Paying for Business Expenses Applying for a business credit card is something a small business should seriously consider for itself. Business credit cards can provide a range of benefits to a business. They allow a company to build up credit for better borrowing conditions down the road. They’re also quite easy to apply for. In this article, we’ll go over how to apply for a business credit card and other important points to note. What Is a Business Credit Card? A business credit card is a credit card that is intended for business expenses. These cards are not meant for any individual’s personal use, but they are available to businesses of all sizes. What Is a Business Credit Card Used For? Business credit cards are meant for business expenses, and as such, they come with several perks that you wouldn’t get with a normal credit card. Business credit cards typically have far higher credit limits than normal cards, but they are also harder to qualify for. [youmaylike] As a business phenomenon, business credit cards vary their offers greatly, and certain cards are meant for certain businesses. They are also highly customizable when it comes to individual payment terms. Businesses don't always have consistent incomes like individuals do, and business credit cards handle this problem. These cards are used to gain access to a long line of credit, to control employee spending on business expenses and more. One of their other common uses is to make accounting easier, as putting all business expenses on one separate account makes reporting to the Internal Revenue Service easier. In the end, there are many uses for a business credit card. Why Would I Need a Business Credit Card? You might not need one, but if you run a business, you’ll be leaving money on the table by not at least looking into them. Business credit cards can solve many of the problems business owners face. If you need employees to make purchases for the business, a business credit card is the safest option. These cards can be given to authorized users, a status you can easily give to any of your employees. From here, these cards make it easy to monitor employee spending and spot any discrepancies. You can attach customized user privileges to each card to limit spending and place limits on where the card can be used. As mentioned, if you feel like your credit is too limited, business credit cards are a sure way around low credit. According to the American Bankers Association, the average monthly payment on a business credit card is twice as high as the average payment on a normal one. If you’ve found yourself annoyed with the Internal Revenue Service over the complicated reporting processes for business owners, you’re not alone. This is where a business credit card can solve another problem. Simply handing over your business credit card statements to your accountant will make them love you. It will also provide them with the information they need to predict future spending. Another great use for a business credit card is lifting your liability for debts. Liability for credit card debt is determined by the liability offered by the card. If you’re using a personal credit card for business expenses, you are liable for all debts. On the other hand, if you use a business credit card with commercial liability, your business is liable for any debts, which changes the game. Keep in mind that some cards offer joint liability, which leaves both you and your business liable for any debts. Make sure you know what you’re getting into before signing any paperwork. Lastly, just as personal credit cards offer rewards programs, so do business cards. The main difference here is that business credit card rewards are tailored to your business needs. How to Apply for a Business Credit Card Before you apply for a business credit card, you should make sure you’re eligible. For the most part, you only require the following to be able to apply for one: A legal name for your business. A business structure to apply with, such as a Limited Liability Corporation. An explanation of the nature of your business. You’ll typically be given a list of industry types to choose from. A tax ID number issued by the Internal Revenue Service Your roll in the business you’re representing Various business/financial information including: Annual revenue. Number of employees. Length of time in business. Estimated monthly expenses. If you have this information ready, you can apply for a business credit card. At this point, it would be wise to shop around and find the best option for your business. Your decision on the business credit card you choose will have larger ramifications than your choice of a personal credit card. Applying for a business credit card is much the same as applying for a personal one. There are a few differences, but the main thing to remember is that business credit cards are taken more seriously than normal ones, so you’ll have to face a higher bar of entry. This doesn’t mean getting a business credit card is hard, but it does mean you need to arrive more well-prepared than you normally would. To make things easier, you can prepare for certain obstacles in advance. You may need to sign a personal guarantee that you will pay off any debts. Also keep in mind that if you’re the one applying for a business credit card, and your business doesn’t already have one, they will conduct a personal credit check. It may be best to try to optimize your personal credit if you plan on applying for a business credit card in the future. Some Options at a Glance Here are some of the most popular options for small business credit cards: Chase Inc Business Preferred This is a great option for a few reasons. With the Business Preferred card from Chase Inc, you get 80,000 ultimate reward points when you spend $5,000 with the card in the first three months. The card also provides generic, but highly useful benefits for business owners. Business Platinum Card from American Express The Business Platinum is ideal for businesses that spend a lot on flights and travel. This card offers numerous rewards on flight and hotel expenses and makes sure you get something serious back if you use it for these expenses. Chase Inc Business Unlimited The Chase Inc Business Unlimited offers unlimited 1.5% cash back. While we’ve said enough already, they also offer several other perks that are overshadowed by their first one.
