Using credit cards for small business expenses can have a negative impact on your finances long after you close or sell your business. Many work-at-home moms have fallen for the promises sold to them by the "prophets" of the credit card companies. Whether it's the media, other business owners, bloggers or salespeople who work directly for credit companies, they all say that credit cards are great to have and that not using one or two is dumb. They claim that you can track your expenses much easier, that it's the easiest way to finance your business with debt, and that you could use the money you saved by not paying cash to build your business. It all sounds good, until you consider the truth.
1. Credit Card Traps
You can count on several traps when you use credit cards for small business expenses. As a work-at-home mom, you know in your gut that you should avoid credit cards, but the thought of "easy money" is appealing when you're trying to get a business off the ground. The traps are set for you when you give in, such as:
- Ever changing interest rates (which go up and not down)
- Zero percent introductory offer (most WAHMs do not pay off the balance before it expires, and end up with high interest rates)
- False sense of where your business stands (because you're not paying with cash out of the revenues you earn)
- 30 to 40 years to pay off credit card balance (will you be doing your current business for that long?)
Knowing these credit card traps exist should make you want to stay away from using them.
2. Reduces Ability to Negotiate
When you have cash to pay for items, you can negotiate prices a lot better. No one is going to negotiate a much lower price if you whip out a credit card. As far as they're concerned, you'll have time to pay for it. Cash, on the other hand, speaks immediately, and you can negotiate a better deal with cash instead of credit cards.
3. False Sense of Business Security
Using credit cards for small business expenses can give you a false sense of business security. While some of your work-at-home peers who are using cash are pinching pennies to keep their business afloat and pay their bills, you can get comfortable carrying high credit card balances and paying low monthly payments. You will begin to feel as if your business is going well, and that you don't have to worry about not having money to meet your expenses each month.
Not one study shows that credit cards reduce the card owner's spending habits. They all prove that people spend more when they use credit cards, and you will too. As a business owner, your goal should be to reduce spending, not overspend. Use cash, checks and a debit card instead of credit cards for small business expenses, and you will avoid spending more on goods and services than you need to.
Don't get on the road to bankruptcy, which is where too many owners
end up when they use credit cards for small business expenses. The risk
is too high, and you should avoid it.