The Gig Workers’ Guide to Getting Out of Debt Fast

We’ve got solutions for tackling credit cards, car payments, student loans, and more—all geared to the indie contractor

If you’ve got debt, you’re not alone. Americans typically carry $30,000 to $133,000 in household debt, according to Money’s analysis of the Federal Reserve’s Survey of Consumer Finances. Household debt includes those pesky student loans, vehicle loans, mortgages, and credit cards.

We’re often taught to think of debt as an evil force. But debt can also be a tool to help you out at times—like to get an education, buy a home, or secure transportation for a job. Debt can become a problem when it encroaches too much on your earnings, however. For independent contractors, reducing reliance on debt can be tough. As a freelancer or gig worker, you likely face income that fluctuates from month to month and uncertainty about when you’ll receive pay. Plus, you often have to put money back into our business, like for car repairs and gas if you’re a rideshare driver, for example.

That’s why we put this guide together to help you take a look at your debt and see what can be done to tackle it where possible.

1. Tally your debt.

Adding up your debt can feel like being forced to enter a room full of snakes. But it’s really more like ripping off a bandage. Yep, it might sting to see the total number, but once you do it, you’ll feel better. Without doing it, you might live in denial by telling yourself, My card’s balance really isn’t that high. Is it?

2. Categorize your debt.

You’ll find plenty of articles out there that categorize debt as “good” or “bad.” Often a mortgage falls in the good category, whereas a credit card falls under the bad one, for example. The good/bad concept only encourages you to feel shame. And when we add shame to the idea of debt, it just makes us want to shut the door to the room and pretend the snakes aren’t there.

Plus, the good/bad idea doesn’t make sense for the independent contractor. Instead, think of your debt in terms of “this is a tool” or “this is excess or frivolous.” Likely, a mortgage will fall under “tools.” But you might also have a business loan, a business credit card, and the like that fall under that same category. Your car loan might be a tool, as well, but think about it. Is it a frivolous car with an outrageous loan?

The point of categorizing is to help you see the big picture. Instead of a giant number of poisonous snakes in the room, you can recognize that some types of debt have been helpful.

3. Prioritize your debt.

Once you’ve categorized, it’s time to prioritize in terms of paying off your debt. Prioritizing is all about figuring out which debt is causing you the most trouble and how you can eliminate it fast.

To prioritize, first list the interest rate next to each debt total and the minimum payment. Anything with a high interest rate should be a priority to pay off first. Anything that’s in the frivolous category and with high interest can officially be labeled a poisonous snake. It’s time to get rid of it.

4. Strategize your debt.

The reason you want to tackle your frivolous debt first is that much of the interest incurred on your “tools” debt can be deducted on your taxes if you’re an independent contractor. Talk to your tax professional, of course. But in many cases, you can deduct a portion of your mortgage interest, certain types of business interest like that from a credit card or loan, and even student loan interest.

These deductions can help offset how much income tax you’re required to pay. That doesn’t mean you should go around carrying business debt willy-nilly, but for the independent contractor, the non-tools debt is the more immediate concern.

To strategize paying off any debt, look for ways to maximize your credit use and interest rates. Here are a few options. You might use one choice or a combination of several.

Balance transfers: Check all your cards for balance transfer offers. Many cards offer 0 percent interest for 12 to 18 months or a lower interest rate for a set period before the rate returns to normal. If you can roll most of your debt into these offers, you can have nearly interest-free debt for a time period and use the money you’d normally put toward interest to paying off that debt. If you can’t pay it off during that time, look for additional balance transfer offers when you need to.

Consolidation: Consolidation combines debt, usually for one easy payment. For example, if you have too many cards, see if you can transfer the balances all onto one card that has a high line of credit and a relatively low interest rate.

A low interest personal loan: You may also seek out a personal loan from a bank that pays off your cards or other high-interest debt so that you can make one payment at a lower interest rate.

Refinancing: If you initially financed your home at a high interest rate and perhaps have to pay private mortgage insurance (PMI) because of putting less than 20% down, talk to a lender to see if refinancing makes sense. After a few years and a substantial gain in equity, you may be able to eliminate the PMI and refinance to a better interest rate. Many lenders will also help you take stock of your financial situation. If it makes sense, you may be able to borrow against the equity in your home to pay off higher-interest debt.

5. Use the debt avalanche method.

Once you’ve done all you can to take advantage of lower interest rates, you’ll have set yourself up to tackle your debt with the debt avalanche method. This method encourages you to pay minimum payments on all your debts except for the one with the highest interest. That’s the one where you’ll focus any extra cash for a higher-than-minimum payment. Once it’s paid off, move on to the next high-interest debt in line.

6. Repeat the process.

While you’ve got that avalanche going for paying off your frivolous debts, figure out your strategies for your tools debts. They’ll be ready for you to tackle after you’ve slain the ones that are causing you the most financial strife. Every six months repeat steps one through four to revisit your debts and interest rates and to rework any strategies. This helps you maintain the big picture and gain a visual on your progress!