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If Your Pay Fluctuates, a Credit Card Debt Plan Can, Too

Nov. 1, 2018
Credit Cards, Low Interest and No Fee Credit Cards, Paying Off Debt, Personal Finance
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When your income comes in fits and starts — say, because you’re self-employed, or work for an hourly wage — some of the usual advice for paying off credit card debt can seem straight-up ridiculous.

“Figure out how much you can afford to put toward debt each month?” Well, it changes all the time. “Set a debt-free date?” You don’t have a crystal ball. “Create a budget?” Ha!

Compared with your salaried friends, your road to a debt-free life might be particularly long and winding — but it’s still a journey worth making. These strategies can smooth your way.

Knock out minimum payments early

With credit card debt, making at least the minimum payments on time each month is a must. But you don’t have to wait until it’s due to pay.

Paul Golden, spokesman for the National Endowment for Financial Education, recommends that folks with irregular income take a more proactive approach. For those with an unpredictable income, “I would schedule myself to make my monthly minimum payments by the first of the month,” Golden says. “That way I know at the very least our minimum obligations are met and we’re safe.”

But don’t stop there. Making additional payments throughout the month as your income comes in will bring down those balances faster. And if you have good or excellent credit, look at moving your debt to a card with an introductory 0% balance transfer APR period to save on interest charges.

Make a plan based on your worst month

While Lydia Senn was paying off $13,000 of credit card debt on an irregular income in 2011 and 2012, her approach to budgeting was simple: Make a plan based on the smallest paychecks.

“We estimated, kind of going off the idea, ‘Well, what if I don’t have any freelance work this month? And what if there’s no overtime?'” says Senn, founder of the personal finance blog Frugal, Debt Free Life. She lives in Mobile, Alabama, with her husband and kids.

While paying off credit card debt, she was working as a freelancer and pregnant with her first child; her husband was working on an hourly wage as a civil land surveyor. This essentials-only budget helped them pay down their total consumer debt of $36,000 (including $13,000 of credit card debt) in about two years.

Put windfalls to work

While tackling her household’s credit card debt, Senn always paid at least $200 more than the credit card minimums. But some months, she was able to pay more.

“Whenever I got more freelance income, whenever there was a bonus or overtime or anything like that, all of the extra would go in [toward paying off credit card debt],” she says.

You can use extra funds to pay down your debt faster, too. It doesn’t require winning the lottery or inheriting a fortune. If you earn more than expected in a given month — perhaps because of a big tax refund, a birthday check from a family member or hours of overtime — that cash can help you get rid of that credit card debt faster.

Plan ahead as much as possible

For Rachel Carlson, of Seattle, planning as far ahead as possible makes it significantly easier to pay down debt on an unpredictable income.

“My biggest tool is my calendar,” says Carlson, who works as a theater teaching artist who leads programs and directs plays at multiple schools and theaters. She’s currently paying down $3,000 of credit card debt. Armed with a planner, “I can map income and expenses at least a month ahead.”

By noting when bills are due and when paychecks from her jobs are expected to come in, she can more easily estimate how much she can afford to put toward her debt each month. Recently, for example, she got a stipend of $800 for a play she directed, and because she knew her income from other projects would cover her basic expenses, she put the full amount toward her credit card debt.

Make sure you’re not under-charging clients

For self-employed workers, like Carlson, an irregular income comes with the territory. But often, there’s also another challenge: knowing what to charge clients.

“For the first year, year-and-a-half of my teaching artist career, I really low-balled myself and didn’t put a monetary value on the skills that I had and the skills that I brought into the classroom,” Carlson says. But now, with more experience under her belt, she’s more confident about asking for higher rates that reflect the work she’s doing.

If you’re struggling with debt and are self-employed, follow her lead. Research what other people in your field are charging for the same work, and if it makes sense, raise your rates. That extra income could help you tackle your debt faster.

This article was written by NerdWallet and was originally published by Forbes.

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