Accountant Russ Fullingim has an owner-operator client who earns “great money” hauling high-value electronics. One problem, though: “He owes $48,000 in credit cards,” Fullingim says. “He’s trying to buy a house, and he can’t.”
When expensive fuel and other economic problems put the squeeze on your cash flow, one of the easiest apparent solutions is to whip out the plastic. Here’s why you shouldn’t:
You’re kidding yourself. Borrowing does not erase the root problem. There are only two ways to solve a cash flow problem: increase income or cut expenses.
Interest payments can kill you. In the case of Fullingim’s client, interest alone accounts for nearly half the monthly credit card payments of $2,000.
You’re ruining your credit record. Your debt, your repayment record – it’s all there. Not an encouraging picture for the next lender you approach.
Furthermore, when owner-operators apply for every credit card application that comes in the mail, not only do they descend into a hopeless spiral of debt, but eventually the applications get denied. “And this appears on the credit report as an inquiry,” Fullingim says. “So it looks bad.”
There are ways to reverse financial self-destruction:
Make a budget and stick to it. If you can’t find a way to make ends meet, get some good financial counsel. Otherwise, it might be time to consider finding another carrier, becoming a company driver or choosing another career.
Avoid all credit. You don’t need to be paying others for the right to use their money. The bank should be paying you interest on the money you’re saving for maintenance, emergencies and personal needs, such as retirement and children’s education.
Pay off high-interest debt first. This usually means credit cards, often at 18 percent to 20 percent.
Communicate with creditors. Lenders will be more cooperative if you get in touch as soon as you see problems developing. Some will be willing to refinance a loan or work out extended payments.
Consider debt consolidation. There are nonprofit and for-profit groups to help you combine debts into one payment and stave off creditors. However, if you’re willing to work with creditors, you might be able to accomplish similar results on your own.
Credit cards free you from carrying large amounts of cash or having to worry about checking account balances. But they can be quick tickets to trouble. Use them wisely.
Resources
Counseling. National Foundation for Credit Counseling, www.nfcc.org, (800) 388-2227. Nonprofit organizations under this agency offer debt-management plans and financial education. Consulting is free, and debt repayment services usually cost only a small fee.
Rates. Websites such as www.bankrate.com and www.cardrate.com provide current fees and rates for hundreds of credit cards, including some with no annual fee.
Practices. Need help with the financial side of being an owner-operator? Get in-depth advice from the Partners in Business manual, published by Overdrive and Volvo, available free by calling (800) 444-7787. Or visit www.partners-in-business.com.
Do you have ideas for this column? Call Heine at (800) 633-5953, ext. 1038, or e-mail him at [email protected].
