Using Your Credit to Increase Your Working Capital
In business, working capital is defined as current assets minus current liabilities; this calculation demonstrates whether or not a company has enough cash or liquid assets to pay its current bills or obligations (bills that have to be paid in less than one year). At the individual level the concept is the same.
You might be making enough money already but your credit is hurting you; your credit keeps wiping away your chances of establishing a solid working capital and achieving financial stability.
Here are 7 ways your credit could be hampering your financial comforts:
If you have an average to below average credit score then most likely the cost of capital on that “new” car you desperately need will be higher than it would be if your score was better. I say “cost of capital” as opposed to “interest rate” because these days the financing companies are getting quite creative. The financing company can grant you a 2% interest rate and still make the same money (cost of capital) or more from you versus someone else who was granted a 5% interest rate. You would think the higher the interest rate the more you pay.
But let’s look at interest rates all else being equal. On a $25,000 car loan for 5 years @ 3% interest rate your monthly payments would be $449.22; the monthly payments assuming a 7% interest rate would be $495.03. At first glance you might say, that is not much of a difference. Well, when you finally get to own your vehicle at the 3% rate you will have paid $1,953.20 in interest for your car; while the 7% owner will have paid $4,701.80 for his.
The point is less money leaving your pockets means more money staying in your pockets; more money staying in your pockets give you more money to pay your short-term obligations/bills thereby improving your working capital thereby increasing your chances of fetching more favorable credit offers for necessary purchases. After a consistent pattern of this happening you will improve your financial stability.
The same applies if you are seeking a home purchase. A lower credit score will likely yield a high cost of capital on your home mortgage loan. And, the same chain reaction occurs as with the car loan example.
The same applies if you have credit cards you use in cases of emergencies or even for that needed vacation once a year. Higher interest credit cards go hand-in-hand with lower end credit scores. And, then the same chain reaction occurs as with the previous two examples.
Bank loans follow the same footsteps. So make sure you are diligently aware of your credit standings and keep it up as best as possible; I’m not saying punish yourself to the extreme but you should make sacrifices if needed. It is worth it for you, your family, and loved ones.
Auto & Home Insurance
It depends on the Insurance Company but I was told that your credit plays a factor on the insurance premium you pay. So, you could be paying less for that auto or home policy, all else being equal, if your credit is in good to excellent standings. Again, more money staying in your pockets give you more money to pay your short-term obligations/bills thereby improving your working capital thereby increasing your chances of fetching more favorable credit offers for necessary purchases.
Debt Consolidation Opportunities
Debt consolidation opportunities follow the same trend of thought as credit card offers and loans. Better credit standings get you better rates and more favorable offers with a lesser cost of capital. From there the chain reaction works wonders.
You might be shut out from obtaining service from the gas company if your credit is not up to par; that particular gas company might have the best low rates to lock into but you can’t reap that benefit because of your credit. So, you end up shopping elsewhere until captain save a gas customer picks you up but for a higher rate, a high required deposit, and a high monthly customer service fee. Had your credit been in good standings, there’s a whole lot that could have been saved. Again, more money staying in your pockets give you more money to pay your short-term obligations/bills thereby improving your working capital thereby increasing your chances of fetching more favorable credit offers for necessary purchases.
And as a bonus, a good solid credit may qualify you for an even better paying job which means even more income for you to strategize for a better financial freedom.
So make the sacrifice to make managing your credit a priority; after all it is sacrifice benefiting not only you but also your entire family and loved ones and everyone else you choose to help along the way. You’ve got to look at it as adapting to a new lifestyle and not as an event or one-time or for the moment phenomena. This is not about fashion; this is Life and it is REAL. Until next time see you at the next level – #FORWARD.
#SanzVirtualEnterprise #Forward #SmallBusinessAccounting #SmallBusinessTaxes