Loans and credit are tools that can be used to help get a business off the ground. Many consumers apply for loans and credit cards for the purpose of purchasing assets and other necessary items without coming out of pocket.
Debt can help to lift a business off the ground especially, when there are not personal assets that can be invested in the business to start out. Personal consumer debt can affect your business in many ways, both negatively and positively.
Personal Debt can Hold Your Personal Investment
When you have large amounts of personal debt to pay off, you may not have as much money to put into your business. Without money to invest in your own business, you may be reliant on the cycle of debt to put money into your business. Not having the money to invest into your own business can also be emotionally disheartening.
You Must Take a Larger Cut, so Less Employees
If you have personal debt that you must pay off while running your start up business, you may need to take a larger cut in your business than ordinary. This may mean that you cannot hire employees or talent to help get your business booming. In the long term, this strategy may cost you more money as your business may take a longer amount of time to be profitable.
You are Tempted to Take on More Debt
When you want to see your business grow, but cannot invest because of high personal debt, you may dig deeper into the cycle of debt in order to find the money to invest. This can come in the form of business loans, personal loans, or payday loans that may for your business. While business and personal loans are not a bad idea for a startup, taking on more debt is sure to leave you with an even heavier burden on your shoulders.
You May Try to Move around Assets
The quickest way to tax confusion is consolidating the businesses assets with your personal assets. When you have high personal debt, you may be tempted to take assets from the business, or even have the business take pay off some of your debt. This can lead to confusion when it comes to tax time, which can spell major trouble for a business owner. It is important to know how to keep business assets and debt and personal assets and debt separate in your life.
Good Debt Vs Bad Debt
Many people feel that all debt is bad. They may even be in debt themselves but feel that it is not a good position to be in. However, it is important to realise that there are differences between good and bad debt.
What is Good Debt?
Good debt is something which could be seen as an investment or that helps you in a very positive way. It is not clear cut always as it may depend on a person’s circumstances as to whether the debt is good or bad for them.
Some things are very obviously good debt, but others could be borderline. Some debts are very obviously bad debt.
Examples of Good Debt
An example of good debt would be interest free credit. This is where you borrow money but pay nothing to borrow it. However, you have to be cautious with this because you may find that if you are offered it by a company that are selling items, they may price these extra highly to allow for the cost of the debt. There will also be charges if the payments are not made in time, which is a risk of all debts.
Another example is when you borrow money to make an investment that will be worth more than the cost of the loan. It is quite rare to find a form of investment that does this and is not too risky but a house purchase is one example where this is the case. The mortgage will be expensive, but as the value of the house is likely to rise over time, you will tend to gain more than you pay out, especially in the very long term.
A student loan is another example of good debt. You are investing in your future as after college, you should be able to get a better paying job which will more than cover the price of the student loan.
A car loan could be a good debt. If you need a vehicle to get to work and the only way that you can pay for it, is to borrow the money, then the loan is good. However, if you do not need the car for work, then borrowing money to buy one may not be good debt.
Credit cards are good debt if you pay them off in full each month and pay no annual fee.
What is Bad Debt?
Not all debt is bad debt. Bad debt is something that costs a lot of money and the item you spend it on is not an investment. There are more examples of bad debt than good debt though.
Examples of Bad Debt
Credit cards are bad debt if you only pay back the minimum amount each month. The interest rates are high and it can take a very long time to pay them back.
An overdraft is another example of a bad debt. They can have high fees and there is no pressure to pay them back. An unauthorised overdraft can have a daily charge as well as interest and can be the most expensive way to borrow money if calculated in terms of the APR.
Personal loans, such as payday loans . They are even dearer if the repayment is not made on time.
This is a guest post written by Travis Holmes.
Infographic by Accace. Accace brings an overview of tax systems as well as the most significant aspects related to the business legal forms and advantages of investing in Central and Eastern Europe countries.
Switching bank accounts: Part of the British culture?
It could be argued that switching bank accounts is just one more example of how people are comfortable voting with their feet if they don’t feel they are getting the right products and services.
The New ‘Beat My Card’ Credit Card Savings Calculator
Category Archives: Credit Card
As the debt crisis in the Eurozone reaches its climax, the impact has been clearly visible on personal finance products. Mortgage rates are up, while rates on savings accounts and ISAs are down.
Credit cards stand out as the sole product category that is not currently in meltdown, and Which4U’s new and exclusive ‘Beat My Card’ credit card savings calculator could help you make substantial savings on your current card.
‘Beat My Card’: Find a Better Credit Card and Save £100s.
- Save £100s by switching your credit card.
- The new Beat My Card calculator compares your card with the market and provides results in 3 easy steps.
- Win an iPad just by trying out the new feature!
