Is this a Good or Bad Move?

Submitted by HerculesDeus t3_z8movc in personalfinance

I have $20,000 worth of credit on my business cards. They no longer have 0% APR

I want to start a business within the next few months.

I’m 20 years old & pay $0 in rent. I plan on getting a regular job within the next few weeks which will bring in about $2,800/m. I have $5,000 saved.

Would I be an idiot for maxing out my card to setup my business? (inventory, advertising, misc.)

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kveggie1 t1_iyceb9p wrote

Yes. Do not start a business on a credit card.

Start slow, with cash, sell the stuff, buy more inventory and grow slowly.

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mrbrsman t1_iyd07vy wrote

Seconded and in all caps.

DO NOT START A BUSINESS ON A CREDIT CARD.

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KReddit934 t1_iycqh15 wrote

Bad move in general. You'll need (maybe) some credit to help smooth the cashflow once you are operational. Maxing your line of credit, or worse trashing your credit score, will not help you get a business off the ground successfully.

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TyrconnellFL t1_iycygbw wrote

This is a terrible idea. If you incorporate and go into heavy debt, your creditors are going to liquidate your business in short order. But let’s look at why.

You buy $20,000 of stuff on cards. Those cards have interest, and for most cards that interest is high. If you aren’t turning a 20% profit immediately your debt is going to start compounding and snowballing. Even if you turn profitable in a year, what are your margins? If they’re not 20%+, you will never break even. If they are, you have to dig out from under mountains of debt to actually get a net profit.

The way to start a business that has a solid plan is a business loan, not a credit card. And the better way is to start with savings and make sure this is a viable plan.

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drewc99 t1_iydsz8m wrote

If you're 20 years old, what on earth do you think you know about running a business? Very few people in their 40s have what it takes to run a business.

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HerculesDeus OP t1_iyehyy3 wrote

That’s besides the point, just needed advice for my finances.

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barrycarter t1_iyc9cje wrote

Keep in mind that credit card debt can be negotiated and sometimes paid off for pennies on the dollar. In some cases, the credit card companies (banks) can end up paying you money if they violate debt collection practices. Always do debt negotiation through a lawyer since they will sue debt collection practices violators whereas companies that just do negotiation won't.

There was a time when you could invest in FOREX using credit cards (almost sure you can't any more), which gave you a little bit of arbitrage. If you invest in FOREX using credit cards and make money, great. If you lose money, you can pay it off for less than the total amount. You're basically gambling with someone else's money

All that is a long-winded way of saying: consider doing it with the understanding that, if your business fails, you can recover some or most of the cost by negotiating debt.

Of course, do NOT use home equity or any other form of collateralized debt for risky ventures

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KReddit934 t1_iycq5by wrote

You make it sound like these are easy outcomes...getting debt write-down or even damages!...while failing to remind OP that their credit worthiness will be trashed in the process.

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toorbowski t1_iycqehb wrote

whatever you do, dont listen to this person. Maxing out credit cards on the off chance that you could "negotiate" a lower payment with a credit card company is nonsensical. Not to mention what it would do to your credit worthiness if it gets to that point. There are no guarantees with this approach.

On your initial question, I'd say dont do it. Save up capital and try to start a business using the correct tools such as business debt (assuming you need or want to use debt for the initial capital, some people would say no debt ever).

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