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Posted by Tiffany Gaskin

Paying off Debt when you're Self-Employed

Paying off Debt when you're Self-Employed

Many people say entrepreneurship is an act of freedom. Being your own boss, determining your work hours with earnings control is surreal. However, the other side of the line is usually not that pretty. With rising costs in the standard of living, expenses especially in doing business, debts might rise. 

It is not surprising that people with a high debt profile are entrepreneurs, no thanks to varying costs every other month. Pulling yourself out of Debt is not easy, but you can get away with the following tips.

 

Define your Monthly Expenses

A great way to start is by identifying your regular monthly expenses. This refers to the essential bills that you need to settle every month. Although this may vary, the common ones include housing, transportation, taxes, feeding, etc. it's also important you add the amount you owe as Debt.  

When you figure out a steady benchmark for the expenses every other month, it'll give you an idea of how much you're supposed to set aside.

 

Reduce your Spending

The difference between wants and needs is a necessary topic if you want to announce someday, "I'm Debt-free!" As you already have an idea of your basic needs, it's time to cut back on your wants. One significant way to begin is to destroy your credit cards, so you don't borrow unnecessarily. 

If it means you reduce your investments and shopping, it is necessary. You can't pay off debts if you're accumulating them. So take a break, cut down on your wants and pay off your debts slowly.

 

Create a Budget for an Irregular Income Flow

As a self-employed person, your income is bound to be irregular. There are months when you have more than enough through tips and commissions, and other months, your account is red. One way to stay ahead is to work with an irregular budget. 

Creating a budget based on an average of previous months is suitable for most people. There are tons of templates online to help you out.

 

Dedicate a Specific Percentage to Debt Payment

As you're creating a budget based on an irregular income, one thing you should not step down on is creating a percentage for debt repayment. As indicated earlier, debt payment is not an easy road for a self-employed. 

You can now find a number to be allocated to debts. Most people say it is necessary to go with a number you're comfortable with. Using the template to determine how much you have been earning in the past months, you can do this and incorporate your budgets. 

You can start with 20% or above. Don't forget that the earlier you pay off the Debt, the better your finances and reputation.

 

Start with High-Interest Loans First

Most debts are not wrong to get. The impossible ones are those that come with high interest or fees. Starting with high-interest debts is a great way to control your debt servicing. 

A crucial example is credit card debts, which come with high interests. Settle them first, and then go for the lower interest loans. 


Generate more Means of Income

An important way of staying ahead is by creating more channels of income. A significant advantage of being self-employed is the flexibility to introduce other hustles to make money. You can gain more clients, translating to increased work hours per week. 


Conclusion

Becoming debt-free as a self-employed person is always a tough road to navigate. However, with a bit of discipline and sacrifice, you can become free from the constant calls and messages, and other harassment from collection officers. 

Explore these tips as a means to get your finances in line, and be free from debt. 


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Tiffany Gaskin
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