Paying Yourself with Credit Cards

Q: Should I use zero percent interest credit cards for income until my homebased business picks up? I don't want to use any more of my savings, nor do I want to jeopardize my good credit.

A: It's not unusual for entrepreneurs to use credit cards to fund startup operations. In fact, according to Federal Reserve data, credit cards account for 39 percent of small-business borrowing. So should you take advantage of offers for "free money"?

Keep in mind that credit card companies make these offers figuring they'll make money. Zero-interest time periods range from six to 12 months. If you don't repay the money you borrow before the credit card starts accumulating interest, high interest rates kick in. You need to pay attention to the number of months the introductory rate lasts and what the rate will be when the offer expires.

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Credit card companies make money other ways, too, so make sure you:

• Pay on time. Make the minimum payment within a day or two of receiving the bill. Credit card companies are known to take several days to post payments, and the penalty for being late can be stiff late fees or moving you into a default interest rate that can be nearly 30 percent!
• Determine whether there's a fee for transferring balances or cash-advance checks. Are there other charges specified in the fine print?
• Verify that the zero percent rate applies to purchases as well as transferred balances and cash advances.

If you don't want to dip into your savings, be sure you can pay back the amount you borrow when the offer period ends. Also keep in mind that opening successive credit card accounts can lower your credit score.