8 Simple Ways to Pay Off Debt While Self-Employed

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There are a lot of perks to being self-employed. Being your own boss means you have the freedom to work the hours you want, doing what you want, when you want. No more demanding supervisors dictating your every move or watching over you like a vulture waiting to pounce.

But there are downsides to self-employment as well. One of the biggest ones is the roller-coaster cash flow that can come with an irregular income.

But, just because your income is irregular doesn’t mean you can just pay your bills whenever you want. (Or whenever you get paid.) Those come just as regular as a ticking clock and must be paid no matter when, or how much you earn.

This can make it difficult to create and stick to a budget, as well as pay off debt while self-employed.

After I became self-employed, I was able to increase my monthly income by six times what I used to earn at my day job. This unlimited income potential helped me pay off debt and save more money. But, I can’t deny that things were tight when I first became self-employed and I still had high-interest credit card debt to deal with.

Fortunately, with a little strategizing, it is possible to pay off debt while self-employed. Here’s how.

1. Stop Adding to Your Debt

The first thing that will help you pay off debt while self-employed is to stop adding to your debt.

Before you do anything else, like creating a budget, tracking your spending, etc. you first need to cut yourself off from the things that add to your debt.

That may mean cutting up your credit cards, freezing them in a block of ice, or locking them up in a safe or cash box and stashing the key elsewhere.

Taking away that temptation will help you stop adding to your debt.

For self-employed people, debt is extra dangerous because of having irregular income. You’re more likely to have unplanned expenses because you not only have unknown personal expenses to worry about, but you may also encounter unexpected business expenses too.

Having less debt will free up more cash flow that you can use for those expenses, plus for other things you want to accomplish financially, too.

2. Learn to Budget with Irregular Income

Having irregular income doesn’t mean you can’t budget! It just means you have to put a little more thought into it because you don’t have a set payment amount that you know you’ll be receiving every two weeks.

In fact, I’ve found that having a couple of different budgets helps keep me on track with my spending better depending on if my business income is up or down from month to month.

First, Create a Bare Bones Budget

Gather together all of your monthly bills and the debt you owe. Then, make two piles: essentials and non-essentials.

Essentials will be things like your rent or mortgage, utilities, an estimate for groceries, etc. This does not include your cable bill or money for entertainment.

The essentials pile is what you’ll add up to find out your bare bones budget. This is the amount of income you absolutely MUST earn each month in order to survive. It’s a good baseline that everyone how is self-employed should know in the back of their mind.

If you’re on an intense get out of debt mission, anything you earn above this amount should be put toward debt.

Then, Figure Out Your Average Budget

After you’ve figured up how much your essential expenses are, add in your non-essentials too. This will help you figure out how much you’re actually spending on a regular month when you earn more than the bare bones amount.

Compare this to your average income for the past three months to make sure that your spending is less than your average income.

If so, put any extra income you earn into savings until you have a buffer that makes you feel comfortable. The number won’t be the same for everyone who’s self-employed.

This buffer is what you’ll pull from when you have a month with less income so you can still pay your bills without turning toward your credit cards.

Once you’ve built your buffer, you can put any extra income you earn above the average toward debt to help get it paid off faster.

4. Pay on Debt Multiple Times Per Month

Another safety feature you can use to help you pay off debt when you have irregular income is to make multiple debt payments per month.

For example, pay only the minimum payment on each of your debts at the beginning of the month.

Then, as the rest of the month progresses, you’ll hopefully have a better idea of how much you’ll earn that month.

If you fall short of your average monthly income, you can rest easy knowing that at least your minimum payment obligations have been met without you having to borrow from self-employment buffer, or your emergency fund to cover your bills.

Hopefully this won’t ever happen, but the uncertainty of freelancing suggests that it could.

On months when you meet or exceed your income goals, you can always apply another payment toward debt later in the month.

5. Apply “Found” Money to Debt

Now and then, everybody gets “found” money. This is money that is not in your regular income stream. It could be a rebate on a product you bought. Or, perhaps you got a year-end bonus from a client.

No matter where the extra money comes from, don’t spend it. Use your found money to pay off debt instead.

6. Raise Your Rates

When was the last time you gave yourself a raise? If you aren’t raising your freelance rates at least annually, you are not keeping up with inflation.

Furthermore, most clients expect that prices will eventually go up, especially as your skills and knowledge increase. Use the extra income from raising your rates to pay off debt.

7. Treat Yourself Like an Employee

Since you’ve already created your bare bones and average budget, you have a pretty good idea how much income you need to live off of each month.

Instead of paying yourself more or less each month and only turning to your savings buffer if you get into a tight spot, treat yourself like an employee by paying yourself a set amount every two weeks.

