If you are using a personal credit card, then I would rush to pay off the debt as the business is part of one’s personal finances.

If you are buying things as part of a business, then I would establish a second line of credit for the business. After which there should be a clean break between personal finances and business.

HIs decison is about how much RISK he is willing to take: Debt vs. Cash. There is no “right” or “wrong”. That’s LIFE.

Sorry, Bill, but banks don’t “Love” people who pay off their debt every month. Nothing could be farther from the truth of the industry. In the Credit Card/Banking industry people who pay off their balance every month are called “deadbeats” because banks can’t capitalize on card users who don’t carry a balance. They make most of their money off those who carry a balance, those who don’t have very good credit scores and for those they can charge penalties and fees. The more responsible you are the less profit they can make off of you and business is always about profit margins.

You are mistaken, Credit limits have been reduced on people with good credit and no history of problems. The Internet is full of stories in the past 18 months of people having their interest rates raised for no apparent reason. Why? Because banks are desperate for money and THEY CAN. Credit card contracts can be changed by the bank after you have signed the contract to pretty much whatever they want. They have to warn you of the change but the typeface on those contracts is intentionally small and full of legal-eze.

I suggest having credit cards but use them extremely carefully. If you can’t control yourself with a credit line then you shouldn’t have a credit card; it’s for your own protection.

This talk about not using credit cards is completely foolish. Learn how to use your credit card responsibly. It’s FREE credit every month, you don’t pay a single cent in interest! You’d be a fool not to use your credit card. The only time you should pay cash is if you can get a discount versus a CC. Every possible expense you have should be put on your credit card, why not use the bank’s money whenever possible? At the end of every month pay off your card in full.

A few people mentioned that there is the possibility of credit limits being reduced. If you are one of those people who consistently pay off their credit card in full every month the banks are in love with you. They may be cutting credit back for mediocre borrowers but they are increasing limits for their top customers! They need to make their profits some where and the banks are focusing on low risk debt. This is a great time to get more credit for those who deserve it.

If you have issues with overspending or following a budget, that is a completely different conversation and the above advice should be completely ignored.

One other option is to try to build up trade credit with your vendors on a formal or informal basis. If you can find more credit with your primary vendors, you may be able shift some of your financing needs from your credit cards to them, often at a 0% interest rate!

If they cut his CC limit from $2000 to $1000 then his available money in an emergency is reduced by $1000. He will have $4000 in the bank and the credit card maxed at $1000 (in this scenario) which reduces his available money from $5000 to $4000.

It’s debt but if one of his tenants moved out or water heater failed he might need that extra available $1000.

He of course needs to judge his own situation but don’t be so quick to insist he pay off debt and box himself in. It might end up costing more in the end. Emergency Fund first!!! and everyone’s particular dollar amount for an emergency fund is different for each of us. $5000 as emergency fund seems low to run rental property but I have no idea what is expenses are for his part of the country. It may be enough or it may be way too small.

I put over one thousand dollars a week into savings and then transfer to invest accounts from there. I have zero debt, BUT when I was trying to obtain this financial position I paid off one debt (auto loan) too quickly thinking I would save ~$40 interest and ended up having to borrow money because I came up short one week and ended up paying more then ~$80 by the time the smoke cleared. I wasted a lot of time and embarrassment (personal loan). Been there, done that and won’t go back.

Suppose the limit on the CC is $2k and it’s maxed out, and you have $5k emergency funds in the bank. The total amount you have ready to for an emergency is $5k.

Now suppose you pay $2k to the CC. You still have $5k available for an emergency: $2k on the CC, and $3k in savings, but now you’re not paying the high interest rate on the card.

At the point you pay the card, you need to consider the card for emergencies only!

This only works if you make an effort to reduce expenses, use cash flow rather than credit for the business, etc. If you pay it off, then fall back into your old habits, your worse off b/c you’ll end up w/ $2k of business expenses on the card, and just $3k in the bank.