It is difficult for any of us to imagine living on a day-to-day basis without a credit card. In fact, I purchase almost everything with one major credit card so I have a running balance and proof of all monthly purchases. At the end of the month I pay the entire bill off.
I financially set my budget up and plan for this system so I know what to expect when my credit card bill arrives. I keep my spending within a certain range so I am in control.
This works for me on a personal basis. However, is there ever a good time to use credit cards for your business, or loans or for investing? There are many different perspectives on these subjects, as well as other options for obtaining smaller amounts of money in the short term.
What Is The Most Advantageous Way To Invest?
There are times in business when you have to decide the best way to get money quickly. Should you withdraw funds from the business, get a loan from a bank or other third party, or use your credit card?
Using personal funds can be the least costly approach, but you want to be sure not to drain your cash fund completely. Borrowing funds from a third party is a very common option. Lenders tend to shy away from loaning money for operating expenses because once the loan is paid theres nothing to show against the liability on the balance sheet.
Operating notes or lines of credit can be a smart option for established businesses. You should use these only short term when you need to pay your bills today and wont receive payment from your customers for a short time period.
Lines of credit are not designed to be long-term loans, they are revolving loans. That means you will often advance and pay back the loan frequently. Lines of credit are designed to cover the short-term gaps between cash inflows and outflows.
Using credit cards can be advantageous when you are able to pay them off and not incur the high rates of interest. The key is using the cards responsibly and not carrying high balances. It can become a high risk to your personal financial future and your business.
Credit card rates can be quite high and the finance charges can quickly get out of control. If you do need one for a short-term period, credit card companies will often offer incentives for short periods of time that carry lower interest rates than traditional loan financing. Be on the lookout for such opportunities.
If you pay off the balance you can use your credit cards as a useful tool. You really get a free loan for that month.
The key is understanding the cost of borrowing the money and how it will affect your investments. Whether you borrow from a lender or a credit card vendor, there is always a cost associated with using their funds. Before choosing a method, determine if the benefits of using their money outweigh the costs.