This will help you feel like you have a more stable income again.

It’s also similar to the idea of living off last month’s income, which is a great strategy for people who are self-employed.

Then, whenever you’ve built up a large surplus of income, you can either pay off debt, give yourself a bonus, or give yourself a raise.

8. Consolidate High Interest Debt

If you have high interest credit card debt, consider transferring the balances to a single card with a 0% APR.

Or, you could take out a personal loan with a lower interest rate to pay off any credit card balances you have.

Consolidating and refinancing your high interest debt can help you save a ton of money on interest. Plus, you can pay off your debt faster. Having only one monthly payment to make on your loan vs having several payments to make toward credit cards can make it more convenient to manage your finances, leaving more time for you to grow your business.

If you are self-employed, how do you handle debt payments? How do you plan to pay off debt while self-employed?


  • That sounds like a good plan. You’ve got your minimum payments covered and anything else you can pay during the month will help pay off your debt faster.

  • That seems like a good plan for while you’re still getting established and used to your new cash-flow. Good luck!!

    • Thanks Amy! I hope it won’t be a long-term thing, but for now I want to be a little extra cautious.

  • That sounds like a great plan. Paying your minimum payments up front and then adding more at the end of the month is a really smart way to take care of your bills and pay down debt faster.

  • Kayla, I am so happy for you! Debt is stifling but that doesn’t mean that people should fear entrepreneurship. Way to take a calculated “risk” and go in with a plan.

    • Thanks Rachel! Entrepreneurship can be scary, especially if you are in debt, but I think it can also be rewarding.

  • I love seeing how others handle their debt and budgets and the more open you are the more it helps all the rest of us, thanks for sharing your plans and dreams. Stopping by from the Financially Savvy Saturday link party 🙂

    • You’re welcome Jessica! I agree that being open helps everyone as we can all learn from each other that way.

  • This does sound like a good plan. I wasn’t completely self employed, but when we were paying off the husband’s mini debt, we paid all our bills first for the month including minimums and then anything over got thrown at the debt. My income from employment is variable. It’s challenging when you don’t know exactly how much you’ll be bringing in… Or when people will actually pay you!

    • That’s exactly right Femme, you never know exactly how much you’ll get or when it’ll be deposited.

  • You have to get ahead (or have an emergency fund to start) but one thing I’ve read that freelancers should do is spend last months money this month. In other words, you don’t know how much you are going to make this month, but you do know what you made last month and if you have it in the bank, spend that much this month,and put this month’s money in the bank. Next month, base your budget on what you made this month.

    • Yes, I would like to do that but at this point I don’t have enough of a “buffer” built up to be able to live on last month’s income.

  • Kayla, that’s really a good plan because you are aware of the pros and cons and you have a game plan, which doable. Personally, I handle my debt with use of snowball method, which really works. I just hope I can be debt free according to my plan. Good luck Kayla.

    • I use the snowball as well Jayson, but now that I’m self employed and have a little more uncertainty about time of payments coming in I am going to kind of play it by ear, but I still hope to pay my snowball payment each month.

  • Paying two payments a month seems like a great approach! Way to find a responsible balance and here’s to hoping your self-employment is so successful, you manage to pay off your debts even sooner than you anticipated!

  • Your plan sounds sensible Kayla! Being self employed does mean a variable income, however that means it can increase as well as decrease. For what it’s worth, I managed to overpay my debts much more once I was self employed working from home as I was saving money in other areas, like not having to commute to work or buy work clothes!

    • That’s a great point Hayley! I drive a lot less now that I pretty much never leave home. I probably go out to do errands about once/week, so I am definitely saving gas (aside from a couple of trips I already had planned and budgeted for separately from my regular gas budget).

  • So glad to hear its working out for you 🙂 Smart idea making only minimum payments until you know the extra funds will be there!

  • Thanks Kayla. I think it’s a brilliant plan that ensures that all debts are paid in full. Not changing your budget plan shows how hopeful and audacious you are in freelancing work. With respect to the second minimum payment plan, it is the bravest thing I have read lately. The plan will definitely help you achieve your financial goals.

  • I’m lucky to have my fiance for support, including financially speaking. Worst case, he can cover all the minimum payments with his paychecks, but that’s obviously not how we want to live. I don’t want him to pay for my student loan debt, and he shouldn’t have to. And I like to eat more than just ramen noodles.
    I’m a big fan of paying in advanced for things, so I really like your plan!

    • Thanks Amanda! I’m glad you guys have a back-up plan for in case you don’t earn enough money some months in the future. That’s great!


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