; people do not do favors for people that show hostility towards them. Stay polite and the customer service representative will be more willing to help you out however he or she can.

Be Persistent

If your credit card company can’t lower your rate then request detailed information on why they aren’t willing to lower your interest rate and how you can qualify for a lower rate in the future. You may need to simply wait a few months before calling again. It is actually a good idea to call every few months whether they approve a lower interest rate or not. You want to get as close to zero percent as possible.

Lastly, pay your bill in full each month. If you pay your bill in full you make sure your credit card company doesn’t have a reason to increase your interest rate. The longer you pay your bill in full each month without any troubles the more of a reason your credit card company will have to lower your interest rate next time you call.

Politeness and manners are the keys to lowering your credit card interest rates. Those who ask nicely and frequently are more likely to receive lower credit card interest rates than those who demand and never ask. One phone call could save you hundreds of dollars each year

What to do When You Can’t Pay the Minimum

It can happen to the best of us. For some reason or another you are unable to make your minimum credit card payment. As long as this only happens once in a blue moon you are okay; do not make it a regular occurrence or you will find yourself grave deep in debt. It is easy to just your minimum credit card payment if you can’t afford it and just go with the consequences. It is also incredibly stupid to do as well. If you find yourself in danger of missing your monthly minimum credit card payment follow the tips below to minimize its impact on your finances and credit score.

Be Proactive

The first action you need to take when you know you are going to miss your monthly minimum credit card payment is to call your creditor. Explain the situation you are in and why you can’t make your payment. Most creditors will waive the late fee and extend your due date as long as it is a one-time occurrence. The majority of creditors will also refrain from reporting late payments to credit bureaus. This is not guaranteed to occur. You may call and your creditor says they can’t do anything for you. However, if you choose not to call at all you will definitely be hit with the full extent of late payment penalties.

There’s Always a Way

Should you end up with a creditor that refuses to show any leniency you need to find a way to pay your minimum any way you can. You can try to find a friend or family member to burrow from, sell some items that are just collecting dust, get and advance on your next paycheck, or find a way to make a little extra money. It is important to keep any blemish you can from your credit score. The road to ruined credit often occurs from one missed payment slowly turning into more. Make the payment anyway you can.

Be Sensible

Do not put off other important bills to pay your credit card payment. While it is important to keep good credit, it is not worth losing your water or electricity. Should you find yourself falling behind regularly then you may need to try to work out alternative payments with your creditors or see a credit counselor as soon as possible. With a little proactive work you can to preserve your credit standing without sacrificing necessities. Do what you have to in order to stay in good credit today.

The Basics of Building Good Credit

People have been trying to build their credit since before the recession hit. A number of people ran their credit into the ground in the years before the economy took a tumble and a good many did so afterwards out of necessity. During these years thousands of teenagers graduated into adulthood to find they had no credit at all. Luckily, the credit building basics are the same whether you are starting with bad credit or no credit.

In order to start building your credit you need to limit the number of credit cards you possess. Until you have good credit you should only have one credit card. Having a bunch of credit cards at once is a bad mark on your credit report. This includes all kinds of credit cards such as gas cards and store cards. The discounts are not worth the hit to your credit. Stick to one credit card to cut down on your temptation to spend and repair your credit one purchase at a time.

You also need to set the credit limit on your card to no more than a thousand dollars. It would be best to set your limit to five hundred dollars but not everyone can handle such a small limit. You can usually call your credit card issuer, which is typically your bank, and request that your limit not be automatically increased as your credit rises. Setting your credit limit low will allow you to handle your payments easier and help you control your spending.

The most important part of building your credit is paying your balance in full each month. If you can do that then you are better off than most people that are already drowning in credit card debt. Paying your balance in full each month will show creditors that you are responsible in paying your monthly balance regularly. This is what ultimately leads to an increase in your credit score and makes your life a lot easier. You may find this easier to accomplish by only using your card to purchase things you can’t use cash to pay for or by only putting something you pay regularly on your card each month such as a phone bill.

As a final note, stay away from free offers that come with credit card applications. You may find the free stuff enticing and think you can simply cancel your credit card afterward, however; doing so will result in a hit to your credit that isn’t worth the free pizza or t-shirt. Unless it is a free car don’t fill out the application unless you plan to keep the card. Follow the aforementioned pointers and you are sure to build up good credit in no time.

Zero Percent Credit Cards are Back

Consumers with credit scores of 720 or higher may have an extra reason to celebrate this Christmas season. Zero percent credit cards are back and better than ever with many of them lasting for up to twenty-one months. That is a drastic increase from the fifteen month zero percent periods of last year. Initially these zero percent credit cards look like a blessing from above but this blessing is not for everyone.

