Small businesses that have money management and debt problems are anxiously waiting for the new credit card rules to go into effect in July 2010. But the majority of business owners need immediate debt relief. While the new rules will help, for some it will be too little, too late.

The main problem with using credit to finance your business is that it is a big risk. That risk, of course, is you are promising your future production to pay back that financial obligation in full and in a timely manner. There is really nothing wrong with using credit as long as there is virtually no risk involved in paying the money back. There is a lot wrong with being over your head in debt and being handcuffed to the credit cards. This is risky in the extreme, because with just one or two bad months, the house built on using credit lines can fall very quickly.

I am glad to see the new credit rules passed. What I am not happy about, however, is the length of time until credit issuers must comply. The current credit system has driven some individuals and businesses into bankruptcy and the rest of the nation to the very edge of financial disaster. The credit rules could have been mandated to be effective in 2 or 3 months rather than 18 months and it would help the economy now when it desperately needs it.

Living in a condition based on credit and debt is very, very risky. Done on a national scale, and helped along by exorbitant interest rates, over-limit fees, late charges, and a 22-day billing cycle, the nation’s consumers are $850 plus billion in credit debt and it is evident they are sinking fast. The new rules are a long overdue step in the right direction.

What are some of these new rules that everyone is talking about? Simply stated, the new rules prohibit:

- Placing unfair time constraints on payments. A payment could not be deemed late unless the borrower is given a reasonable period of time to pay. This would eliminate many of those exorbitant “late payment fees.”

- Placing too-high fees for exceeding the credit limit solely because of a hold placed on the account.

- Unfairly computing balances in a computing tactic known as double-cycle billing. This two-cycle method enables billing offices to charge interest on balances that were part of the previous month’s balance, even if the balance was paid in full.

- Unfairly adding security deposits and fees for issuing credit or making it available.

- Making deceptive offers of credit.

Two excellent provisions of the new rules are: 1) that customers will be given 45 days of notice before any changes are made to the terms of any account, including jacking their rate for missing a payment or paying a bill late, and 2) banks must apply payments (beyond the minimum) either to the balance with the highest rate or proportionally across all balances. The second one eliminates beyond the minimum payments to be applied to only to the lowest (or 0%) interest rate principals first.

When someone balance transfers to a zero interest rate card and then uses the card for purchases, the purchases are typically billed at a very high interest rate. What consumers fail to realize is that the bank will apply payments only to the zero interest balance while the higher rate purchase racks up interest charges until the entire zero balance principal is paid off. That sabotages the whole debt reduction strategy of the zero balance transfer.

While the Associated Press is calling the new rules the most sweeping clamp-down on the credit card industry in decades, I’m wondering why the clamp-down on the abuse took so long to be addressed, and why the banks are being given 18 months before the new laws go into effect. With modern technology we can move and make changes almost at the speed of light, so 18 months is like moving at the speed of a glacier.

As I have been doing for the past decade, I still advise business owners and consumers to use the 5 old-school money management tips on reducing debt that they can employ right now to start digging themselves out of debt and get their own personal economics healthy.

Money Management Strategy #1 – Stop Using Credit

The place to start is by locking away the credit cards and figuring out how to cut expenses back to function within your income. Unsurprisingly, this first step can take quite a bit of discipline. Paying operating expenses with credit cards can easily become a habit, and as a result, can rapidly build up debt for the small business.

Figure out ways to increase your income and instead use only cash. This is the single most effective action you can take to begin the process of debt reduction.

Money Management Strategy #2 – Never Spend More Money Than Your Company Makes

Paying for items with credit because you don’t have the cash is the recipe for economic slavery. Using credit in that manner commits your business’ future income to pay the credit company.

Business owners must get creative and find ways to increase the company’s income, and then use it to pay both current expenses and to pay off past credit debt. Additionally, a business owner must take a ruthless look at what expenses are absolutely necessary. Business expenditures should be expected to bring in more money, business, and income. If they don’t do this—don’t directly lead to the creation of more income in some way—then determine if the company can do without certain items in the short term.

Money Management Strategy #3 – Always Pay More Than the Minimum Payment

Set a goal to pay at least 3 to 5 times the minimum required payment on each credit card and line of credit. Paying the minimum amount due on credit payments is a financial trap that keeps you perpetually in debt.

