Sunday, March 16, 2008

A Credit Card is More than a Convenience

It can be a financial management tool as well. Most of us take our credit cards as a daily part of life. We whip them out to pay for gas, lunch and even groceries. A credit card can help you differentiate between personal travel expenses and business travel. Many cards provide year end reports that group different types of expenses together. It can be a bit of a shock to find out you spent $3,500 on stamps, for example. But that kind of knowledge is helpful when you're examining your profit and loss statement for areas you can trim.

A credit card can also make sure you track every expense. It's easy to pay cash and then forget to include that expense. The card tracks the expenses and provides a paper trail as well.

For some expenses like car rentals and hotels it's mandatory to have a credit card.

A credit card can help with emergency situations and unforeseen expenses. It can also help balance out expenses that you pay once a year, allowing you to break the payments into monthly more easily managed payments. A credit card can smooth out cyclical or seasonal expenses as well. If you know that you have very busy sales months in the summer but won't get paid until September, a credit card can help your business obtain the necessary products, materials and inventory without using vital cash resources.

Credit cards have a bit of a down side, it's all too easy to pay for things with your card and run up a tidy bill. It can also be tempting to use the business card to pay for personal items.

What type of credit card you acquire is dependent on your credit profile. If you don't have established credit it's doubtful you can obtain a card with a huge credit limit. If you pay off your credit card every month you should probably look for one that offers rewards. However if you know you're going to carry a balance from month to month, at least part of the year, then a low interest rate is more important than a rewards program.

As you maintain a good payment history, the limit will increase. Prompt payment on your credit card account also demonstrates a responsible attitude and that can help you get bank financing in the future.


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