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How to deal with debt as a self-employed?

No one wants to take up debt uselessly. Aspects like limited cash flexibility, low income, and seasonal pay affect payments. Sometimes, even managing usual expenses gets challenging. Non-repayment on debts affects growth prospects. It restricts one from qualifying for affordable credit cards and loan offers.

For example, you may struggle to purchase a car for business purposes. This is because a collection of debts affects your credit score significantly. Eventually, getting a loan with a low credit score is challenging for the self-employed.  

You must understand your debts and plan repayments. Contact the creditors and negotiate payment dates and amounts. Some direct lenders may agree to reduce if you are credible. The blog discusses other aspects of dealing with debt as a self-employed:

6 Ways to Eliminate Debt with seasonal self-employed income

Getting out of debt does not have to be clumsy. Millions of self-employed have tried and got debt-free earlier. So why not you? it requires understanding your liabilities, debt repayment goals and budget well. Here are some ways to clear debts as a self-employed:

1)      Identify high-interest or costly debt

It is the first thing to consider while paying the debts. Identify the debts consuming around 40% of your income. It could be secured debts, credit card debts or car repair debts. List out these and calculate the total amount to pay on debts.

Do not forget to include missed, late payment fees or high-interest costs. These terms decide the total amount you must pay. Begin with those impacting the credit score the most. It could be best to pay off the credit card debt first.

2)      Budget for costly debts first

Now when you know the total amount to pay, budget accordingly. Save more as the penalties may continue to rise until you pay the debt. For example, if the total cost of the high-interest debts is- £40000, save around £46000. It will help you pay the extras even if you encounter it suddenly. Alternatively, if budgeting for high debts seems overwhelming, consolidate. 

You may get loans for self employed and bad credit score. You may have one as you share multiple debts in the credit report. Merge these debts into a single repayment structure. By repaying the last payment, you get free from the debt. Moreover, paying costly debts optimises and improves credit scores.

3)      Stay below the means

While budgeting for debt payments, reduce overspending. Analyse your monthly expenses and the aspects you spend the most on. Your monthly liabilities may look like- utility bills, groceries, rent payments, child school fees, etc.

These are critical for leading a comfortable life. However, skip or reduce other expenses like- dining out, ordering food often, buying baseball match tickets every Friday, etc.  Reducing such expenses will help you save more for the debt payments. Moreover, you can use the amount to meet any emergency also.

4)      Try to bag more clients

Paying debts consistently and according to plan requires strong finances. Thus, plan the best way to attract more clients in the off-season. Yes, it might be challenging for you, but it helps. It takes you closer to the goal of getting financially free.  You can get more clients or projects by:

Strengthening your networking skills

Contacting previous clients for requirements

Request additional clients to refer you to their known ones

Launching an ad campaign

Increasing the price of existing services

Some of these skills may help you bag more clients. Try to negotiate the costs by providing benefits of choosing you for the task.

5)      Pay at least a minimum balance on the debt

Calculate the total amount to pay on debt after paying the costly debts. It may reveal you a reduced amount. Budgeting and paying the other dues may seem challenging.  However, if you are to receive a good lump sum as advance payment, do it. If not whole, pay part payments on each due debt.

However, life is unpredictable. What if your backsplash cracks and water leaks?  It requires an immediate solution. Do not hinder the debt payments because of this.

Instead, get pound loans for 5000 for bad credit score. It will help you cover the material required and leakage costs. It is a short-term cash facility for emergencies. You can pay the dues later in easy instalments. It does not impact your debt payment goals much.

6)      Check the debt respite scheme

Yes, the government provide relief to self-employed individuals with respite schemes. It could be a game changer for individuals battling with debt payments. The program introduced for England and Wales citizens, offers a 60-day grace period on interest and late loan payment fees.

It grants protection to customers from their creditors. Precisely, it grants the opportunity to self-employed individuals to access their options.  You can define the payment plan and budget payments to clear debt quickly.

Bottom line

If you want to deal with the debt as self-employed, the above tips may help. It eases up the debt payments despite inconsistent income. You need to know your debts, plan payments and budget. It is not necessary to pay the whole amount. If you can only make part payments, do that.  Eventually, every effort towards debt payments counts. It reduces liability, makes you eligible for cheap quotes and boosts credit. So, which of these methods would you try first? Comment.