An effective way to reduce the debt is to take 10% to 15% every week off the top of the company’s income and use it to pay down the debt. Don’t wait until the statement says the payment is due. Pay some on-line every week as soon as you earmark it for paying the debt. The added bonus is that you stop the daily interest compounding on the payment amount you made. That alone can save you thousands in interest over the long haul.

Money Management Strategy #4 – Never Spend Over Your Limit or Pay Late

Use old fashioned money management discipline and never sabotage your debt reduction program by getting hit with $25 to $39 over-the-limit or late fees. Banks, credit card companies, and other financial institutions make millions through financial penalties for being late or going over your credit limit. Worst of all, the money paid in penalties creates more debt.

Money Management Strategy #5 – Find Ways to Cut Expenses

While a fundamental requirement of any debt reduction program is more cash as fast as possible to pay the debt off, there is one important area that should not be considered an unnecessary expense. That area is marketing and promotion. Correct money management includes the continuous promotion of your company’s products and services. Marketing and advertising are areas you don’t want to stop spending on. Marketing is going to make you money and is a correct financial investment when properly done.

There is an old advertising saying that still holds true today: “When the economy is good you need to promote, and when the economy is bad you need to promote MORE!”

Whether an economy is in an economic depression, a recession, or is thriving, the above money management principals still apply. Money management for small business takes financial planning and discipline. Reducing debt is just one step in an overall program to ensure that a business will survive and make the maximum amount of money for the business owner. There are other steps in a successful money management program that can be taken to achieve your financial goals, and this will be addressed in future articles. For now, reduce that debt and improve the financial health of your own economy.

For more information about steps you can take to reduce your debt, sign up to receive the FREE Debt Reduction Solutions Guide. If you need further help with a debt management program, send an email to Sandra Simmons, President of Money Management Solutions, Inc. at info@MoneyMgmtSolutions.com  or call (727)448-1011

If these actions weren’t so downright dangerous, they might be humorous. Are you making these mistakes with your hard-earned cash?

1. They never figure out how much money they actually need each week to do better than just pay their bills. They don’t have a budget set up.

The correct definition of a BUDGET is: the calculation of the amount of money needed for an area [organization or household] to function and achieve its purpose. If you are satisfied to just  pay your bills, and you don’t pay yourself first into some type of savings plan, you will make other people wealthy and you will stay poor.

Every supplier you pay is in business to make a profit. You should run your business and your household the same way: like a business that is expected to make a profit. The income target must include a profit or the enterprise will go broke and fail.

2. They don’t work out ways to make more money than they currently need, and then do whatever it takes to execute the plan.

By UNDER estimating the amount of money needed to do better than just break even, they typically set their income target too low and lose money by living on credit instead of going into action to raise their income. Anyone can find ways to make more money; it is often the “willingness to do whatever it takes” that is the problem.

There are two classes of wealthy people. The large majority of wealthy people are working all the time. They have a purpose they are pursuing, and it isn’t money. Money is a sub-product they expect from their work. Their goals and purposes are the driving force in their lives.

The small minority is often called the “Idle Rich” and they are bored to death. They have seen it all, and done it all twice over and there is no thrill left in life. Think about it. If you had done everything you dreamed of and owned everything you could possible want, and were spending your days sitting by the pool in some swank hotel nursing a beverage with a little umbrella in it, would you wish you had some productive work to do? I’d bet my next few paychecks you would.

3. They habitually spend more money than they make.

Using money to buy the “appearance” of having more money than you actually have is a dangerous activity. I call this type of spender a Gratification Groupie. This can catch up with you quickly and eventually drown you in debt. This causes constant worry about money and makes for lots of sleepless nights. Money truly cannot buy happiness. But doing something productive and worthwhile and knowing you are appreciated for it can make you feel like a million bucks.

Most truly wealthy people are not interested in appearing to be wealthy, they are too busy having fun helping others in life and making more money as a result of that. Rich people always pay themselves first, have cash stashed in several places, are always interested in being productive and expect their productivity to produce more income. They don’t worry about money, and they sleep well at night.

4. They don’t figure out what they need to buy in the future and then set aside a little money each week so they can pay cash for the purchase later.

Buying something with a credit card that you can’t pay off when the statement arrives is committing your future earnings to the credit card company. You are then working for the credit card company as an economic slave.

