Confessions of a reformed credit card user
The U.S. economy runs on credit. As a real estate agent, you’re more in tune with that fact than most, since the great majority of your business depends on people getting loans from banks to buy houses.
When you’re getting started in the business, or when you hit a rough patch in terms of revenue, it makes sense to use a credit card to cover expenses. In fact, it makes sense to a certain extent to use a credit card even when you have money in the bank, since using it can help you build your credit score. But of course, there’s a HUGE caveat: If you don’t pay your bills in time, you can be in a world of trouble.
Many of us who begin using credit cards for business expenses can easily get addicted to the “free money” that they seem to offer and start using them for non-essentials, like clothes, nights out and even vacations.
Yes, eventually you may pay it off. But if your cash flow does not match your spending patterns, that means it will take a long time to pay off all the debt, and when you finally do pay it off, it will be much more expensive because of all the added interest! You only charged $100 to your card for that jacket, but you might end up spending $150 or more for it in the end –– doesn’t really seem like free money after all, huh?
As a real estate agent, you understand better than anyone the importance of having a good credit rating. Credit card debt is one of the most common ways people destroy their credit ratings. The debt itself is not bad. But debt that keeps growing can become a red flag for credit bureaus like Equifax, especially if you are ever late on a credit card payment.
Here are a few tips to keep your payments on track…
Credit is for NEEDED expenses
Credit cards are there to help you pay for life’s necessities. When you don’t have cash on hand, it makes sense to use a credit card to cover important expenses –– food, transportation, housing etc. When you start charging leisure activities to the credit card, that’s where you can get into trouble, especially if your income doesn’t match your spending.
It’s for money you will have soon
The credit card isn’t there to cover something that you’ll only be able to pay for if you win the lottery in the near future. And it’s not there to buy you something that you won’t be able to pay off for a long time.
Minimum payments will get you every time
Where some agents get into hot water is that they take advantage of the oh-so convenient minimum payment credit cards offer. While credit card issuers won’t say it, a key part of their strategy is to keep you stuck paying the minimum amount as long as possible. Why? It’s more money they get to make off of you in interest. It’s best to pay more that the minimum payment, even if it’s $25 each month, so that you can pay down the debt faster and lower your total interest payment.
These days, it’s pretty easy to keep track of your purchases online, but it’s also easy to avoid checking your online statement. It might be an even better practice to keep track of them separately. Keep your receipts and at the end of the day jot down your transactions in a notebook or in a document on your computer or phone. This is a good way to bring you into touch with your spending patterns and will help you better-manage your money in the long-term.
This seems obvious, but it’s a concept that many people have never learned. Put a certain portion of your money aside and separate accounts for emergency expenses. That way, in the event of an unexpected expense, such as a car repair of medical bill, you won’t have to rely entirely on a credit card.
Diversify your financial resources
Not every source of financial assistance need result in greater levels of rotating debt and extended interest payments. For instance, commission advances from eCommission are a way for many agents to avoid running up credit-damaging debt by taking an advance on a future commission or even a home listing. Payment back to eCommission happens at closing, receiving an advance is not dependent on your credit score and has not impact on it afterwards . The fact is that commission advances work best when they are part of an agent’s financial toolkit to be used when it makes the most sense.