As a freelancer, you face a lot of challenges that other workers might not face. It’s important to think about the ways you manage debt, especially student loans, while also maintaining a budget that helps you track your progress towards your financial goals. But, why the emphasis on student loan debt?
Student loan debt is extremely difficult to wipe away, even in bankruptcy. While many say it’s impossible to wipe it away, the truth is that it depends on the judge you end up with during your legal battle and what the bankruptcy rules are in the district. The law includes unclear language that says a student must prove “undue hardship” will occur if they submit payments to their student loan issuer. Congress does not have a specific definition of what this actually means, so in a case, it’s left to the courts and judge to interpret.
It’s safe to say that most people with student loans, especially freelance workers, will not be willing or able to file for bankruptcy, so it’s especially important to put measures in place that help deal with an inconsistent monthly income. Here are 4 factors to consider when managing student loans as a freelancer.
Improve your time management skills
Time management is a critical skill for freelancers. Nobody’s there to tell you what to do– you’re the boss. When organizing your time, be sure to devote some to understanding the complex language of your student loans. Just 20 minutes of reading per day can help you break down complex terms such as deferment and forbearance. Not understanding your responsibility with student loans can cost you points on your credit score and harm you in other ways in the long run. So, making time now to really grasp your situation and what your options are can go a long way!
Make the minimum payment
Many financial experts and gurus tend to preach that making the minimum payment on your debt is a bad idea. This is primarily because it extends the term of your loan, meaning how long it takes for you to pay it off. The reality is, it’s okay to use this as a temporary relief tool. Once you’re able to contribute more money each month, you absolutely should. This will save you time and money from making interest payments. Making the minimum payment keeps your credit in good standing because you’re not missing any monthly payments. As long as you commit to increase your monthly contributions, then this is a perfectly viable crutch to lean on when you’re low of gigs or looking for new clientele.
Consider your repayment plan options
As a freelancer, it’s tough to know when you’ll have more money coming in from higher-paying projects. However, you can calculate your average income based on your income in the past 3-6 months to see if it qualifies you for a lower student loan payment. This is available to those who have federal student loans through the United States government.
To do this, log on to your student loan portal online to see if the “income-based” repayment option could be right for you. As your income increases over time, so will your monthly payments. If you have trouble gathering documents that show a trend of low-income, then you may want to check out the extended graduated repayment plan. This will lower your monthly payment as it splits your payments evenly throughout a little more than two decades. The key here is to make sure that you are not automatically enrolled in the 10-year standard repayment plan. This plan is aggressive and comes with a higher student loan payment each month. Make sure that you are in control of the repayment plan you’re following.
Charge a fair rate for your work
Many freelancers get stuck when it comes to setting fair prices for their services or products. It’s very important that you conduct some market research to ensure your rates are similar the standard going rate win the market. The worst thing you can do is under-charge for your services. It devalues your work and will bring in a different set of challenges when you eventually try to increase your rate. By bringing in more income, you can begin to set some of that money aside monthly to pay off your debt!
Create a bare-bones budget
This is a budget that lists your minimum monthly spending required to survive and fulfill your most important financial obligations. That includes things like housing, gas, utilities, required minimum payments on debt, essential food, basic insurance, essential family expenses and basic personal care. It does not include anything fancy or discretionary. This means minimal spending on entertainment, shopping, eating out, travel or any hobbies. While this may sound harsh, the point of a bare-bones budget is to get you through the toughest months.
This is just a shortlist of things to consider, but it serves as a great starting place for freelancers who may be struggling with student loan debt and not given this much thought yet.
Trying to tackle all of these steps at once is simply a recipe for disaster. As with any project, start by taking one step at a time! Tackling student loan debt can seem impossible to do when you don’t have a steady paycheck, but with the right tools and mindset, you can definitely put yourself on the right track to pay them off following a timeline that works for you!