Work Your Way to Being Debt-Free
Welcome to My Finance Mastermind’s custom credit card calculator. Do you have credit cards? Do you have credit card debt? If so, our credit card calculator will certainly help!
After completing a few simple inputs, such as your credit card balance, interest rate and minimum payment, you’ll find out how long it will take to pay off your credit card debt. Do you want to speed up your repayment? Play around with our calculator to see how soon you can get your debt paid off.
In this article we’ll also look at how to minimize credit card use in the future, moving credit card debt to a low interest card, and the pros and cons of reward points.
Basic Functions of the Credit Card Calculator
To get the most out of the custom credit card calculator, you’ll need to fill in some basic information. Here are the fields:
- Credit card balance: This is the outstanding balance currently on your credit card, including any interest charges and fees.
- Interest rate: This is the interest rate you’re being charged on your credit card. You’ll want to review your credit card statement and cardholder agreement to have a good understanding of how interest is calculated. Please note that retail or store credit cards tend to have higher interest cards than standard credit cards.
- How your minimum payment is calculated: This is the minimum payment you’re required to pay each month on your credit card to keep it in good standing. Your minimum payment will be either a percentage of your outstanding balance (ex. 1% of the balance) or a fixed amount (ex. $10). Your cardholder agreement will explain the method used to calculate the minimum payment on your credit card.
- Minimum payment or a fixed payment: This is the amount you can afford to put towards paying off your credit card. A fixed amount is any amount above and beyond the minimum payment.
Once you enter the above information, the credit card calculator will output the following helpful information.
- How long it will take to pay off your debt: This is the length of time it will take to pay off your credit card in full. If you’re not happy with how long it will take to pay off your credit card, try playing around with the credit card calculator. Put in a higher fixed payment to see the difference it can make in paying off your credit card debt faster.
What Is Credit Card Debt?
Before we talk about what credit card debt is, it’s easier if we define what a credit card is.
A credit card is payment card that allows the user, the cardholder, to pay for goods and services purchased at merchants or retailers. The credit card company is paying for your purchase ahead of time with the promise that you’ll make at least the minimum payment once your credit card bill comes due. A credit card is considered revolving debt since it doesn’t have a fixed number of payments like a personal loan. Instead, you’re able to borrow up to your agreed upon credit limit.
Credit card debt is unsecured consumer debt. It’s unsecured because unlike a mortgage or car loan, there isn’t an asset backing it. That makes it riskier for the credit card company, since it would have a tough time recovering the money if you failed to make at least the minimum payment. For that reason, credit cards almost always have higher interest rates than mortgages, car loans and other consumer debt.
How to Pay Off Your Credit Card Debt
Are you struggling to pay off your credit card debt? There are two popular methods to rid yourself of your credit card debt: the debt avalanche and debt snowball methods. Let’s look at both debt repayment methods and figure out what one would work for you.
For those of you who want to save the most interest, the debt avalanche method makes the most sense. When using the debt avalanche method, you’ll focus on paying off your credit card with the highest interest rate first.
For instance, let’s say you have two credit cards with outstanding balances. The first credit card has a 19% interest rate, while the second one has a 29% interest rate. If you’re using the debt avalanche method to pay off these credit cards, you’d pay off the second credit card with the interest rate of 29% first, while still making the minimum payment on the first credit card at 19%.
Why? Because the card with the 29% interest rate is costing you the most in interest. Once the second credit card is paid off, only then would you focus on paying off the first credit card at 19%.
Using the debt snowball method, instead of focusing on paying off the credit card with the highest interest rate, you’d focus on paying off the credit card with the lowest outstanding balance, then the second lowest balance and so forth. It’s kind of like rolling a snowball down a hill, hence the name.
In the above example, let’s say the first credit card has a balance of $2,000 and the second one has a balance of $4,500. Since the first credit card has the smallest balance, you’d focus on paying that off first, while making the minimum payment on the second credit card.
You may think this method doesn’t make any sense. The second credit card has the highest interest rate, so how could it possibly make sense to focus on paying the first credit card off? At first glance while the debt snowball method may not seem to make the most sense from a math perspective, we humans tend to gain the most satisfaction from the small victories.
By paying off your credit cards with the smallest balance first, you can celebrate the small victories on your way to credit card debt freedom.
