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Posted by Tiffany Gaskin

How You Can Pay Off Self-Employed Debts

How You Can Pay Off Self-Employed Debts

Knowing how to pay off debt quickly when you are self-employed is difficult. You have no idea where to start or what strategies will work.

Your income is everywhere, and you don't know what your next project will be. How are you supposed to pay off your debts fast?

Most people don't talk about how being self-employed can be a roller coaster ride for your bank account and financial goals.

On the one hand, you know your money was a business investment. On the other hand, corporate debt is not good for cash flow and can hurt a small business.

But the advantages of being self-employed are undeniable and include the possibility of unlimited income.

Early in your career as a self-employed, you will likely make significant investments in your business. Hiring help, buying courses, and building a website cost money.

During this period, your income is also erratic due to not having a process for payment or low-paying clients. All of these can create debt for your business and be self-employed.

Here's how to turn the tide and aggressively start paying off your debt and other loans, even without a regular paycheck.

1. Reduce your monthly bills

An important part of learning how to pay off debt has to do with controlling your spending. This usually means reviewing your monthly expenses and negotiating bills at a reduced rate.

2. Increase the level of cash flow problems

The first step to aggressively paying off your debts as a self-employed person is to end your cash flow problems. Cash is the heart and soul of your business when you're the boss.

You need to compensate for inconsistencies in self-employment income by applying simple cash flow strategies.

Here are some strategies to get you started:

• Get Paid Faster: Offer a discount to customers who pay within 10 days of receiving their invoice. Give them plenty of options to pay their bill by credit card, PayPal, or check.

  • Automatic Billing: Use an automatic or recurring billing system to spend less time on administrative tasks.

  • Increase your rates: Negotiate a higher rate with existing customers. Take advantage of a company anniversary or a big income-generating project.

  • Require upfront payment: Ask clients to pay 50% of the project. Apply deadlines and late fees if payment is not received by the deadline. Don't waste time chasing payments.

  • Upsell other services: It is easier to convince someone who has already said yes to say it again. Focus your efforts on existing customers and sell them your services.

Increasing your income can also mean getting a part-time job. Or apply to work as an independent contractor for a recurring client.

Be open to doing anything that helps level your income and create a more consistent cash flow.

3. Pay a deposit in the form of interest

The advantage of being your boss is that you make your own schedules. The downside to this is the lack of consistency when it comes to getting paid.

The downside of working for yourself means the days of getting paid bi-weekly are over.

A traditional job makes one thing easier, namely the budget. Budgeting can be difficult when your income fluctuates from month to month.

Change the way you estimate your income for debt and start setting aside a percentage of your income. You can make additional repayments if you have any leftovers at the end of the month.

Budgeting allows you to make regular payments regardless of your income, so whether you're making $2,000 or $8,000 a month, you still spend some of your income on debt.

So how do you find a percentage that works for you?

  • Carefully analyze your budget: how much leeway do you have? How much do you want to borrow per month? (This is important because it forces you to work harder to achieve your goals).

  • Create a basic budget: A basic budget includes what you need to survive. How much money do you need to earn to make sure you can eat and pay the rent? Write down this number.

  • Look at your earnings in recent months: what is your average salary?

  • Take advantage of discretionary spending: Hopefully, there is a gap between your average income and your basic budget. This gap is your discretionary income and should be used to pay down debt and celebrate big wins.

  • Think of a percentage that works for you and leaves you enough room to pay your needs and taxes. Make sure this percentage works for you and helps you sleep better at night.

Paying too much or too little can come back, so be sure to pay down your debt at a pace that supports your well-being and business.

4. Use financial tools to keep track of your debt

There are more resources than ever to help you pay off debt, manage your finances, and stick to a budget.

You can use an app to track your debt. It's usually a web and mobile app that brings all your balances together in one place, helps you find tax savings, and includes tips for paying off debt fast.

In addition to debt monitoring and management tools, budget monitoring is also crucial. You can use resources like Excel spreadsheets.

Whatever your method, it's important to see the numbers right before you. Sometimes looking at this number can be overwhelming and nauseating; this can be a hard truth to swallow. However, this temporary reality will change if you commit now.

5. Reduce your monthly subscriptions

Have you checked your monthly subscriptions lately? It's easy to subscribe to things like Netflix or Dropbox, but are you using everything you pay for?

One way to reduce debt is to cut monthly subscriptions or recurring expenses you no longer need. The easiest and least time-consuming way to do this is to unsubscribe for things you don't need.

6. Learn to plan with irregular income

Don't be naïve with your finances. Being self-employed forces you to think about your money and budget differently than who gets paid weekly.

It's no secret that working with clients and running your own business is volatile for your bank account and financial goals. Then it's time to change your budget to work more successfully with irregular income.

As a self-employed, you need to learn how to budget irregular income successfully.

It will likely take 2-3 months for your income and expenses to settle and operate within your new spending limits. Stick with it and know that at the end of the day, you can spend whatever you want and have money in the bank.

7. Stop adding to the mountain of debt

This step is one of the most overlooked tips. Many experts are willing to advise how to learn how to budget or earn more money as the first steps to getting out of debt, but that's not always the case.

To progress on your debt, you must stop accumulating more debt and regain control of your spending.

Discard your credit cards (or hide them in a hard-to-reach place) and stop using loans and credit cards as payment extensions.

Do what you have to do to stop getting into debt.

  • Longer working hours or extra work?

  • Move to a new city to reduce your overhead.

  • Need to resize?

  • Sell things?

Put yourself in the mindset to do whatever it takes to stop getting into debt and reverse the process so you can start paying off those balances.

It will take some time to avoid using credit cards and loans, but be patient and don't give up.

8. Use bonuses and discounts

It's hard to calculate how much you'll receive from or pay to the IRS each year, so if you can get a refund, use that extra debt bonus.

Use it to pay off your debts when you receive an unexpected bonus or refund, such as cash rewards, rebates, or bonus overpayments.

It's also a smart strategy when you get a raise at work or a small windfall from a family member. It is money you never expected, so you'll never really miss it.

9. Create a rainy day fund

As a self-employed person in debt, you're looking to get out of debt, not into debt or acquiring more, right?

To do this, first focus on building your emergency fund. Consciously decide to reduce some of your student loan payments while bolstering your emergency fund, or do whatever you can handle.

Ideally, having three to six months of expenses should be enough, but I know one year as a self-employed is much better.

A year of expenses is a lot of money, so don't get overwhelmed with building it up; just take small steps. You can start with as little as $10 per week!

10. Pay less interest and fees

The hardest part of paying off business debt is paying high interest and fees on your balances.

However, the good news is that you can consolidate your debts into a better loan if you have a good credit rating.

One way to do this is to consolidate all your outstanding credit cards into one loan. This will help reduce high credit card interest rates and make monthly payments easier.

You'll have fewer headaches trying to pay off more debt and save money on interest and fees each month.

Now you can pay off the debt fast!

Repay your debts when you are self-employed

As I said earlier, paying off debt as a self-employed isn't ideal, but there are ways to make it easier. As a small business owner, you're likely to be hardworking, creative, and enterprising—all qualities that will help you tackle the debt with passion and run a great business.

Just think that by paying down the debt, you are actively investing in your future and that of your business. Like any other financial or health-related goal, it takes patience, dedication, and discipline to stay on track.

Think of this as a long-term change, not a short-term fix! This will let you aggressively pay off your debt and find the financial freedom you seek.



Tiffany Gaskin
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