An Atlanta man bought a business on credit cards and now it's not making enough money to cover the debt — Dave Ramsey tells him what to do next

That’s exactly the sticky situation Manny from Atlanta found himself in when he called into The Ramsey Show.

He told Dave Ramsey that he’d used credit cards and seller financing to buy a business that isn’t bringing in enough money to cover what he owes, while also carrying a mortgage on a rental property, a mortgage on his own home, and about $30,000 in other personal debt.

“The bank doesn’t know it’s business — it’s in your name,” the Ramsey said. “You have $20,000 in credit card debt because you bought a business with a credit card. There’s no such thing as business debt on something like this because banks don’t loan money to businesses of your size.”

Manny wanted to know whether selling the rental property could help him get out from under the debt. Ramsey’s answer was simple.

A sticky situation

Manny bought the business for $200,000, put some of the purchase on a credit card and financed the rest through the seller. He said he still owes about $60,000 on the seller financing.

His wife also works for the business, although Manny didn’t go into detail about how it was doing. He estimated it made just under $60,000 last year.

The couple also has a rental property that brings in about $1,100 a month in cash flow, along with their home mortgage and about $30,000 in personal debt. Under those circumstances, Ramsey didn’t think the rental was worth keeping.

“Yes, sell the rental property and pay off the $60,000 and pay off the $50,000 and pay off your home mortgage and you’re 100% debt-free,” Ramsey said.

Then he boiled it down to something Manny could feel rather than calculate.

“Can you breathe that level of peace into your lungs?” he asked. “That’s why you sell the rental property.”

Selling the rental would mean giving up the $1,100 a month it brings in. But Ramsey’s point was that Manny could use the equity to eliminate the debts that are taking money out of the household every month.

When a business purchase becomes personal debt

Manny used the credit card to buy the business, but that didn’t make the credit-card bill the business’s problem. He bought a business. He also put $20,000 of that purchase on a credit card in his own name.

If the business doesn’t make enough to cover the payment, Manny still has to make it. The credit card bill doesn’t wait for the business to have a better month.

That’s why the purchase is putting pressure on more than just the business. Manny still has credit card debt, money he owes the seller, a rental mortgage, his home mortgage and other personal debt.