Figuring how to pay off debt fast when you’re self-employed is tough. You don’t know where to start or what strategies will actually work.
You income is all over the place, and you’re not sure what your next project will be. How the heck are you supposed to pay off debt quickly?
One thing most people don’t talk about is how much of a roller coaster being an online business owner can be for your bank account and financial goals.
On the one hand you know the money you spent was a business investment. On the flip side, business debt is not good for cash flow and can cripple a small business.
But the benefits of being self-employed are undeniable and include the potential for unlimited income.
In the beginning stages of being your own boss, you’ll likely make a few significant investments into your business. Things like hiring help, buying courses, and creating a website, all cost money.
During this time your income is also erratic due to low paying clients or not having a process for getting paid. All of this can lead to debt for your business and being self-employed.
It’s not pretty!
Here’s how to reverse the momentum and start aggressively paying off your debts — even without a regular paycheck.
1. Reduce monthly bills with BillFixers
A large part of learning how to pay down debt relates to controlling your spending. This often means reviewing your monthly expenses and negotiating your bills to get a reduced rate.
The good news is that you can work with a company like BillFixers who negotiates your monthly bills on your behalf.
No muss, no fuss!
Just give them access to a specific bill, such as your AT&T or internet bill, and they will get you the best price possible.
In fact, they saved me over $365 a year on just two of my bills. Click here to read more about how to save money on bills with BillFixers.
2. Level out cash flow problems
The first step to aggressively paying down debt while self-employed is to stop cash flow problems. When you’re the boss, cash flow is the heart and soul of our businesses.
You absolutely must level out the inconsistencies of self-employment income by applying simple cash flow strategies.
A few strategies to start with include:
- Get paid faster – Offer a discount to clients who pay you within 10 days of receiving the invoice. Give them lots of options for paying your invoice with a credit card, or PayPal, or check.
- Automate invoices – Use an automated or recurring invoicing system so you can spend less time on admin tasks.
- Request payment upfront – Request that clients pay 50% of the project up-front. Enforce deadlines, and a late fee if you don’t receive payment within the allotted time. Don’t waste your time chasing down payments.
- Upsell other services – It’s easier to get someone who’s already said “yes” to say “yes” again. Focus your efforts on current clients and upsell them on your services.
- Raise your rates – Negotiate a higher rate with current clients. Leverage a work anniversary or a big project that brings in revenue.
Leveling out your income may also mean getting a part-time job. Or signing up to work as an independent contractor for a recurring client.
Be open to doing anything that will help level out your income and create more consistent cash flow.
3. Pay a down debt as a percentage
The beauty of being your own boss is that you can make your own schedule. The downside is the lack of consistency when it comes to getting paid.
But the downside to working for yourself means, long gone are the days of getting paid every two weeks like clockwork.
A traditional job does make one thing easy, and that’s budgeting. It can be hard to budget when your income fluctuates month-to-month.
Change up the way you budget income for debt and start setting aside a percentage of your income instead. If you have more left over at the end of the month, you can make additional debt payments.
Budgeting this way frees you up to consistently make payments, regardless of your income. So whether you make $2,000 or $8,000 in a month, you’re still putting a portion of your income towards debt.
So how do you come up with a percentage that works for you?
- Look at the past few months of income – What is your average income?
- Create a bare bones budget – A bare bones budget only includes what you need to get by. What amount of money do you need to make to ensure you eat and pay rent? Write that number down.
- Leverage discretionary spending – Hopefully, there will be a gap between your average income and your bare bones budget. That gap is considered your discretionary income, and should be used for paying off debt as well as celebrating big wins.
- Carefully look at your budget – How much wiggle room do you have? How much do you want to put towards debt each month? (this is important as it forces me to hustle harder to achieve my goals).
- Come up with a percentage you are comfortable with, that leaves enough room for paying your necessities and your taxes. Make sure it’s a percentage that is working for you and helps you sleep best at night.
Paying off too much or too little can backfire, so make sure you are paying off debt at a pace that works to support your business and well-being.
4. Use financial tools to track your debt
There are more resources than ever to help you pay off your debt, manage your finances, and keep a budget.
A tool that I just started using to track my debt is the Personal Capital app. It’s a web and mobile app that puts all of your balances in one place, helps you find tax savings and includes tips so you can pay off debt fast.
In addition to debt tracking and management tools, it’s key to monitor your budget as well. You can use resources like Cinch Financial. Or do it low-tech with a plain old excel spreadsheet.
Whatever your method is, it’s important to see the numbers right in front of you. Sometimes looking at that number can be overwhelming and nauseating — it can be a hard truth to swallow.
