Small Business Finances: Debit vs Credit Cards
Dec 26, 2024
Starting an assisted living business is exciting, but it also means making many important choices—including how to manage your finances. One decision is whether to use a debit card or a credit card for your business transactions. Both options have benefits, and understanding their differences can help you choose the best one for your needs.
In this blog, we’ll break down the pros and cons of debit and credit cards and explain how to use them wisely. By the end, you’ll know how to make the right choice for your assisted living business.
Check out the video, too:
What’s the Difference Between Debit and Credit Cards?
Before deciding, it’s important to understand how these two types of cards work:
Debit Cards
- How They Work: A debit card takes money directly from your business bank account when you make a purchase.
- Spending Limit: You can only spend the money you already have in your account.
- No Interest: There’s no borrowing, so you won’t pay interest on purchases.
Credit Cards
- How They Work: A credit card lets you borrow money to make purchases, which you must pay back later.
- Spending Limit: You can spend up to your credit limit, even if you don’t have the cash immediately available.
- Interest Charges: If you don’t pay your balance in full each month, you’ll be charged interest on what you owe.
Why Consider Debit Cards for Your Business?
Debit cards are a popular choice for small business owners, especially those just starting.
Benefits of Debit Cards
- Spending Control: You can only spend what’s in your account, helping you avoid overspending.
- No Interest or High Fees: Since you’re using your own money, you won’t incur interest charges.
- Simplicity: Everything is tied to your business bank account, making it easy to track expenses.
Drawbacks of Debit Cards
- No Rewards: Unlike credit cards, most debit cards don’t offer perks like cashback or points.
- Limited Fraud Protection: If someone steals your debit card, it can be harder to recover your money than with a credit card.
- No Credit Building: Debit cards won’t help you build your business credit, which is essential for future loans or financing.
The Power of Credit Cards
Credit cards can be a game-changer for your assisted living business, especially when used responsibly.
Benefits of Credit Cards
- Rewards: Many credit cards offer cashback, travel miles, or discounts on business-related purchases.
- Improved Cash Flow: You can make large purchases now and pay for them later, giving you time to manage cash flow.
- Fraud Protection: Credit cards usually have better protections if your card is stolen or used without permission.
- Credit Building: Regularly using and paying off a credit card helps improve your business credit score, which is crucial for securing loans.
Drawbacks of Credit Cards
- Interest Charges: If you don’t pay off your balance each month, interest can add up quickly.
- Spending Temptation: Credit limits may encourage overspending, leading to debt.
- Fees: Some cards have annual fees, so ensure the rewards outweigh the costs.
When to Use Debit Cards vs. Credit Cards
The best approach may involve using both debit and credit cards. Here’s how:
Use Debit Cards For:
- Everyday Expenses: Things like groceries, office supplies, or utilities.
- Budget Control: If you’re starting out and want to avoid debt, a debit card helps you stick to your budget.
Use Credit Cards For:
- Large Purchases: Items like furniture, equipment, or renovations.
- Rewards: To earn cashback or points on significant spending.
- Building Credit: If you’re planning to grow your business, building credit is essential.
How to Transition from Debit to Credit
If you’re starting with a debit card, you can work toward qualifying for a business credit card:
- Open a Business Account: Use your debit card responsibly and track expenses to build financial discipline.
- Apply for a Secured Credit Card: These require a deposit but can help build your credit history.
- Pay Balances in Full: Always pay off your credit card balance to avoid interest charges and build a positive credit score.
Final Thoughts
Both debit and credit cards have unique benefits, and the right choice depends on your assisted living business’s needs.
- Debit Cards are great for simplicity and avoiding debt.
- Credit Cards offer flexibility, rewards, and opportunities to build credit.
By understanding how to use each type of card wisely, you can create a financial system that supports your business's growth while keeping expenses under control. Choose what works best for your situation, and watch your assisted living business thrive!
If you’re ready to take your assisted living business to the next level, I recommend downloading our Business Plan Checklist. It’s a comprehensive tool that will guide you through creating a solid business plan, essential for securing financing, finding the right property, and ultimately running a successful assisted living facility.
Need help figuring out where to start? Join the next Roadmap Challenge and build your launch plan with me.
