The Benefits of Credit Card Funding

By Odysseas Papadimitriou

Reposted from Mashable

Thinking of using your credit card to finance your startup? For some entrepreneurs, it’s the only way to get their new business off the ground. Still, it comes with plenty of risk.

The Benefits of Credit Card Funding

• The ability to retain maximum equity:  People willing to take the risks associated with launching a startup generally believe that they have a potentially very lucrative idea on their hands. The further you can take your company without outside help, the more of your company you can keep for yourself and the less oversight you’ll have to deal with.

• 0% offers:  The ubiquity of low interest rates has made it common practice for banks to offer extremely attractive packages. The ability to escape interest for more than a year on either upcoming purchases or funding expenses already incurred would certainly help your company’s bottom line. The best offer currently available is the No Balance Transfer Fee Slate Card from Chase, which offers 0% on purchases and balance transfers for 15 months and does not charge a balance transfer fee (most cards charge 3%).

• Lack of collateral:  If you go to a bank and ask for a business loan or a business line of credit, they will want collateral.  If you want to bring on investors, they’ll want equity.  Credit cards, on the other hand, are unsecured.

The Cons of Credit Card Funding

• No separation between business and personal:  When you use a credit card to fund a business venture, the distinction between your business and personal finances largely disappears.  This is important for three reasons: 

1. It presents the possibility for personal credit score damage: Startups are inherently risky, and when you use a credit card to fund one, you are gambling with your personal credit score.
2. You are personally at risk for a lawsuit: If credit card debt proves to be the downfall of your company, debt collectors will likely be able to come after both your company and your personal income/assets to recoup what you owe.
3. Credit cards might be unattainable:The fact that business credit card underwriting has more to do with your personal credit standing than that of your business might help you get a better credit card, but it could also have the opposite effect.  Past personal credit problems could keep you from getting a credit card that will truly help you grow your business.

• Potentially low limits: Because credit cards are unsecured, they generally provide lower spending limits than secured alternatives.  Sure, you could get up to tens of thousands of dollars to play with, but there is usually an invisible ceiling around the $50,000 mark.

• Overextension:  The potential to spend more than you can afford to pay back is not a negative unique to credit cards.  Misuse of any small business funding vehicle can put you in the hole, which is why you should handle them with extreme care.

Ultimately, regardless of the funding method you decide upon, simply throwing money at a startup does not guarantee eventual success, Papadimitriou said. “Efficient use of this money as well as a lot of hard work and a little bit of luck are also essential,” he said.

Getting Credit Card Debt Under Control

First things first. To get your credit card debt under control you require a realistic assessment of your income and expenses. There are no if's, but's or maybe's about it. If you are consistently spending more then you earn it is time to rectify the situation.

Budget
To get your credit card spending under control you need to build a debt control strategy that will lead you to becoming debt free or at least reduce your burden. You need to know how much your total debt is and how long it will take you to repay that debt at your current payment rate. By developing a budget that enables you to track your income and expenses, you can then begin to cut unnecessary expenses and use more of your income to pay off your debts. Simple steps such as allocating a set amount per week to pay off your debt will allow you to get it under control faster. It is important to be realistic with your goals and aim to get your debt under control as soon as possible.

Consolidate
If you are paying off multiple cards at varying interest rates you are more then likely paying more interest then necessary. In this case it would be important to consider a debt consolidation loan. By consolidating your debts you simplify your finances and place all of your debt together into the one account with a fixed interest rate. The proceeds from the loan are used to pay back your other creditors and then you make monthly payments back to the loan consolidator. Usually these loans have much more competitive rates then the purcahse interest rate charged by credit card providers. If you have multiple unsecured debts, you are probably paying far too much in interest. If you are overwhelmed by unsecured debt (such as credit card debt or other unsecured loans), consolidating these unsecured financial obligations has many benefits, including saving you thousands of dollars in the long-term, reducing your total monthly payments, helping you become debt free faster, and improving your credit rating.

One of the most important aspects of debt management is understanding how you got into debt in the first place. If your debts were a result of spending beyond your means, you must modify your budget to avoid this situation in the future. Controlling debt requires self discipline, restraint, and planning. You must address the reasons that landed you in the situation in the first place. No plan for getting out of debt will ever succeed if you continue along the same path. So take action now!

If credit card debt struggles are keeping you up at night it is important that you get them under control now! Speak to your bank or credit provider about how you can get your debt control back on track.

