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.
You Can Do It
For some, getting into credit card debt is a heck of a lot more fun than getting out of it. Others face emergency situations that require large credit card purchases, or worse yet, cash advances. However, there are strategies available to pay off credit card debt that do indeed work.
Read on to learn how to pay off credit card debt and then keep it from recurring.
What Is Credit Card Debt?
Credit card debt is money you owe for purchases you made and cash advances you took using your credit card. Unlike a debit card that immediately uses the money in your checking account, credit cards lend you money that you must repay over time.
In most cases, it is unsecured debt, which means you posted no collateral to the card issuer before getting the card. (However, folks with poor credit can obtain a secured card collateralized by money in a bank account.) It is also revolving debt, meaning you can use and reuse the card up to the credit limit without reapplying for a new loan. The card account remains open for as long as you want it, unless the issuer revokes the card for some reason.
How Do People Get Into Credit Card Debt?
Credit card debt is simply any balance you don’t repay in full before the start of the next billing cycle. There is nothing wrong with credit card debt per se; in fact, credit card debt is one of the great conveniences of credit card usage. It allows you to space out payments over a period of months so you can buy otherwise unaffordable goods and services. Credit card debt becomes a problem when the total balances on all your credit cards is relatively large compared to your income and savings.
You can run up sizable credit card debt on a single card if it has a high credit limit. Alternatively, you can mound up debt by running up the balances on several different credit cards. Normally, card issuers consider your income, indebtedness and credit score when establishing the credit limit on your card. However, if you have a good score, the card issuer may give you a very generous credit limit.
So, in a nutshell, credit card debt builds up when you spend more than you can repay before the next billing cycle. The minimum payment due is a small fraction of your card balance (typically 5%). If you regularly pay the minimum, your balance can balloon quickly, leaving you mired in debt. In addition, credit card interest rates are notoriously high (after any introductory rates expire), which can double the cost of purchases over time if you make only the minimum payment each month.
Different Strategies for Successfully Paying off Credit Card Debt
The first thing to do is stop using your credit cards until you pay off your debt. As the saying goes, when you’re in a hole, stop digging. Use cash, checks or a debit card for your purchases.
Next create a repayment plan. Decide how much of your monthly income you can devote to card repayment and which of your cards (if you own multiple) will receive the bulk of the money. Pay the minimum amount on your other cards until the first one is repaid, and then repeat for the second card on your list.
Here are some strategies you can employ to pay off your debt:
The Snowball Method
In this method, you first pay off the card with the smallest balance. After you’ve dispatched that card’s debt, move on to the next card with the smallest balance. Continue until you’re out of debt. This method can give you the confidence to stick to your repayment plan because it lets you pay off the first card relatively quickly.
The Avalanche Method
Using this method entails first paying off the card with the highest interest rate. Work your way down the card roster until you pay off the one that charges the least. The avalanche method saves you the most in interest and will get you out of debt faster than the snowball method. However, it might seem like it’s taking longer to see progress. If that’s a problem for you, stick to the snowball method.
Consolidate Your Credit Card Debt
Another method that can work well is to transfer the balances on all your credit cards to a new card that charges no interest on transfers during the introductory period. Note that you’ll likely pay a one-time fee, usually around 3%, for each transfer. Consolidation has the virtue of simplicity, as you won’t have to juggle multiple minimum payments and due dates each month. Some cards have introductory periods of up to 18 months for 0% balance transfers.
Use a Personal Loan or Home Equity Line of Credit
This is another way to consolidate your credit card debt. You’ll save the balance transfer fees of the previous method, but you might pay that much and more in interest.
Negotiate a Debt Settlement
If you owe a lot of money, your creditors might be willing to accept less than full repayment. You can use a legitimate debt relief service to help you.
File for Bankruptcy
This is the nuclear option, because it will ruin your credit score for seven years or longer. Chapter 7 bankruptcy requires you surrender some property. Chapter 13 lets you keep your property. Consult a lawyer and carefully consider the consequences before proceeding.
How to Avoid Credit Card Debt in the Future
Here are some tips to avoid future credit card debt:
- Create and adhere to a realistic budget. Track your spending each month and don’t overspend.
- Use only one card and put away the rest. Don’t close credit card accounts, because it can hurt your credit score. Pay your balance in full each month.
- Use cash or a debit card instead of a credit card. This alone might discourage you from making impulsive purchases.
- Use specific savings accounts for anticipated big-ticket purchases. Save until you reach your goal, then make the purchase with cash.
- Establish a fund to help you avoid debt should an emergency occur. The fund should be large enough to pay three to six months of expenses.