Zero Chance Getting Zero Percent on Poor Credit

If your credit score is below 720 then the chances of you receiving a zero percent credit card is about the same as the card’s initial APR; zero. Credit card delinquency is down twenty-six percent from last year alone. Credit issuers are beginning to target prime burrowers in an attempt to increase profits as delinquency rates continue to fall. Unfortunately, this leaves out those whose credit scores were hit hard during the recent recession.

If your credit is better than 720, take a serious look at zero percent credit cards. Just because your credit score is so high doesn’t mean you are completely free of credit card debt. However, right now is a great time to transfer your debt to a zero percent credit card in order to save hundreds of dollars due you would normally pay due to interest. Twenty-one months without interest is a lot of money saved and a nice security net should you run into tough times and miss a payment during the promotional period. Zero percent credit cards don’t stay at zero forever but two years is a nice time to help get your finances in order.

The Catch

However, there is a catch. Transfer fees have increased to three to five percent no matter what company you transfer with. Which means you would have to pay up to two hundred and fifty dollars to transfer five thousand dollars. Transfer fee limits are, for the most part, a thing of the past.

A few card issuers offer a limit of only paying fifty dollars no matter what the transfer balance is but there is usually an annual fee or other catch that makes them not worth the trouble. Also, after the promotional period ends you will end up being charged the normal amount of interest for the entire balance that is left over. Meaning whatever you have left will be charged the same amount of interest it would have normally acquired during the twenty-one month period as soon as the promotional period is over.

Whether this is truly a good financial decision for you depends on your finances and deals you are offered. Zero percent credit cards are definitely worth another look.

What You Should Know About Hard And Soft Credit Inquiries

A credit report is the key to your financial security. Credit reports tell lenders all of the information they need in order to determine your creditworthiness. They look at your credit score and base credit decisions and interest rates off of that. There are many components that make up your credit score. Payment history, average age of accounts, debt to credit ratio, and several other components go in to calculating the credit score a lender will see. One component involved in the credit score is the number of inquiries you have. A credit inquiry exists in two forms. A hard inquiry is one that counts against your score while a soft inquiry does not.

Essentially, a hard inquiry is initiated by you. When you apply for a new loan or a credit card, a company will run your credit. Rather you are approved or not, that inquiry will count against your score for up to two years. This means that when you open up a new credit account, your score will lower a bit because of the inquiry and the reduction in the average age of accounts. As you make regular payments, they will outweigh the score impact of the inquiry and improve your credit score.

There are many examples of hard inquiries. Opening a new loan such as car or home loan is one of them. Credit cards also count as hard inquiries. Some banks may also cause a hard inquiry when opening a new account for you. In addition, some utilities and cell phone companies that run your credit may also result in a hard inquiry. One thing you should know is that when you are applying for a car or home loan, you are allowed to rate shop. This means that within a 14-45 day span depending on the credit bureau, all of your auto applications will count as one hard inquiry against your score even though all will be listed on your credit report. The same rule does not apply for credit cards.

In addition to hard inquiries, you will also see soft inquiries listed on your credit report. Soft inquiries are listed on your credit report but have no impact on your score. The most common soft inquiry is when you pull a copy of your own credit report. Also, many lenders will initiate a soft inquiry in order to prequalify you for a loan or credit card. These soft inquiries result in the offers you get in the mail. If you don’t initiate the process, that inquiry won’t hurt you. However, if you respond to an offer you receive in the mail and apply for a credit card through that it will count as a hard inquiry at that point.

Employers nowadays also check credit when screening applicants. When they do it will count as a soft inquiry. Insurance companies and several utilities also use soft inquiries. These are needed services, so you do not hurt your credit by using them. Lastly, if you have an existing account with a company they might check your credit periodically. This is what leads to credit limit increases with a credit card company or a change in interest rates with a bank.

Small Business Lending Basics

Businesses of all sizes frequently acquire loans for numerous needs. Before journeying into the world of company management and ownership, individuals require some knowledge of small business lending basics. Some lenders prefer to work with companies established for 3 to 5 years, while others readily assume the risk of new business ventures. Lenders provide various loan types to accommodate different business aspects including start-up expenses, cash flow, expansion, investments and inventory.

Small business owners must understand that each loan application, regardless of intention, automatically transfers to the individual’s credit report. Here, other creditors have the opportunity to view a company’s borrowing and payment history. For this reason, ensure loan acceptance by filling out applications thoroughly, providing all the necessary documentation and detailed business plan or records requested.

Pre-loan Preparedness

Company owners and potential owners must prepare appropriate documentation prior to the loan application process. An applicant must prove the ability to repay the loan and the commitment to the business. Part of the paperwork a first-time business owner requires includes personal financial statements, and 3 years of tax returns.

Financiers desire a well-constructed, detailed business plan, featuring monetary requirements, cash on hand, necessary equipment and facilities, collateral, projected income and expenses, in addition to contingency plans. Include personal experience and qualifications and the experience and qualifications of associates or employees. Established business loans require similar documentation, but also include profitability and loss records in addition to the company‘s tax returns.

