Irregular Income and Debt: What Do You Do?

If you have an irregular income, you definitely aren't alone. Research from Gig Economy Data shows that around 43% of the workforce has done non-standard work—and that non-standard work often comes with big income variations.

When your paycheck isn't steady, budgeting is more challenging. This can sometimes make it easier to fall into debt and find yourself in need of debt relief. It can also make it harder to pay off debt you already have.

The good news, though, is that you can make progress on debt payoff even when your paychecks vary. Here’s how to manage your debt, even when your income isn't steady. 

Create a Bare-Bones Budget

When you have an irregular income, first create a budget that covers just the essentials. These are things you have to pay, like rent or mortgage, utilities, and food. Include at least your minimum debt payment(s) as an essential. 

Creating your bare-bones budget shows you the minimum amount you need each month. Compare this basic budget to the minimum income that you think you'll actually make regularly.  If your budget is much higher than your anticipated minimum regular income, you may need to make some cuts or save up during higher-income months.

You can look back over your earnings from the past year to find out the smallest amount of money you made in a single month. If you keep your budget below that amount, then even if you have a bad month, you can likely still cover the bills. And in a good month, you'll have extra for debt or to prepare for the future.

Keep a Cash Buffer to Cover Lean Months

Next, set up a cash buffer so that in the lean months, you have extra money to cover your bills—and to make bigger debt payments. This is particularly important if you have seasonal income that has to stretch across multiple slower months at a time.

You can treat this cash buffer differently from your emergency fund, which is there to cover unexpected expenses like your car breaking down. Instead, a buffer fund helps you pay for your debt and other key bills during periods of low earnings.

Keep your cash buffer in a high-yield savings or money market account. You want it available for when you need it, but ideally earning at least enough interest to offset inflation.

Commit to Paying the Minimum and Pay Extra When You Can

Your barebones budget should allocate money to make at least the minimum payments to your creditors every month. You don't want to miss a payment on a low-earning month, even if you have to pull money out of your buffer account. 

If your barebones budget has any wiggle room, plan for a monthly debt payment above the minimum due. Or if that's not feasible, extra debt payments should be a top priority once you have a cash cushion and know you can make the bills.

Once you have put aside money in a cash buffer and have paid for the essentials, most or all of the extra money you earn should generally go to debt payoff. If you work a lot of extra hours, get a bonus, or experience some other windfall, put the money toward your highest-interest debt.

You can automate your payments to make sure you pay the minimum each month to your creditors. Or you can pay the bill manually, so you can be strategic in timing the payment based on when you get paid. Since, ideally, you're paying extra each month, paying manually can make more sense than setting up autopay. If you like the certainty of autopay, you can also make a manual payment in addition to autopay, adjusting the amount based on how much extra cash you have available.

The more extra payments you make, the faster you could become debt-free. This is especially true when extra payments go toward your principal balance, since your regular payment should have already covered interest. 

Look for More Consistent Income

Finally, if you work part-time or if your job doesn't pay a lot, consider how you might make your income more stable. If you can find a job that offers a higher salary or a consistent paycheck, you could put more money toward your debt.

There are many ways to try to increase earnings, including:

• Networking with friends, family, and coworkers to let them know you're looking for work opportunities

• Looking for ways to translate your skills into earning income. For example, if you are a good cook, you could start a business to prep dinner for others who don't have the time

• Asking at work about promotion opportunities or training programs.

A steady income could make debt payoff faster and easier. So, while there are plenty of steps you can take to make progress without that, there's nothing wrong with also looking for a more-stable paycheck.

Of course, even without added income, if you live on a basic budget, prioritize making at least minimum payments, and put windfalls or extra cash toward debt, you can make real progress toward being debt-free.