Thinking of applying for a personal loan? Here are some valuable tips!

If you are thinking of borrowing money to buy a car, boat, for debt consolidation, home repairs, medical bills or anything else for that matter, here are some red hot tips to make the process much easier!

1. Be honest in your loan application
The process of entering your personal and financial details should not take more than 15 minutes to complete online. Being honest in your application, explaining things like why you are applying for a loan or existing debt considerations are essential for your bank to offer you a loan option that best suits your circumstances. There are an increasing variety of different types of personal credit available; car loans, commercial loans, leases, home equity loans, are just some of the examples. With complex credit rating analysis tools at a financial instituion's disposal - honesty is the best policy!

2. Have the right information when applying
Documents typically include personal identification items (i.e. photo ID like a Driver's licence or passport), rates notices, and employment wage pay slips or most recent Notice of Assessment. Further information to have handy include copies of recent bank statement and other loan accounts. These are often essential when applying for higher value personal loans. It is important that you confirm with the lender what documents you will need when applying or before attending to the interview.

3. Try lenders with whom you are a regular customer
Take advantage of the human factor. Being a familiar face or regular customer may mean you are offered a better rate. However, keep lenders competitive by shopping around for better value if your primary lender is not willing to play ball!

4. Know what interest rate applies
This advice seems simple enough yet all too often consumers get caught out with introductory rate discounts! Always be sure you know what interest rate applies over the complete term of your loan. Lenders may often ‘sell’ you their finance packages by quoting the monthly repayments only. This may disguise a high interest rate, so be certain that you know your ongoing obligations.

5. Know how much will be your repayments
Most personal loans require a repayment each month with most allowing you to repay weekly, fortnightly or on an ad hoc basis. Your repayment amount will be calculated by your loan provider and it will be depend on the interest rate, fees and term of your loan. The shorter the loan period the less the amount of interest charged will be, but the higher the repayment amount.

6. Know about the fees on your loan
If no fees are charged then the interest rate might be a little bit higher than a comparable loan from another provider. Most loan providers will also charge fees to end the loan early, for account keeping on a monthly basis or for making any extra repayments in general. Make sure you know what fees will or can be charged before committing to a loan. If you have extra funds available and are considering paying out your loan early, make sure you check before doing so as it may be more beneficial to hold off and only pay the required amount.

For a great personal loan comparison tool visit: www.ratecity.com.au

First home buyers: Choose the right home loan and get ahead

Looking for a home loan can be daunting.  And with the recent rise in interest rates (and future rises expected), finding a competitively priced loan is more important than ever.

With so many home loan products on the market, first home buyers need take heed when comparing loans and make sure they get the right advice from a lending professional.  Do your homework and look for loans with features that will save you money over the long term, rather than looking for a short term fix.

Low introductory rates are one tactic banks and financial institutions use to attract customers.  What appears to be a good interest rate in the beginning, can often only apply for a few months.  From there on, the interest rate skyrockets and the loan ends up costing you more in the long run than a loan which has a standard rate.

First home buyers should be aware of any additional costs before getting locked into a loan.  Flexibility is one of the most important components to look for.  A loan that has high exit fees or penalises you for making extra repayments is locking you into the loan – discouraging you from looking for a better deal elsewhere and possibly refinancing.

Likewise, beware of any broker who charges exorbitant fees or recommends loans with a very high interest rate, as they are not likely to have your best interests at heart. A reputable loan adviser will go through a range of loan and repayment scenarios to help you decide which suits your needs best and will then recommend loans accordingly.  They should not pressure you to take up a loan which you are obviously not comfortable with.

Making certain you are comfortable with the repayment structure is one of the most important considerations when choosing a loan. Having the ability to make regular repayments is one thing, but you should also make sure that the loan structure allows for further interest rate rises.  A loan which doesn’t allow this buffer, may expose you to trouble later down the track if your repayments increase and you are unable to afford them.

Getting the right advice and shopping around early seems to be the key to choosing the right loan and owning your home faster.  Whether you are taking out your first loan or refinancing a current loan, advice from a qualified adviser can make a world of difference and could mean you save thousands of dollars over the term of your loan.

For more information on choosing the right loan for you, please visit http://www.elitefinance.com.au/ or call (02) 9868 3900 and make an appointment with one of our qualified financial advisors.