Show full transcript 👇
Transcript
00:00:00
past several videos i've been talking a lot about credit cards and uh how you get a credit card how you build business credit but what if the answer for you is not a credit card what if you are supposed to be using a debit card how do you go about that process what are some of the pros and cons of debit cards versus credit cards we're going to get into that in today's video hi everybody i'm brandon gustafson i own and operate two assisted living facilities and i created this channel to
00:00:28
help people like you learn the ins and outs of investing in assisted living welcome to assisted living investing [Music] hey everybody welcome back to the channel happy to have you here today last time in our last video we talked a little bit about what is the best small business credit card uh what's the best one for you how do you find that out go ahead and watch that video and give me your feedback on what you enjoyed about that video i'd love to hear from you there today we're going to get into uh
00:01:02
debit versus credit cards for small businesses um in a previous video i talked about should you get a business credit card should you do it or not and um you know i i assume a lot of people want to have that but what if the answer for you was no what if you can't get a business credit card because you have bad credit there could be several reasons why you why you can't get a a business credit card and so what do you do if if you shouldn't get one or or you can't get one um you know you might run into
00:01:35
barriers like i was just mentioning of poor personal credit remember a credit score of lower than 650 may make it difficult for you to get a business credit card especially because you've got to use your personal credit in order to get that business credit card while you don't have any business credit so you know i've got a video on that make sure you go ahead and watch that but that might just be a barrier that doesn't allow you to do it your next option in in that case or if you're just
00:02:01
not comfortable getting a business credit card would be to get a debit card from your banking institution now when you set up your bank account make sure and i've talked about this in a previous video how to how to get a set up a business bank account but when you're doing that just make sure you're having a conversation make sure that you would have access to a debit card make sure there's no extra fees there if there are fees what are they and how do they work just kind of have a conversation with
00:02:29
your banking institution but you should be able to get a business debit card through your bank without a problem that you're not gonna have to do a credit check or anything like that it should not be a problem for you to get a debit card so this is going to be your next best option um you know in the event that you've got to go and get groceries at walmart or something like that you want to make sure you have a card so you're not having to deal with cash um dealing with cash on the amount of
00:02:54
transactions that we're dealing with in assisted living is just going to be a lot so i would highly suggest you have a card um unless you're just incredible with counting money and keeping things in place having a card just makes things a whole lot easier for you so what's the difference between a business debit and a business credit card debit cards are you know they're used to make purchases and they take funds directly from your bank account whatever you have available in your bank is basically what
00:03:24
you have available to spend on it and so you're able to kind of keep an eye on on how much money you have available so you can make these purchases so in the event that you are using a debit card you want to make sure that you have sufficient funds available in the bank before you're using that debit card so you don't incur any overage fees or charges or anything like that you don't want your purchase to get declined so you kind of want to work through some of those things but that's
00:03:52
something that you know you can just kind of be aware of as you're using a debit card credit cards use a line of credit in order to make that purchase so basically you're borrowing that money that you're spending from the credit card company to make the purchase with a promise that you will pay the money back out of your bank account so credit cards like i've talked about in a previous video are a great way to kind of float some of your money a little bit and if you don't pay that card off in a
00:04:18
timely manner you're going to have to end up paying interest on on that money that you have borrowed from the credit card company so that's kind of how they work in a really at a really high level in a nutshell so the pros and cons of of working with debit cards and uh really of debit cards so since i've talked quite a bit about credit cards and you can look at some of my previous videos on that i'm going to spend a lot more time here on the pros and cons of debit cards so one of the pros is it's hard to
00:04:51
overspend you can't use money that you don't have when you're using a debit card it just you can't do it there's likely going to be i mean there there will be no interest and there's likely no fees or if there are fees there are going to be fewer so you don't have to worry about any fees and then you keep everything under one umbrella in your banking institution is another really good thing on the con side you have no or very limited rewards compared to what you would see in a credit card
00:05:19
which i'll talk about in a future video you're not building your credit which i've talked about in a previous video fraud can be a little bit trickier with debit cards because once that money leaves your account it's gone and it just creates a bit of a battle whereas with a credit card you have a little bit more protection there and then you also don't have access to credit um if you need to make a large purchase you just don't have access to that so those are some of the cons so a
00:05:45
possible solution um for you is for those businesses that already have a credit card having a debit card available is not a bad idea it's great to have just another thing there just another bucket of money that can you can use in a pinch if you need it i would suggest those of you that have credit cards also get a debit card just gives you that opportunity to have that now if you're stuck with a debit card because of poor credit or because just by choice and that's what you want to do then you want to try
00:06:14
working with your business banking institution to help them build up your credit so you could eventually get a credit card or line of credit or something like that having it available to you is is going to be helpful they might be able to do something where they can count certain payments towards credit or they can give you a a low limit credit card or or something like that that would allow you to build your credit so that's something another option you want to consider as you're trying to get things
00:06:42
up and running next time in our next video we're going to be talking about how do credit card points work so i'm going to get into that what's the process like for points how do you learn about them how do you get in and use the points and what's that process like and to learn more about investing in assisted living make sure you visit me on assistedlivinginvesting.net i've got free resources over there content you can set up a consulting call with me we can have a conversation and
00:07:06
then make sure you follow me on my other social media platforms and remember it doesn't take a lot just just a little bit keep going step by step by step keep making progress if you do i promise you that you will be successful thanks for watching and have a great day [Music] you
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