Minimizing Credit Card Use in the Future
A credit card can be a powerful financial tool when it’s used responsibly. There’s nothing wrong with using a credit card, if you use it responsibly. That means paying off your credit card balance in full when your statement comes due. It’s when you’re constantly carrying a balance on your credit card that you can find yourself in trouble.
If you’ve tried your very best to use your credit card responsibly, but you keep overspending and carrying a balance, sometimes it’s best to minimize your credit card use in the future. There are several ways to limit your credit card usage.
- Only carry your credit card with you if you plan to make a purchase. Otherwise, leave it at home.
- Stay away from places that trigger you to spend. For example, if you find that you spend money every time you go to the mall, the next time you’re tempted to go to the mall to “window shop” go somewhere else like the park or gym instead.
- Before you swipe or tap your credit card, stop and think. Treat your credit card like cash. Ask yourself whether you can afford to pay off your credit card in full before you make a purchase.
- Online shopping is another area where it’s easy to overspend. Put your credit card away so it’s not so easy to access. You should also avoid saving your credit card information online. That way you’ll have to stop and think before you make a purchase.
A word of warning: while there’s nothing wrong with minimizing your credit card use, you’ll want to keep at least a couple of your credit cards. If you cut up all your credit cards and go to apply for a mortgage, your application may be denied due to a lack of credit history.
Having at least two credit cards with a minimum credit limit of $2,000 open for two years or more can go a long way in helping you get your mortgage application approved.
Moving Credit Card Debt to a Low Interest Card
If you have a lot of credit card debt and you’re struggling to pay it off, you might consider moving your credit card debt to a low interest card. This is also known as a balance transfer. A balance transfer is when you transfer the balances of one or more credit cards to a new credit card, often at a lower interest rate.
Before you do a balance transfer, it’s important to make sure it makes sense. Credit cards will often offer lower interest rates on balance transfers. While that’s fine and dandy, you’ll want to find out how long the low interest rate is in effect for. Ideally, you’ll want to aim to pay off your credit card debt in full during this time. If that’s not realistic, find out the interest rate you’ll pay once the promotional period is over to make sure it still makes sense.
Likewise, you’ll want to find out if there are any fees for balance transfers. Often credit cards will tack on a fee of one or 2% of your outstanding balance simply for transferring your credit card debt from your old cards to the new credit card. Do the math ahead of time and make sure it’s worth it with the fee. The last thing you want is to do a balance transfer and be worse off financially.
Are Rewards Cards Worth It?
The main benefit of reward credit cards is that you earn rewards just for making your everyday purchases. For example, some cards offer rewards of 1% or more of the value of your purchase. Rewards come in many shapes and sizes from reward points to cashback. If you’ve got the travel bug, you might consider signing up for a travel rewards credit card, where you’ll earn points towards travel.
Rewards points are great if you don’t let your spending get out of control. Buying goods and services on your credit card just for the sake of earning reward points isn’t a good idea, unless you really need the good or service. Remember that there’s no credit card in the world where it’s worth earning rewards only to carry a balance and pay 19% in interest on your credit card.
Visa, Mastercard, Amex or Discover: Which Is Best?
Trying to decide which credit card to sign up for? There are four main credit card companies: Visa, Mastercard, Amex and Discover. Before signing up for a credit card, you’ll want to assess it based on several factors including interest rate, fees and reward points.
To maximize your reward points, it doesn’t hurt to do a spending audit. Review your spending over the last six months to see the spending categories you spent the most in. Based on that, you can choose a credit card that makes the most sense. For example, if travel is important to you, you might want to choose a travel rewards credit card, but if you regularly carry a balance, you probably want to choose a credit card with a lower interest rate.
By taking the time to review your spending, you can find the credit card that’s best suited for you.
Low Fee Credit Cards
Sometimes credit cards come with annual fees. Low fee credit cards refer to those with low or no annual fees.
When shopping for a credit card, be sure to ask about annual fees. If a credit card has an annual fee, you’ll want to do the math ahead of time to make sure it’s worth it. Sometimes it’s worth it because you’ll earn a lot of rewards, but other times it may not be worth it. By finding out the annual fee ahead of time, you can make an educated decision before signing up for a credit card.
Student Credit Cards
If you’re a student, you might want to consider signing up for a student credit card. Student credit cards tend to come with lower interest rates and rewards geared towards students. A student credit card can be a great way to build your credit if you use it responsibly. That means paying off your balance in full each month.
However, if you end up racking up a lot of debt, even if your parents bail you out, student credit cards can do more harm than good. Make sure you’re prepared to use one responsibly before signing up.