Using Credit Cards to Help Your Side Hustle
Running a side business can be a good way to make ends meet and even build for the future. Extra income from a side hustle is useful for paying bills and, if substantial enough, enhancing your savings. And there’s always the potential for it to become a fulltime venture, granting you more independence and freedom as a small business owner.
Just as they do in many people’s personal lives, credit cards can serve as useful tools in the day-to-day operations of a side gig—so long as you use them responsibly and take advantage of what they have to offer.
Instant Purchasing Power
The first, and most obvious, way a credit card can help is by providing you with purchasing power. A credit card essentially gives you an instant loan, so if you’re short on cash, this readily available purchasing power can be empowering and invaluable in keeping your side gig rolling.
A note of caution on taking out “instant loans” with a credit card. If you can count on enough revenue coming in from your side hustle to pay off business purchases in a timely fashion, then it may make sense to put them on your credit card. But if you plan on financing these purchases at credit card interest rates for a prolonged period of time, it may make more sense to seek out alternative funding—or wait until you have sufficient funds to pay off the entire balance of your purchases before making them.
A Designated Card?
If you’ve decided to use a credit card to support your side business, you could rely on a personal credit card you already have on hand. But opening a new card with a zero balance that’s dedicated to your business offers several advantages over using an existing one, including keeping most of your business-related expenses in one place. This should save you some time, and frustration, particularly when doing your books and/or taxes to make sure you get credit for every deductible business expense.
It’s worth mentioning that, if you do pay interest charges on business expenses, this interest is tax deductible. Yet another reason to use a dedicated card for your business, so you can easily calculate deductible interest.
If you can’t get another credit card but already have more than one, consider dedicating one of your existing cards to your business and confining personal charges to your other credit cards.
Earn Rewards for Business Expenses
With any business, it costs money to make money. If you have a rewards credit card that you use to purchase goods and/or services for your business, you could earn cash back, airline miles, or other freebies just for making purchases you were going to make anyway. Depending on how much you spend, these rewards could add up quickly, helping to offset the cost of running your side hustle and contributing toward your bottom line.
Carrying cash to run a side gig is fraught with risk. Obviously, once cash is lost or stolen, it’s gone for good. Using a credit card, however, provides you with excellent protection against loss and fraud. If your card is lost or stolen, it can be replaced with a simple phone call to the credit card company. And if fraudulent charges are made with your card, the most you can be held liable for is $50—or nothing if your card offers zero liability.
Credit cards may also offer additional protections, such as extended warranties on purchases of gear needed for your side gig, such as a camera, if you’re a photographer. This can be particularly helpful if your side gig requires you to buy expensive equipment that’s susceptible to breaking, such as electronics. By using your credit card to purchase a new computer or printer or other costly piece of equipment, you may receive protection that surpasses the manufacturer’s warranty.
Some credit cards also provide useful protection in the form of supplemental rental car insurance when you use the card to rent a car, which could come in handy on business trips. Others even offer travel insurance, which could save you money if you need to cancel air travel or other travel arrangements necessary for conducting your side gig.
As mentioned, a credit card can prove invaluable in keeping track of business expenses for tax purposes, but it can also be useful in actually paying your taxes. The IRS itself does not process credit card payments, but there are three payment processors that do. Just be aware that they charge a service fee that’s a percentage of your payment, so it may not be worth it to pay by credit card. But if you’re making a tax payment for your side gig, the service fee itself is tax deductible as a business expense. And if you have a rewards credit card that requires you to spend a minimum amount within the first few months to earn bonus rewards, a substantial tax payment made by credit card could be a good way to meet that requirement.
The right credit card–when properly dedicated to your side business–can help track your expenses, protect you, and even earn you rewards that contribute toward positively impacting your bottom line. But only if you exercise discipline in using it. Your credit card may never match your dedication to your business, but used wisely, it could definitely support your efforts.