In 3 easy steps, taking just a minute to complete, the ‘Beat My Card’ credit card savings calculator allows a user to find out how much they could save if they switched their current credit card to a better one.
The calculator provides a comprehensive credit card comparison using up-to-date details from Which4U’s database. It accounts for a surprising number of variables, including offer periods, monthly spending, monthly payments, and any prospective balance transfers.
With just a few clicks of a button, the calculator will provide the details of up to three credit cards that would offer the best savings. Check out the example below.
- Select your existing card.
- Fill in a few spending details.
- Check out the savings!
It’s a deceptively detailed tool that is packaged in a very user-friendly way. Where existing tools are more interested in leeching your personal details, and cannot factor in your current card, Which4U’s ‘Beat My Card’ only takes a minute to fill in, and offers plenty of food for thought.
It requires an email address to receive your results, but for that, users who try the feature by 1st August 2012 (or until 5,000 submissions are reached) will be entered into a prize draw to win an iPad2. We can’t really say fairer than that!
Give the new ‘Beat My Card’ feature a try. It’s quick. It’s straightforward. There’s nothing to lose, and plenty to gain.
Credit card stoozing, a.k.a. credit card arbitrage, is a simple process through which you can actually make money from credit cards and high interest bank accounts. Yep, you heard that right – with a bit of effort and some careful planning you can make money from your credit card. Here’s how!
It’s important to establish a solid payment history and credit score while you’re still a student. At that age, credit card issuers realize that you haven’t had enough time to develop your payment history, and are willing to cut you some slack. You’ll still need a co-signer if you don’t have an income, but the credit history you build on a joint credit card will still build your own score.
Many student credit cards require that you be, well, a student, and credit card companies don’t look kindly on a young adult fresh out of college who has no history to speak of. Therefore, it’s vital that you prepare yourself for life outside of college by establishing credit early.
- Get a credit card, if you can handle it
If you can commit to being responsible, you can begin to build your credit history with a student credit card. This helps many aspects of your credit score: it establishes a payment history, which makes up the bulk of your score; it lengthens the average age of your accounts; and it increases your debt utilization ratio, which is the amount of debt you have compared to your credit limit. If you don’t have an income, you’re required to have someone co-sign for the card. Even if you have established credit, you can get better terms if you apply with someone who has a better score. Lenders are required to consider only the highest credit score of the people co-signing a loan.
- Don’t apply for too many loans at once
Part of your credit score depends on the number of recent credit inquiries – how many lenders have asked about your history. If you apply for too many credit cards at once, you’ll look suspicious. Fair Isaac (the company that issues your score) makes allowances for “shopping behavior” when it comes to mortages and auto loans: they expect you to contact a number of lenders in a short period, so they count all inquiries for those loans in a 14 or 45-day period as only one inquiry.
However, they don’t make exemptions for credit cards or private student loans. Each inquiry, according to Fair Isaac, lowers your credit score about 5 points. This may not seem like much, but people with 6 or more recent inquiries are at a high risk of default, and so are more likely to face high interest rates or be denied outright. The best way to avoid this is to minimize your student loan and credit card applications, and to do all of your applications for auto loans in a short period of time. FinAid, the government financial aid website, recommendsthat you limit your private loan applications to just one bank, one non-bank lender and nonprofit state loan agencies.
- Don’t close your accounts
If you already have a credit card and want to apply for another, don’t close your account on the first credit card even if you don’t plan to use it. A major factor in your credit score is the length of time your accounts have been open, as well as the number of accounts with no late payments. Having an extra credit card also helps your debt utilization ratio, since you can add that card’s limit to your total available credit. Make sure that the card has no annual fee to prevent bleeding money while you’re not paying attention.
- Have the right kind of debt
Your debt utilization ratio, or the amount of debt you have compared to the maximum amount you can borrow, factors significantly into your credit score. If you max out your credit cards, you’re brushing up against the ceiling, and creditors may be unwilling to trust you with even more credit. Try to minimize your revolving credit card debt. Installment loans (such as student or auto loans) are a better kind of debt to have, since they’re establishing your payment history.
- If you’re turned down, ask why
As part of the Dodd-Frankfinancial reform bill, if you’re turned down for a loan or are offered worse terms than usual, you’re entitled to know your credit score and the factors that negatively affected it. This is intended to prevent cases of mistaken identities, bring transparency to the mysterious FICO score, and prevent lenders from arbitrarily lumping applicants into the “bad credit” and charging high interest rates. If you’re turned down, you should understand why. You may be able to catch a slip-up, or you might get some valuable information on ways to raise your credit score.
Tim Chen is the CEO of NerdWallet, a credit card company dedicated to bringing you the best credit cardsout there.
Credit cards have always had a bad reputation for fuelling debt, but nowadays they can be used to help people clear their debts efficiently.