But it’s a temporary reality that will shift, if you put in the effort now.
5. Go on a shopping ban
One of the most effective ways to pay off debt involves going on a short-term spending challenge.
There are lots of different spending challenges and shopping ban strategies you can use to reign in your spending. Here are some examples.
- 7-Day No Spending Challenge – Much like my 60-Day Cash Only challenge, this one forces you to buy the essentials, like food and utility bills, but nothing else. Once you do it for a week you can extend it for a longer period of time.
- A Spending Diet – With this challenge you give yourself a small spending allowance (that’s reasonable) and then don’t buy anything outside of your basic needs, for a specific period of time.
- Year-Long Shopping Ban – You’re not allowed to buy any new clothes, books, or even take-out coffee with a shopping ban. If it’s not something you need to survive, you’re not allowed to buy it.
Once you complete one of these challenges it will be much easier to create a new budget that you’ll actually stick to (much like doing a cleanse before changing your eating or working out habits).
Plus, any money you save during the spending challenges can be allocated towards additional debt payments!
6. Trim your monthly subscriptions
Have you look at your monthly subscriptions lately? It’s easy to sign up for things like Netflix or Dropbox, but are you actually using everything you’re paying for?
One way to help reduce your debts is to trim monthly subscriptions or recurring expenses you no longer need.
The simplest and least time consuming way to do this is by using Trim.
Trim is an app that works like a personal assistant to help save you money every month! Trim reviews and searches your bank transactions and then lists out all of the subscription-type services you’re paying for.
You can choose to keep them, or have Trim cancel them for you! And the best part is that Trim is free.
Click here to give the Trim app a try for free!
7. Learn to budget with irregular income
Don’t be naive about your finances. Being self-employed forces you to think of your money and budget differently than someone who receives a paycheck each week.
It’s no secret that working with clients and running your own business is volatile for your bank account, and financial goals. So it’s time to change up your budget to work more successfully with irregular income.
If being self-employed is what you want to do, then you have to learn to budget with irregular income successfully.
It will likely take 2-3 months for your income and expenses to level out and work within your new spending limits. Stick with it and know that at the end of this you will actually be able to spend within your means and have money left over in the bank.
8. Start a side hustle
Starting an online business on the side of my full-time job is the quickest way to start paying off debt. The more income you have coming in, the more money you have to throw at your debt.
There are lots of different side hustles you can do, like:
And this is just the beginning. After a few months, you’ll look up and realize that all the extra money you’ve earned has helped you make a huge amount of progress.
Learn more about how to earn money on the side and in your spare time.
9. Find a part-time job
If you’re a bit gun shy of starting your own freelance business or side hustle, another option is to apply for a regular part-time job.
It doesn’t need to be anything fancy, and if you’re lucky you might be able to work at some place that relates to a hobby you enjoy.
For instance, Starbucks could be great part-time job if you’re trying to cut back on the costs of a daily cup of coffee. Or a bookstore like Barnes and Nobles if you’re a book geek.
A great way to save 20% on your grocery bill every month is to work part-time at a store like Whole Foods. Employees get a 20% savings on everything purchased.
10. Create multiple income streams
If you don’t have the option to get a part-time job or start a side hustle, then do whatever you can to create multiple income streams.
Apply for freelance jobs on LinkedIn. Do odd jobs or small projects on the weekends. Start investing just $10 a month with Acorns.
Become a brand ambassador for big companies and get paid to try new foods and drink while on the job. Consider working as an affiliate partner and earning a commission of everything you sell.
Whatever it takes!
Remember, the more you work the faster you can pay down your debt. Find out more about how to create multiple streams of income in your spare time.
11. Stop adding to the debt mountain
This step is actually one of the most overlooked pieces of advice. Many experts jump to advice about learning to budget or earning more money, as the first steps to paying off debt, but this isn’t the case.
If you want to make any progress with your debt, you have to stop adding to the balances and take back control of your spending.
Cut up your credit cards (or hide them in a hard to reach place) and vow to stop using loans and credit cards as extensions of your paycheck.
Do whatever you have to stop adding on more debt.
- Do you need to downsize?
- Sell stuff?
- Move to a new city to lower your overhead?
- Work more hours, or additional jobs?
Get into the mindset of doing what it takes to stop the debt momentum and reverse the process so you can start paying down those balances.
It will take awhile to get into the habit of not using credit cards and loans, but be patient and don’t give up.
12. Sell anything and everything
If you want to jump-start your journey towards debt freedom, one of the best things you can do is start selling stuff you already own.
