Do you remember the rush of getting your first credit card? The freedom, the power—until the first bill came. Your castles in the air came crashing down, leaving you with a pile of debt and a few thousand airline miles you couldn’t use without getting a new credit card to pay for the rest of the trip. Most of us outgrow those spending habits, but I know of more than one person who has been left gunshy when it comes to credit card management as a result of a traumatizing experience. But there is a smart way to balance spending with rewards (and without racking up interest).
Start by finding a good credit card that fits your business goals and spending habits. I recommend NerdWallet’s 2017 Credit Card Review to help you find one that will give you the rewards you’re looking for at the best rate. At Digit Keeper we use the Capital One Quicksilver card to earn bonus miles toward company retreats. The rate of return is about 1.5% back for every dollar spent.
Here are the rules for smart spending.
Rule 1: Only use your credit card for monthly expenses you would usually take care of via debit card, check, or cash.
Rule 2: Pay off the balance in full every month.
Before you begin using a credit card for your regular monthly expenses, define those expenses and set a specific budget for each spending category. For example, a company spends $200 for meals and entertainment and $1000 for marketing. The owner decides to open a credit card that earns 2% cashback on every purchase to cover these expenses. By paying off the balance each month, the owner will earn $288 cash back annually and won’t have to pay any interest, putting the business ahead by almost $300 with virtually no effort.
Establishing how much can be spent on the credit card each month and get paid in full requires setting a realistic budget for your business. The idea is to become more financially savvy, not max out a credit card and drain your bank account. To ingrain good habits, start by covering just one department or set of expenses each month. As you grow more comfortable with this system, add expenses incrementally until you’re able to cover every business expense with your credit card, which is then paid off in full at the end of every month. Take your rewards and put them in your savings account for company events or emergencies.
Managed correctly, a credit card can be an additional source of revenue, rather than an extra—and annoying—expense. If you’re still unsure about using a credit card and paying it off instead of building up your savings, read our blog on Savings vs Credit which explains how to manage both in your favor.
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