Debt Help For The Self Employed: How To Pay Off Your Debt

Being self-employed comes with a number of advantages, and can offer more freedom and control over finances and earnings. On the flip side, self-employed people often face greater challenges when it comes to budgeting and debt. It can be difficult to manage finances when work and payments are inconsistent.

In fact, recent research carried out by UK debt charity StepChange shows that the self employed are in an average of four times more debt than employed or part-time workers. They have more left to pay on their mortgages, and on average have more credit card and non-mortgage debts.

Getting out of debt is never easy, but it seems like the self-employed are more likely to run into trouble, and have a harder time getting out again. If you are self-employed, follow these tips to help pay off your debts.

1. Cut back spending

This is the most important starting point for anyone who needs debt help. You need to cut back on your spending, and do not borrow any more money needlessly. Destroy your credit cards right now, and use cash only so that you start living within your means.

Stop taking risks and making investments that you can’t afford, and make changes to your lifestyle, even if this means less shopping and less going on nights out. You won’t be able to get out of debt if you keep accumulating more, so slow down so you can focus on paying back what you owe.

2. Learn to budget with an irregular income

One of the key financial differences between self-employment and regular employment, is that the self-employed are unlikely to be paid regularly. You probably won’t be paid a set amount every two weeks, or be paid a monthly salary. This can make predicting your income in a given month difficult.

Budgeting must therefore be approached in a different way. You might want to think about your income in terms of an average taken over several months. You can use free online templates to help with this.

3. Generate more income and improve cashflow

One of the advantages of being self-employed, is that you generally have more control over your income. That is, instead of having a fixed number of hours per week, it is possible to generate more money by gaining more clients or jobs, even if this means working longer hours or weekends. You can also increase your rates, if you are in a position to do so, and you can upsell your services to existing clients.

Cashflow can also be improved to level out the inconsistencies of your income. For example, you can offer a discount to clients who pay invoices within a week, or ask clients to pay 50% of the costs upfront. If you are really stuck you can always get a part-time job. Bottom line is, earning more cash and/or improving the cashflow of your business will help you to pay off your debts.

4. Put a percentage of your earnings to debt

In full time employment, when you know exactly how much to expect each month, you may be able to pay back a set amount of money to your debt after being paid, say $1000. Freelancers have an inconsistent income, and therefore it is usually wiser to use a percentage of your earnings to pay back the debt, say 20%.

This way, you will always be paying off your debt each month, whether you are earning $2000 or $10,000. You can decide your own percentage by examining your earnings from the past few months, as well as your budgets, to find a number that you are comfortable dedicating to your debt.

5. Targeted savings accounts

Self employed people tend to have more mortgage and credit card debt than those in full time employment, perhaps again due to fluctuations in income that cause more unpredictable scenarios. Another way to counteract this unpredictability is to use targeted savings accounts.

Start with an emergency fund, which ideally should contain 12 months of costs. Then, you can make an account for new equipment like laptops, one for business investments, and whatever else you need. Keeping your money separate like this helps to prevent spending from going unaccounted for, and keeps you on track and out of debt.

6. Pay less interest and fees

Interest rates and fees can cause debt to spiral, and make it more difficult to make repayments that actually reduce the debt. Pay off your highest interest credit cards and other debts first so that you are not crippled by them, and then you can put the money you save into paying off your other debts. If interest rates and debt levels are severe, there are debt solutions available that can help, such as debt consolidation loans.

If you are self-employed and need help with your debt, contact Debt Negotiators today to speak with debt specialists who know what you are going through.


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