Whether it’s furniture, clothes, kitchen items or even your TV (trust me you won’t have much time to watch it anyway) there’s a lot of money to be made from stuff in your own home.
You might be thinking that you don’t know how to sell anything, and I used this excuse too. But thankfully, Craigslist makes it extremely easy to sell.
All you have to do is snap a photo, write a short description and respond to any offers. There’s no need to sign up or create an account.
Plus, there’s no fee to sell and the buyers pay with cash (unless they try to write a check).
13. Use bonuses and refunds
It’s hard to perfectly calculate how much you’ll end up receiving or owing from the IRS each year, so if you get some money back use that extra bonus towards debt.
Anytime you receive an unexpected bonus or refund, like from cash back rewards, rebates or over-payments on premiums, use it to pay off your debts.
This is also a smart strategy to use when getting a raise at work or a small windfall from a family member. It’s money you weren’t expecting so you’ll never miss it.
14. Turn your knowledge or skills into cash
A lot of people don’t think they have the skills, knowledge or time to make extra money. But you’re wrong!
Every day things like going grocery shopping, cleaning the house, and paying the bills are skills that can be used to make money.
- Do you enjoy writing and editing? Make money on the side as a copywriter or editor
- Are you an organized person? Make money scheduling meetings, events and travel plans as an assistant
- Are you creative and enjoy doing crafts and DIY projects? Make money hosting a scrapbooking class or jewelry party
- Do you enjoy fashion and clothes? Make money as a fashion consultant by selling designer jeans
Another great example is the travel hacking course from Chris Guillebeau. Before he started making money from his travel skills, he was just a regular person that traveled a lot.
Basically, if you have skills that other business owners need, you can make good money doing it!
15. Set up a rainy day fund
As a freelancer in debt, you’re trying to get out of debt, not stay in debt or acquire more, right?
In order to do this, focus on building your emergency fund first. I have made a conscious decision to lower some of my student loan payments, while I build up my emergency fund to a stronger level.
Ideally, having three to six months of expenses should be sufficient, but I know that a year’s worth of expenses when self-employed is much better.
A year of expenses is quite a lot of money — so don’t get overwhelmed with building it up, just take baby steps.
Start with even $10 a week!
16. Open targeted savings accounts
In addition to your emergency fund, set up targeted savings accounts so you are actively saving for business expenses and other priorities.
I have savings accounts for our emergency funds, taxes and travel. And I put a small amount into it every month.
By creating and naming your targeted savings account, you are subtly stating your money goals and letting each dollar work for your priorities.
You can plan ahead and create a targeted, separate savings account now to get started on your goals, big or small. Start a laptop fund, a moving fund, website redesign fund, etc.
The key is to make this money separate from a standard savings account.
When all your money is lumped together, it’s too easy to spend it — with a separate account, with its own special name, there will be no doubt what purpose that money serves.
17. Laser-focus your financial goals
Once you learn to stick to a budget successfully, and get into the mode of having money left over each month, now’s the time to aggressively pay off your debt.
Put any and all extra money towards your smallest debt balance, then continue until all your accounts are paid off.
Finding extra money shouldn’t be difficult now that you’ve stopped adding to your debt mountain, have “cleansed” your budget with a spending challenge, and have increased your income through any means possible.
Pause any other financial goals, retirement savings, and travel plans until you either pay off all your debt, or reach a significant milestone (like paying down $10,000).
If you want to make real progress, you have to be laser-focused with your debt payoff efforts.
18. Pay less interest and fees
The hardest part about paying down business debt is having to pay high interest rates and fees on your balances.
The good news though is that if you have a good credit score, you can consolidate your debts into a better loan.
One way to do this is by consolidating all of your outstanding credit cards to this one loan. This will help reduce your high credit card interest rates and streamline your monthly payments.
You’ll have less headache trying to pay multiple debts and save money on interest rates and fees every month.
Now YOU can pay off debt fast!
Paying off debt when self-employed
As I mentioned, paying off debt as a self-employed freelancer isn’t ideal, but there are ways to make it easier.
As a small business owner, you are likely hard working, creative and a go-getter — all qualities that will help you passionately fight off debt and run an awesome business.
Just think, by paying off debt, you are actively investing in your own future as well as the future of your business.
Like with any other goal, whether it’s financial or health related, it takes patience, dedication, and discipline to stay on track.
Think of this as a long-term change not a short-term solution!
Doing so will allow you to aggressively pay off your debt and find the financial freedom you’re looking for.
I’m partnering with H&R Block to help readers turn over a new financial leaf. To learn more about improving your financial situation and understanding tax tips, check out the Block Talk blog.
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