How to Master Business Credit Cards and Successfully Eliminate Debt

by Tracey Hrica Dec 05, 2023 | Share

Credit cards being held by business owner

As a small business owner, managing finances can be a tricky balancing act. 

Business credit cards can be a valuable tool to keep your finances in check, but it’s essential to use them wisely. 

In the vast ocean of business finance, a tiny piece of plastic can be a powerful sail or an anchor—depending on how we use it. 

As small business owners, we often reach for this tool without a second thought. 

As an accountant, I’ve seen firsthand how credit card debt can quickly spiral out of control. 

In this blog, I’ll share my insights on effectively leveraging business credit cards while avoiding the debt trap. 

Plus, I’ll offer tips for taking control of your business finances to achieve financial independence. 

Let’s dive in.

The Rise of Business Credit Cards

Business credit cards have found a prominent place in our wallets, and for good reason. Here’s why:

  • Immediate Access: They offer quick solutions—like keeping a tab on office needs or getting a little back from our spending.
  • Rewards and Benefits: Many cards offer cash-back, points, or travel rewards.
  • Build Credit: Responsible use can help build your business credit score.

Statistics to Consider:

  • A recent survey by the National Small Business Association found that 27% of small businesses used credit cards to finance their operations.
  • Businesses reported an average of 5% cash-back on annual expenditures, turning expenses into rewards.

A Double-Edged Sword

While the convenience of credit cards is appreciated, they can also lead us into a trap of persistent debt. Here’s how it can happen:

  • Easy Swipes, Growing Bills: Each transaction is simple, but the accumulating bills can become overwhelming.
  • Interest Rates: Failing to pay off balances can result in significant interest charges.

Real World Example: The Tale of “Sweet Success”

“Sweet Success,” a beloved local bakery, thrived under owner Sarah’s dedication to handmade pastries. 

In a bid to expand and renovate, Sarah financed the transformation with her business credit card, drawn by its immediacy and rewards. 

Initially, it was a boon, funding equipment, renovations, and marketing. 

However, when renovations dragged on, new items faltered, and expenses surpassed sales, the credit card’s high interest rates turned from a tool to a burden. 

The debt soared, turning what was once a financial aid into a daunting obstacle, exemplifying the risks of credit reliance without careful planning.

What Statistics Say:

  • Small business credit card balances carry an average APR of 14.43%.
  • Over 50% of small businesses carry a balance on their credit cards, leading to compounded interest.

The Credit Card Crutch

Are we leaning on credit cards more than we should? Consider this:

  • Tool Not a Crutch: Credit cards should aid, not restrict, our financial maneuverability.
  • Cycle of Debt: Without foresight, a cycle of debt can be hard to break.

Reimagining Credit in the Small Business Landscape

Think of credit cards as an auxiliary paddle, not the engine of your boat. There’s a wider financial world out there:

  • Alternative Financing: Explore loans, lines of credit, and community lending.
  • Steady Growth: These options may be slower but offer a path aligned with your business’s growth without rushing you into debt.

The Entrepreneur’s Toolkit

Strategies for wise credit card use:

  • Track Spending: Monitor your expenses to avoid unnecessary interest.
  • Pay Off Quickly: Aim to pay off balances each month.

Paying off Debt: Strategies for Liberation

Debt can be daunting, but with the right approach, it can be managed:

6 Ways to Get Out of Debt

Halt New Debt

An obvious yet essential step. This alone won’t get you out of debt, but at least your debt won’t get worse.

Return to the habit of years gone by paying with cash.


Start by making a list of all your monthly expenses.

Identify nonessential expenses and redirect funds to debt repayment.

Emergency Fund

To some, an emergency fund sounds counterproductive when trying to get out of debt.

Shouldn’t you use that money to pay off your debt instead of sticking it in a savings account?

However, an emergency fund can keep you from creating more debt by providing a safety net. If an emergency arises, you can use this money instead of a credit card.

