Blogs by William Manchee
7 - Defending The Small Business: The Credit Conspiracy
10/18/2008 5:27:08 PM
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Using credit cards to finance your small business will put you on the fast track to bankruptcy.
From the day you are born you are indoctrinated on how important credit is to everyone. You're told over and over again that good credit is the secret to financial success and happiness in life. You're barraged with advertisements for all the expensive luxury items you can buy right now on credit and nearly everyone takes the bait.
You get a house you can't afford, a luxury car you don't need, and run up a half-dozen credit cards to the hilt. Before you know it you're a slave to the system. Most of your hard-earned money is going to banks and mortgage companies in interest payments. You pay and pay and pay, yet the balance you owe never goes down. Soon the joy is gone in your life—happiness is replaced with constant worry and depression.
Yes, from the day we are born, each and every one of us have been carefully manipulated into becoming slaves. Yes, carefully programmed robots who go to work everyday and then religiously send seventy to eighty percent of our wealth to our masters, the big corporate giants of Wall Street and the government bureaucrats in Washington.
Think about it. From the day you are born you're told that good credit is your ticket to the American dream. You can have all the luxuries and modern conveniences of life on credit. Why wait, they say, when you can have it right now.
Let's say you're a middle class family with annual income of forty thousand dollars a year. If you work forty years you'll earn 1.6 million dollars. If you're a typical family you'll buy a hundred and fifty thousand dollar home, a car every six or seven years, and have a half dozen credit cards maxed out very early in the game.
Now the enemy here is compound interest. It's common knowledge you will pay nearly triple the amount financed over thirty years. For instance you'll pay $415,213 over thirty years for that $150,000 home at 8.5%. The cars will cost at least twenty-five percent more than their initial cost, and you'll be paying the minimums on your credit cards until you're dead and buried. Now if you subtract twenty-five percent of your income for taxes that leaves you with $1,200,000. Subtract $415,000 for what you actually pay for your home, including all the interest, and now you only have $750,000. By the time you take away $200,000 or so for your automobiles you have only $585,000 left to live on for 40 years!
This is less than $15,000 a year for food, clothing, utilities, insurance, gasoline, home and auto maintenance, medical expenses, recreation, entertainment, education, vacations, and retirement. It's no wonder the average person is broke all the time—barely making ends meet! It's no wonder it takes two breadwinners nowadays to survive. It's no wonder the divorce rate has gone to the roof and teenage suicides are at a historical high.
Millions of Americans, including myself, have been victimized by this credit conspiracy. The lure of easy money is so tantalizing that few can resist it. I started my own law practice with a two-thousand dollar cash advance on my American Express card. I tried to get conventional financing but had no collateral, so I was summarily turned down. Over the years I continued to finance my small business with high-interest credit card debt that I had no prayer of ever paying off.
A lot of small business are started and financed with credit cards each year this same way. A few will be successful and pay off this high-cost debt, but most will eventually perish because of it. Eventually the burden of the minimum monthly payments will get so heavy that the business will collapse. I remember one bankruptcy client who had charged a whopping $150,000 on eleven credit cards from the same financial institution to fund his poorly run business. It amazed me that company had let him have eleven cards in the first place, but the fact that he was able to run up $150,000 in debt was mind boggling. During the course of the bankruptcy I fully expected this creditor to come up with some kind of a objection to the bankruptcy but we never heard from them.
Credit cards are very handy and useful for travel and to make it easy to keep track of business expenses. But they shouldn't be used for financing your business or covering your negative cash flow at home. If you are using credit cards for this purpose you need to stop immediately and take a close look at the business. Find out what is wrong and correct it, but don't keep digging a hole that will eventually swallow you and your small business.
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Defending the Small Business - Part 11. Misfortune - Tuesday, October 28, 2008
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Defending the Small Business. Part 9. Theft & Embezzlement - Monday, October 20, 2008
Defending the Small Business - Part 8. Greedy Lenders - Sunday, October 19, 2008
7 - Defending The Small Business: The Credit Conspiracy - Saturday, October 18, 2008
6 - Defending the Small Business - Giving it away. - Thursday, October 16, 2008
5. Defending the Small Business: Starting on A Shoe String - Wednesday, October 15, 2008
4. Defending the Small Business: Suffocation - Tuesday, October 14, 2008
3 - Defending the Small Business: Looting - Monday, October 13, 2008
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