10 Reasons to Avoid Debt, Part 2

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Credit cards

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Austin Pryor, in his book Sound Mind Investing, lists ten reasons to avoid debt. Though the list is directed towards individuals, I believe it is also very appropriate for businesses. Here are the last five:

  1. Debt evades the necessity of distinguishing wants and desires from real “needs”. Try making an “I Want” list. The “I Want” list has two rules. First, not more than five items are allowed on the list at one time. Second, you have to wait thirty days after the item is entered on the list before it can be purchased. You will be amazed how many “wants” and “desires” fade over the thirty days and the amount of impulse buying that is eliminated. This simple idea may help to transform you (your business) from a chronic impulse buyer into a much better steward of His assets.
  2. Debt encourages impulse buying and overspending. The Chief Financial Officer of a national credit card company said that consumers will spend 27% more on plastic than they would with cash or check. Any merchant who accepts plastic will verify that consumers will spend 25% to 30% more with plastic. That is why businesses pay a fee of 1% to 7% of every purchase you make on plastic for the privilege of accepting your credit cards. For your business, consider the potential effects of entertainment and travel costs.
  3. Debt and credit cards stifle creativity and resourcefulness. If we want something today, we charge it rather than “make do” with what we have. We feel entitled to what we want, when we want it, so we automatically head to the mall, never considering a simpler, less expensive choice: “doing without”. It is not fashionable today to resole our shoes, repair our cars, or mend whatever wears out; we simply replace them. For your business, consider the potential impact of maintaining the equipment you already have (without sacrificing safety) or using what you currently have in a new way to accomplish the task instead of buying something new.
  4. Debt and credit cards eliminate margin in our lives (our businesses). Plastic becomes our margin. Rather than planning what we need and allowing a margin for errors or overruns, we “charge” ahead and spend, thinking that if we must write a check that we don’t have sufficient funds to cover, we have overdraft protection with our credit line. Your credit card (or line of credit) is not an asset but a potential future liability which becomes a liability when you use it.
  5. Debt teaches your children bad habits. Your children will have a casual regard for using credit cards, obtaining car loans, and applying for student loans.

Review the first five items from yesterday as you consider these. Consider the negative (or potential negative) effects debt may or does have on your business. I encourage you to develop a solid business plan to eliminate your current debt and to prepare to operate without borrowing in the future.

Avoiding debt is essential for business prosperity. If you would like to discuss more about avoiding business debt or how you can transform your business using the Bible as your guide, email me at info@commonsensecfo.com.

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