If you relied on charging everything from office supplies to copying equipment when starting your business, the fact that entrepreneurs commonly pay for big-ticket items on credit is hardly surprising. And though the debt crisis certainly gave plastic-wielding founders pause, it seems that concern has largely dissipated--and that's risky business for sure.
Indeed, according to the latest readings, consumer credit card debt is rising, and once again it’s reaching unsustainable levels.
In the second quarter, credit card debt jumped 14 percent to $32 billion, according to a quarterly survey from credit card comparison site CardHub, released Wednesday. The increase is the largest second quarter spike since the company began tracking data in 2009, CardHub reports, adding that it expects the net increase of debt to reach $60 billion by the end of 2015. At that pace, debt levels could soon become too risky--making it more difficult to repay balances, the company says.
While the survey examines consumer debt on credit cards, about 10 percent of business financing happens on various types of credit cards, the Small Business Administration reports. So the findings are an important warning sign for entrepreneurs too.
“Credit card debt statistics, in particular, reflect consumer sentiment and can foretell overleveraging bubbles that may trigger constriction in credit markets,” the report says. The statement alludes to the leverage bubble that ushered in the financial crisis that began in 2008.
Debt loads have been going up steadily since 2009, when card holders ended the year by decreasing their balances by $875 million, CardHub reports.
Here are debt-reducing tips from CardHub, and while they are particularly useful for consumers, the advice holds true for small businesses too:
1. Stick to your budget and don’t overspend. In addition to your normal monthly expenses, include money necessary for savings and debt payments.
2. Create an emergency fund with a year’s worth of post-tax income.
3. Allocate the majority of your monthly debt payment to your highest interest rate balances first. Once those are paid off, move on to your lower-cost balances.
4. Use different cards for different purposes. For example, move your balances to a card with a zero percent rate if you can. Subsidize your ongoing business purchases with cards that offer rebates or rewards.
5. Figure out a way to increase your revenue so you aren’t spending using debt.