  1. Determine Your Needs The first step is determining how much you need in an emergency. Your needs will be unique, depending on your business. As a rule of thumb, 10% of your annual revenue might be a good benchmark.
  2. Set Reasonable Emergency Savings Goals Start small so you can meet your monthly savings goal rather than struggling to hit a bigger number. Set small, achievable targets for your monthly savings, and increase the amounts when you’re comfortable that you can handle them without hurting your business.
  3. Save Consistently to Build Your Cash Reserve Fund As with any savings program, you must put together a plan and follow it consistently. Commit to putting a certain amount of money aside each month. One of the easiest ways to do this is to save a percentage of your monthly revenue.
  4. Automate Business Emergency Fund Savings  An effective way to build a financial cushion for your company is to open a separate account and set up a monthly deposit from your business account. Then savings can happen without requiring you to manually move the money each month.
  5. When Business Is Good, Build Up Your Financial Cushion When you have a good month financially and a better net profit, put a little extra into your emergency business funding until you reach your goal.
  6. Check for Nonessential Expenses Certain expenses are unavoidable. If you have a mortgage on your property, you need to make the monthly payment. You’ll need to pay utilities and employees if you want to stay in business. However, other items aren’t essential.
  7. Protect Your Business Emergency Fund It can be tempting to dip into your emergency fund for things that aren’t emergencies. Avoid the temptation to do that if at all possible.
  8. Don’t Stop Building Your Cash Reserve Fund When you reach your goal, take a breath and congratulate yourself. It’s a big step. Consider continuing to save and build your cash reserve fund to create an even bigger financial cushion.

Tackle Credit Card Balances

Decide how much you can afford to pay toward your debt each month, then decide who gets how much first.

There are two common strategies here: the ladder method and the snowball method.  

The ladder method starts with the account that charges you the highest interest and fees. 

Continue making only the minimum payments on your other accounts until the nasty one is paid off. Now, move on to the next highest interest rate and start the process again.

For people who need to see instant results to keep them motivated, the snowball method is the best process because it’s the quickest way to get to a successful conclusion.

Here’s how it works:

If you owe Lender X $5,000 and Lender Y just $500, pay off the $500 balance first.

Now, move on to the next lowest balance.

You’ll have the satisfaction and reward of paying off one, two, and then more accounts on a somewhat regular basis, which can give you the incentive to keep going.

You can schedule automatic payments to ensure that you follow through with your plan. 

Work with Creditors

Many people don’t realize that creditors are usually willing to work with you, especially when dealing with financial hardship.

Explaining your situation may result in an offer to waive your interest rate temporarily. 

Debt settlement is another solution if your accounts are past due or you owe more than you could repay over a few years.

When you settle your debts, you ask the creditor to accept a one-time, lump-sum payment to satisfy the debt.

Creditors who agree to a settlement offer also agree to cancel the rest of the debt. Still, they typically only accept these offers on accounts that are in default or at risk of defaulting.

Keep in mind that this debt forgiveness may be considered income on your tax return.

Credit Counseling

If you feel overwhelmed and don’t know where to start with these options, a professional credit counselor may be the answer. 

They can help you review your debt situation and identify repayment options and money management techniques customized to your situation.

Remember, you’re in this for the long haul.

You don’t want to pay down your debt just to start charging and dig yourself in deep again.

Success Stories: Beyond the Plastic

  • Diverse Financial Plans: Successful owners mix and match financial tools.
  • Avoiding the Debt Trap: They use credit cards judiciously as part of a broader strategy.

Every decision today influences our business’s future. Choose the right financial tools to build a sturdy foundation.

True control means making smart choices that offer freedom, not just quick fixes.

With a solid financial plan, you’re ready for anything the market throws at you.

To all the small business owners: take the wheel, set your course, and use every tool at your disposal wisely. 

Your financial independence is the true treasure, and with a thoughtful approach to credit cards and debt, you’re well on your way to finding it.

About the Author

Tracey Hrica

Tracey Hrica joined the firm in 1995 as a bookkeeper. In 2012, she became an Enrolled Agent (EA), showing her skills in tax preparation and her ability to represent clients with the IRS. Tracey keeps up with her EA status by learning about personal and business taxes every year. In 2019, Tracey and her husband Ken, who is a CPA, took over the business. She focuses on welcoming new clients and ensures clear communication and thorough research. Tracey is also a QuickBooks ProAdvisor, helping clients use QuickBooks Desktop and Online for their businesses.

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