Personal Finance

Should I sell car to help pay business debt?

  • Crunching the numbers: small beginnings for a new business need not entail selling assets, such as a car, to cover early debt, Dave Ramsey explains this week

Dear Dave,

My husband started his own one-man, small business as a handyman a little less than a year ago. He has netted $17,000 in that time, but the business has about $13,000 worth of debt. Weíve always kept personal finances and business separate, but what would you think about us selling one of our paid-for cars to help with the business debt?

ROBIN

Dear Robin,

Thereís nothing wrong with small beginnings. On top of that, you should always keep your business and personal finances separate. Aside from the debt, it sounds like heís off to a good start.

I think youíll be able to pay off the debt from your future income. If your husband started his business less than a year ago, he has spent that time trying to get things off the ground and working with very little name recognition. If heís good at what he does, and he continues to work hard and market himself properly, he should be able to double what he made in the last year.

To do that, however, heís going to have to spend some time in accountant mode. He needs to figure out the types of jobs he makes the most money on for the time he puts into them. I know a guy in our area who made more than $100,000 as a handyman in the last year. Iím talking about $100,000 in profit! His prices are higher than most in that line of work, but heís the best. He provides superb quality work, and heís always polite, on time, and on schedule.

If your husband does the research and crunches some numbers, I think he can dial it in and make a lot more money than heís making now. Find that sweet spot, and heíll continue to grow the business.

óDAVE

Dear Dave,

Recently, I loaned some money to a good friend. Heís going to help me with a big home project over the next few weekends, so do you think I should pay him for the work or forgive the debt instead?

MARVIN

Dear Marvin,

First, I donít recommend loaning money to friends or family. Once in a while, things may work out and everyone ends up happy. But in most cases, it changes the dynamic of the relationship. The Bible says the borrower is a slave to the lender, and thereís a lot of truth in that ó financially and emotionally.

The big question is whether youíve already agreed to pay him for the work. Another consideration is how he views the situation. He may be looking at this as just helping a buddy, and he still owes the money.

Ask him what his expectations are before you guys start the job. Just talk to him, and figure out what seems fair to you both. If youíve already agreed on a certain amount, and the value of the work is close to what you loaned him, you might discuss the idea of paying back the debt that way.

But in the future, if someone close to you really needs financial help ó and youíre not enabling bad behaviour in the process ó just make the money a gift.

óDAVE

Dave Ramsey is CEO of Ramsey Solutions. He has authored seven bestselling books, including The Total Money Makeover. The Dave Ramsey Show is heard by more than 14 million listeners each week on 600 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.