How do you deal with debt?

I’m not sure how to manage our current situation and I’m looking for advice.

Myself and my husband are both freelance workers. Therefore our income varies month to month (this is a relatively new lifestyle for us). So I never know quite what will come in each month.

We had started an emergency fund but have used quite a bit from that now. We also have a considerable amount of debt (pushing $38,000) which seems to keep creeping up.

We are not big spenders. We sale shop, hardly spend any money on ourselves. We are fairly frugal but obviously something has to change if we want to get on track.

How does one manage a budget when you don’t know your monthly income?

Also where do we start? Do we put any extra money into an emergency fund? Or towards debt? We also need to co tribute to rrsps as we won’t have anything through our workplaces for retirement. I should add we also have two kids and a step daughter.

I’m feeling a little lost and overwhelmed. It’s seems things keep creeping up on us and I don’t know how to manage it anymore. Was hoping someone here might have some insight. Thanks.


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My husband and I are also contractors. I would definitely put any extra money toward debt because it "pays" you an impressive return in terms of interest rates avoided. On credit cards, you can be paying 13% on interest alone. Get rid of all cc debt first because they are debt sinks. We pay off every cc every month.

@wimbly11 ,

I'm currently in a Personal Finance Class and learning how to deal with situations similar to yours (mainly through out major project).

A tips I can think of with the knowledge that I do have (although I am sure some of it is common sense a bit)

- For the debt ($38,000), is that all one piece of debt, or different debts, and if so, what is the interest on them? It is always best to try to pay off debt first with the highest interest rate (I.E. Credit Card)
- Emergency Funds are ALWAYS a vital thing to have. Anywhere between 3 to 6 months of your living expenses, even having a small emergency fund could be a life-saver in times when you have to pull from it
- Contributing to an RRSP can be helpful too as you can use it as a deduction against your taxes next year, reducing what you will have to pay to the Government a little and starting to work towards the goal of retirement

I would say, try to make out a budget of all your current or average expenditures to help determine how big an emergency fund would be appropriate for your family. Then, although your incomes always fluctuate, try to determine an overall average that you might get in a month (based on prior months income). I would say with a debt load that size, paying that off first should be a major priority, while, if possible, even putting $25/month into RRSPs for you and your husband.

Having three children is going to/could be a major financial pain in some ways (increased grocery costs, schooling, sports, etc.) I would make sure to (if your kids are old enough to understand it) explain to them that money is not plentiful and that at times, things might have to be cut and put towards more vital expenditures (I.E. Debt). I know my family friend has 3 kids and she constantly has to explain to them this same thing.

I hope some of this information helps you even a little. If you have any more questions, feel free to ask me anytime, and I will do whatever I can to try to answer them.

Although there's no simple formula that is sure to work for everyone, one REALLY good thing to do is to record and review every cent you spend. For a good majority of people, this is an eye-opener because doing so makes it easy to see and realize which purchases were either unnecessary at all or where the amount spent could have been lower. The latter includes both individual purchases and repeated ones that can be quite easy to underestimate because they're individually small.

Another is only to use credit cards if you pay them off in full every month.

I know from many years of experience that working for oneself and/or freelance brings major swings in monthly income. That said, I suggest you estimate as best you can the level of income that you're confident you'll earn this year, then budget accordingly. Note that this isn't the amount you think you'll make with normal luck. It's the amount you think you'll make if the year goes brings more bad breaks than good.

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Originally Posted by johnb56789

@wimbly11 ,

I'm currently in a Personal Finance Class and learning how to deal with situations similar to yours (mainly through out major project).

A tips I can think of with the knowledge that I do have (although I am sure some of it is common sense a bit)

- For the debt ($38,000), is that all one piece of debt, or different debts, and if so, what is the interest on them? It is always best to try to pay off debt first with the highest interest rate (I.E. Credit Card)
- Emergency Funds are ALWAYS a vital thing to have. Anywhere between 3 to 6 months of your living expenses, even having a small emergency fund could be a life-saver in times when you have to pull from it
- Contributing to an RRSP can be helpful too as you can use it as a deduction against your taxes next year, reducing what you will have to pay to the Government a little and starting to work towards the goal of retirement

I would say, try to make out a budget of all your current or average expenditures to help determine how big an emergency fund would be appropriate for your family. Then, although your incomes always fluctuate, try to determine an overall average that you might get in a month (based on prior months income). I would say with a debt load that size, paying that off first should be a major priority, while, if possible, even putting $25/month into RRSPs for you and your husband.

Having three children is going to/could be a major financial pain in some ways (increased grocery costs, schooling, sports, etc.) I would make sure to (if your kids are old enough to understand it) explain to them that money is not plentiful and that at times, things might have to be cut and put towards more vital expenditures (I.E. Debt). I know my family friend has 3 kids and she constantly has to explain to them this same thing.

I hope some of this information helps you even a little. If you have any more questions, feel free to ask me anytime, and I will do whatever I can to try to answer them.

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Thank you for the response! We consolidated debt and it is all on a LOV with a 7% interest rate so one payment.

Our children are young (4 and 18 months). I do talk to our oldest about money through. Our step daughter is 17 and lives with her mom who is careless with money and spends ridiculous amounts on items and we end up on the hook for things we did not consent to. But that’s a whole other conversations [emoji849]

So would the smartest idea be to put all extra money into an emergency fund until we’ve built up enough and then work on debt?