The correct way to buy things, especially big ticket items, is to set aside a little each week till you have the cash to pay for the item, and then go out and negotiate a big cash discount. The guy with the CASH IS KING!

I recently did this when I bought my current car. I found the exact car I wanted. It was 2 years old, had 21,000 miles on it and was still under warranty. The dealer wanted $29,500 for the car. I got it for $17,500 and got an extended warranty thrown in on the deal. Don’t buy new cars. The second the front tires move off the dealer’s lot onto the street, it becomes a “used car” and loses about 25% of its value.

5. They buy products and services based on WANT rather than on NEED.

Buying decisions should be based on how your purchase of the product or service can help you produce additional income for you. Honestly, do you want the latest cell phone that offers text messaging and email retrieval because your friends have one, or do you need it to be more efficient because you are out of the office traveling to close the next business deal?

6. They don’t put money into a long-term savings plan so they have it for use later in life.

If you are relying on other peoples’ future production to pay you Social Security payments so you can retire, that is really taking a gamble.

Despite the fact the government says the cost of living is going up 3 – 3.5% a year, the truth is that it is going up 8 – 12% a year. You have to make that much more income just to stay even. Why does the government say it is only 3 – 3.5%? Unfortunately for the senior citizens, it’s because they government has to raise Social Security payments each year by the cost of living increase they quote. The Social Security system is already bankrupt and those living on Social Security are headed in that direction by going in the hole 5 – 9% every year. Are YOU planning on retiring on Social Security payments alone?

7. They never develop multiple sources of income. If one source dries up they are in trouble financially.

The old saying “don’t put all your eggs into one basket” holds true today, especially for income sources. Look for products or services that you can add, or business ventures you can get involved in that are ethical, and have a great chance of producing a consistent income. The best type of income is “residual income” where you create something that continues to generate income for you while you are off doing other things.  For example if you wrote a book and sold it on the internet as a download where potential customers could buy it 24 hours a day around the world.

8. They get stressed out about how little interest their bank pays on savings accounts while they are getting killed with much higher interest debt by carrying balances on their credit cards.

If you have substantial credit debt, you are better off using excess cash to reduce the debt and stop the high interest payments instead of trying to earn interest from the bank. As you pay off your debt, you should also keep enough cash on hand to cover a few months of living expenses and the unexpected emergency.

Once the debt is gone, or will be soon, then start investing the excess money where you can get real growth. I use a Certified Financial Planner to invest my money for me so I don’t have to do all the research and trading actions. I let the expert do what he does best while I am busy making more income.

Now don’t get me wrong, I think investing in real estate is great if it provides more cash flow in than what you have to pay out. The truth is that any real estate is a liability as long as you have to make payments on it. Only when it is paid off does it become a true asset.

9. They worry about “the economy” in general.

I’m amazed that people are actually more worried about “the economy” than they are about their business or household failing financially. They worry about what the media is reporting about “the economy” which is something they can’t control, while never looking at how they are can affect the economy of their own business or household, which is something they CAN control.

A rise in unemployment is no reason to worry. Small business creation of new jobs far outweighed the loss of jobs in big corporations, according to the latest ADP report. A failing bank is no reason to panic. Banks get bailouts from the FDIC and other investors. No one is standing by to bail out your failing business or household. That is entirely up to you. So stash some cash in a safe, in a bank, or better yet, a tax deferred retirement plan, and sleep well at night while the bad news about “the economy” rages around you.

10. They expect to survive financially without taking full responsibility for controlling their financial future.

There is a very simple solution to money problems. Cut expenses, increase your income, and correctly manage what income you do get. It’s not only about how much money you make, it’s what you do with your money that determines your financial condition.

Correct money management is something educational institutions don’t teach. People get false information and bad advice about how to handle money. Then they make these silly mistakes, get into trouble, try to solve the problem using credit, create more trouble, and then go looking for debt relief.

Fortunately there is a proven, inexpensive, easy-to-install, easy-to-learn, easy-to-use money management software system that can reverse all the money management mistakes a person has made in the past, and keeps them from making those same mistakes in the future. It is an old-school system that your great grandparents used before the days of credit cards. Very wealthy people know and use this system today.

Sandra Simmons, President of Money Management Solutions, Inc. specializes in helping business owners and individuals manage their money to achieve financial freedom. For more information about her system, claim your complimentary copy of the Debt Reduction Solutions Guide.

