We talk a lot about side hustles, online jobs, and extra income ideas on Single Moms Income. One of the main reasons people try to earn extra money is to improve their finances. Like most people, I started trying to increase my income last year so I could pay off my debt.
The money I was making at my full-time job was okay, but I knew it wouldn’t help me pay off my debt aggressively even with a raise so I sought out to earn more money by freelance writing.
Growing my side business helped me pay off my car loan last year along with a nice chunk of my student loans – something that wouldn’t have been possible if I didn’t increase and diversify my income.
If you have debt and you found a side hustle or a way to boost your income that you like, you may be wondering exactly how you can use the extra money you’re earning to make progress on your debt repayment.
Here are a few key ways to use your side hustle to get out of debt.
Lower Your Expenses
Once you start earning more, it’s important to lower your expenses first. I know what you might be thinking. Since you’re making more money, it should be okay to spend a little more or loosen up the budget, right? Wrong. If you spend more money just because you’re making more money, you will defeat the purpose of earning more money in the first place since you won’t have anything to show for it.
Make sure you run through your entire budget to make sure you aren’t overspending on anything and consider how you can cut any of your variable or fixed expenses. When extra money starts flowing in, you want to be able to apply it to your debt immediately and not get sidetracked by any other expenses or temptations.
Set Up Automatic Withdrawals
Speaking of making timely debt payments with your extra income, if you don’t want to miss any of your debt payments or accidentally spend the money on something else, you can always set up automatic transfers and withdrawals from your checking account.
This simplifies the debt repayment process and helps make sure your payments are sent on time so you don’t have to deal with any unnecessary late fees. The best thing to do is set up an automatic payment to occur right after you get paid from your job and receive income from your side hustle.
That way it’s out of sight, out of mind.
Choose a Debt Payoff Strategy
Regular or even extra debt payments aren’t as helpful if you don’t define and execute a clear debt payoff strategy.
Start by choosing which debt you will focus on first and how soon you’d like to become debt free. It’s okay if your goals change over time because the point is just to identify your strategy and set a goal to shoot for. Originally I wanted to have all my student loans paid off by the end of this year. When I realized that was unrealistic and I didn’t want to work myself to debt, I changed the deadline to the end of next year.
In terms of your strategy, you can choose between the debt snowball method (which focused on paying off the lowest balance first), or the avalanche method (which focused on paying off the debt with the highest interest rate first). You may also want to refinance or consolidate your debt to improve your strategy.
While the avalanche method will save you more money in interest over time, the snowball method will provide you with more motivation to keep going on the days when you want to give up and spend the extra money on something else.
Once you choose your strategy, make sure the extra debt payments you make are being applied properly especially if you have student loans. Additional debt payments are applied in various different ways but most of them pay off whatever interest is accruing first before going toward the actual balance.
In order to pay off your debt with help from side hustle income, you must choose a side hustle that consistently provides you with an income each month. I know side hustling and freelancing especially can be hot and cold. The income often fluctuates month-to-month.
I’ve been freelance writing on the side over the past year and once I started earning money from it, I can happily say that I’ve never had a month where I didn’t earn anything. Sure, I’ve had low earning months where I had to put less money toward my debt but I never earned absolutely nothing. That’s because I secured consistent gigs and sent out pitches occasionally to gain more clients and maintain my cash flow.
Not every side hustle will allow you to maintain a somewhat consistent cash flow and this is important to realize. If I were selling items I found at the thrift store instead, I could still make a decent amount of money from this but it would depend on what types of items I found each month and who purchased them because I wouldn’t have control over those two factors if I ended up earning $0 in sales one month.
Rinse and Repeat
Paying off debt with side hustle income is something a lot of people are doing these days to become debt free once and for all so you can definitely hop on board. But remember, earning extra money is only part of the equation and doesn’t guarantee that you will be able to pay off your debt. You’ll need to put in the extra effort by not only choosing a profitable side hustle that can help you generate income each month but by following all the steps mentioned above then repeating them.
Continue to review your budget and list of expenses at least every 6 months or if your lifestyle changes. Make sure you have a clear debt payoff strategy in place and you’ll be well on your way to reaching debt freedom.
Do you have debt or a side hustle? How do you allocate any extra income you earn?