Choosing a Business Partner

Consider a loan officer or creditor as a business partner. During every part of the company’s lifespan, this person or institution invests in the venture and expects a return on that investment, albeit the loan amount plus fees and interest. Include a personal bank as the first place of loan inquiry. As an established client, potential or established business owners already have a relationship with the facility. Acquiring a loan from a familiar environment may improve chances of acceptance.

Before choosing a specific financier, ask the lender for references or interview other business owners. Determine which facility treats clients fairly, provides assistance with applications and documentation, supplies entire loan amounts, and how the institution handles small business hurdles. Loan brokers evaluate the needs of small businesses and provide suggestions regarding other lending institutions. Higher rates accompany these loans for services rendered. However, in many instances, the firms supply approvals not otherwise easily acquired.

Loan Types

Small business applying for loans can expect interest rates ranging from 8% to 14%, plus application fees (typically <$100) and other stipulations. Beware of low cost loans that add hidden fees that in effect cost the proprietor more in the end. Loan types vary in the amounts available and the time of repayment. If desiring to pay off a loan in its entirety prior to the projected period, ensure no early repayment penalties apply.

Term loans require monthly payments over a specified length of time. Proprietors use short-term loans for needs that ensure a quick return. Companies repay the loan in one lump sum in a year or less. Line of credit loans provide small increments of money to generate constant cash flow. Many businesses acquire and pay off these loans annually.

Gap in Mortgage Rates – Cause of the Divide

As the recession continues to affect Americans, the gap between the wealthy and the poor is steadily increasing. Data recorded by the Census Bureau shows that there are more individuals living in poverty than ever recorded. The Great Recession has added 6 million people to the poverty ranks. As the gap continues to grow between the rich and poor, so does the ability to obtain a mortgage between individuals with low credit scores and those with high scores.

Harder to Qualify for a Mortgage

Obtaining a mortgage with a good rate has become increasingly difficult since the meltdown of the mortgage industry, a feat that is already difficult for those of limited means. According to a poll taken by Zillow Mortgage Market Place, nearly 33% of Americans are unlikely to qualify for a mortgage because of low credit scores. When using Zillow to search for loans, no results were yielded for individuals whose credit scores were 620 and below. According to Freddie Mac, lenders have returned to placing emphasis on a borrower’s credit history, capacity, and collateral.

There remain few options for individuals with low credit scores. In the unlikely case of getting their loan applications looked at thoroughly by a loan officer, individuals are simply told to improve their credit scores in order to qualify. However, many individuals are finding this to be a difficult task, and have to put their dreams of home ownership on hold. When you don’t have the cash flow to get the bills paid on time, your credit score suffers.

Higher Scores Only Help a Little

Even individuals with good credit scores are having a hard time securing mortgages with good rates. Banks and mortgage companies have become more selective in offering mortgages to consumers. Borrowers with credit scores of 720 and higher are receiving slightly better mortgage rates than individuals with scores ranging from 620 to 719.

According to Zillow, borrowers with mid-range credit scores (620 to 719) are receiving annual percentage rates of 4.73 to 4.44 percent. Borrowers with credit scores above 720 receive annual percentage rates of 4.3 percent. Borrowers with great credit scores were once able to get mortgages far better than those with average credit. This is no longer the case. Even those with credit scores of 780 and higher are seeing only slightly better rates than those with mid-range credit scores.

Difficulties for the Self-Employed

Not only are borrowers with low credit scores having a hard time securing mortgages, but so are self-employed individuals. Even with good credit scores, individuals who are self-employed have to go through great lengths to prove they are credit worthy. Those who are self-employed should be prepared to present current bank statements and tax records. Lenders are also requesting 401 (k) records to prove that individuals have savings and investments that can be easily liquidated.

Refinancing Obstacles

It is also more difficult for borrowers to refinance existing loans, mainly because of reduced equity in their homes. This issue also affects individuals with great credit. The FHA has started a new program to assist borrowers who are “underwater” on their homes, but it is yet to be seen whether this will actually help those in need.

America is experiencing record low mortgage rates. The large amount of foreclosures in America has substantially driven homes prices down. The problem, however, is that most Americans are not able to qualify for mortgages. In the subprime mortgage era, many individuals with low credit scores were able to buy homes. However, this contributed to the housing bubble in America, and those lending practices were eliminated.

The meltdown in the housing industry and the recession has changed the way people get mortgages in America. Lenders are simply hesitant to lend out money. In the wake of the financial bailouts administered by the government, there has come increased pressure from Washington for lenders to lend out money. However, there has been little change in new lending practices. Lenders are taking every precaution they deem necessary before approving individuals for mortgages. With the socio-economic gap growing wider, it will remain hard for people with low credit scores and struggling wages to qualify for loans.