© 2008 Sandra S. Simmons. All Rights Reserved.

I collect the credit card offers that land in my mailbox. You might think that is nuts, but I am always researching the latest come-on that my clients may be tricked into applying for, especially if they are looking for some debt relief.

Here is the latest one, no names mentioned. Just glance quickly at the overall message and get a sense of what you think they are offering. And then answer this question.

Is this offer a trick or treat?

It is designed to look like a spectacular long term 0% interest offer. Most people actively engaged in money management and seeking debt relief automatically assume they can get this 0% deal on a balance transfer from another high interest card.

But look again, read the fine print like I always do, and here is what the offer is really saying.

The 0% is NOT for balances transferred, but is for PURCHASES made on the card which adds to your debt. The interest rate on the balance transfer is 8.99% compounded daily, plus a hefty 3% charge for transferring the balance.

Read even further and you learn that the new debt you are carrying at 0% interest (the new purchases) must be paid off first, before they will apply any portion of the payment to the balance transfer at 8.99%. And of course, they always apply your payment to any finance charges first before applying what is left to reducing the principal. No debt relief there!

My opinion is that this is another cleverly worded offer, presented in a way that makes it appear that you are getting a great interest free, long-term loan. Just another trick to hook the consumer who didn’t bother to understand what is clearly stated in the credit card offer when you read what is actually there.

Successful money management includes understanding the correct actions to take with your money. Educate yourself by reading the fine print on all documents that concern your money so you clearly understand what they mean before taking action.

Sandra Simmons, President of Money Management Solutions, has years of experience helping business owners and individuals manage their money to achieve financial freedom. Claim your FREE Debt Reduction Solutions Guide

© 2008 Sandra S. Simmons. All Rights Reserved.

Okay, so you are in debt and your creditors are screaming. How do you handle it and get debt relief without having a nervous breakdown? The best practice is to use a simple debt relief solution tool called Dateline Paying.Dateline paying is a simple method of paying oldest bills first, based on the due date. The dateline tells you how far back in time your past due bills go. And yes, credit card debt should be treated just like any other past due bill. There are a few simple steps to this strategy that anyone can do.

1 – Make a list of all your past due bills and credit card debt. Use a report from your accounting program or a spreadsheet of some kind so you can sort them by due date. Be sure and put in a bill for more than the minimum payment for each credit card or line of credit.Make the credit card bill for the amount you want to try to pay over the few weeks before the payment is actually due. For example, if your minimum payment is running at $400, put a bill in for $600.2 – At the end of each business week, carve off 15% of the income to use to pay past due bills and debt.Use the remaining 85% to pay current operating expenses to keep the doors open, the lights on and the telephone ringing to get in more income. Be sure and use some of the 85% for promoting your products and services to keep customers buying, and set a bit aside as a cushion to handle emergencies.3 – Use the 15% to pay the debt by dateline – oldest bills first.Always use a portion of it to pay suppliers and part to pay credit card debt.

4 – Pay a bit against credit card debt each week using on-line paying.

Why? Because you stop the daily interest compounding on the amount that you paid. This can save you a lot of money in unnecessary interest charges over time. It also keeps you from being late on your payments and avoiding the late payment charges. In addition, it eliminates the scrambling to come up with a big chunk of cash to pay the credit debt on the week the statement says the payment is due.

5 – Pay past due bills from suppliers – oldest bill first.

The only exception is a supplier who refuses to ship more product that you need in order to produce more income, or one who is threatening legal action. Those are dangerous situations that must be handled immediately.

6 – Work out how to raise your income so that you have an increasing amount of money to use to work this debt relief solution strategy.

Systematically working at paying both ends of the dateline, 15% to past due bills and 85% to current operating expenses, gradually moves the dateline forward to present time until you are current on your bills and out of debt.

You can easily see this dateline paying strategy working for you if you make a graph of the total debt you owe and plot the figure each week so you can see the amount of debt coming down. Not only does it help you confront the debt you created, it validates the actions you are taking to get that situation handled.

Sandra Simmons, President of Money Management Solutions has years of experience helping business owners and individuals manage their money to achieve financial freedom. For more information, claim your FREE Debt Reduction Solutions Guide

© 2008 Sandra S. Simmons. All Rights Reserved.