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Originally Posted by wimbly11

Thank you for the response! We consolidated debt and it is all on a LOV with a 7% interest rate so one payment.

Our children are young (4 and 18 months). I do talk to our oldest about money through. Our step daughter is 17 and lives with her mom who is careless with money and spends ridiculous amounts on items and we end up on the hook for things we did not consent to. But that’s a whole other conversations [emoji849]

So would the smartest idea be to put all extra money into an emergency fund until we’ve built up enough and then work on debt?


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While I am not a true financial advisor, I would personally say that with any extra money you might get at the end of the month, week, year, etc., determine a percentage that works best for you to split between debt and savings. I would say maybe of extra money, put 70% of it on the debt and 30% in your emergency fund. Since on the debt you are paying 7% (while not a horrible rate), while on savings you might only make 3%, therefore, in paying off your debt, you are "making" back that 7% instead of having to pay the interest on the debt.
I hope that makes sense. From what I have learnt/understand, debt is almost always the monster you want to get rid of first

We are following the Dave Ramsey baby steps. It has been life changing for our family. He has lots of videos on YouTube explaining this method to pay off debt, stay off debt and build wealth.

We also own a business and the best think we’ve ever done financially was set a salary. So I’m the months when you make extra you leave it in your business account and use that to supplement months when you make less

Great tips and I would like to suggest cutting down on unnecessary expenses. For example have you contacted your cable/internet provider loyalty department for a better rate? What about phone plans, etc. Do you have memberships and subscriptions that you don't use? Definitely log all your spending including little incidentals like fast food, coffee, etc. That should give you an idea where you can cut back. While saving is great, earning 1.25% interest in a bank account versus 7% debit - I would prioritize paying that down. Let us know what works best for you.

personally, since both of you are self employed.. i would build my emergency fund to 6 months. . withdraw from it as needed.. but add it back first before anything else.

after ef is at 6 months... tackle debt.

track income.. as it has been said.. it is a eye opener.
also ... figure out a true figure on what you need to bring in a month on min bills. that also is a eye opener. take that figure.. and make it yur goal figure... put it somewhere you see every day. your fridge.. your screen saver somewhere. that way .. every day .. you know what you need to do .. it is motiviating you to bring that amount in .

i am self employed.. and when my hubby would be ... under employed.. i would look at him and be very clear nice but clear. this is the amount. i need from you this amount this month. he did a amazing amount of side jobs.. scutt work.. you name it .. he did it. it made us stronger. and we got it done.



david ramsey says.. 1000 in ef. and smallest debt to biggest. and while i love him...

6 months of a ef , that way if everything tanks.. you have time to find another income. highest intesest cut the debt. hugs you got this

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Originally Posted by wimbly11

Thank you for the response! We consolidated debt and it is all on a LOV with a 7% interest rate so one payment.

Our children are young (4 and 18 months). I do talk to our oldest about money through. Our step daughter is 17 and lives with her mom who is careless with money and spends ridiculous amounts on items and we end up on the hook for things we did not consent to. But that’s a whole other conversations [emoji849]

So would the smartest idea be to put all extra money into an emergency fund until we’ve built up enough and then work on debt?


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Originally Posted by Giseledta

also ... figure out a true figure on what you need to bring in a month on min bills. that also is a eye opener. take that figure.. and make it yur goal figure... put it somewhere you see every day. your fridge.. your screen saver somewhere. that way .. every day .. you know what you need to do .. it is motiviating you to bring that amount in .

i am self employed.. and when my hubby would be ... under employed.. i would look at him and be very clear nice but clear. this is the amount. i need from you this amount this month. he did a amazing amount of side jobs.. scutt work.. you name it .. he did it. it made us stronger. and we got it done.

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In a similar vein, I knew what my average income per month had to be to reach my annual target. When I had months where I knew my normal billings were going to fall far short, I found other ways to bring in money. I basically never made close to my usual rates and quite a bit was completely unrelated to my field. But since the alternative was making $0 for those same hours and days, the choice to make something instead of nothing was very easy.

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Originally Posted by wimbly11

I’m not sure how to manage our current situation and I’m looking for advice.

Myself and my husband are both freelance workers. Therefore our income varies month to month (this is a relatively new lifestyle for us). So I never know quite what will come in each month.

We had started an emergency fund but have used quite a bit from that now. We also have a considerable amount of debt (pushing $38,000) which seems to keep creeping up.

We are not big spenders. We sale shop, hardly spend any money on ourselves. We are fairly frugal but obviously something has to change if we want to get on track.

How does one manage a budget when you don’t know your monthly income?

Also where do we start? Do we put any extra money into an emergency fund? Or towards debt? We also need to co tribute to rrsps as we won’t have anything through our workplaces for retirement. I should add we also have two kids and a step daughter.

I’m feeling a little lost and overwhelmed. It’s seems things keep creeping up on us and I don’t know how to manage it anymore. Was hoping someone here might have some insight. Thanks.


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I see a few people have given some really good suggestions - pay off debt first, have an emergency fund of 6 months expenses available etc.

I might suggest working with cash only for a while - check out Gail vazOxlade - til Debt do us Part etc.

It takes a but of work, but figure out your expenses and what you would normally put on your credit card - pay with cash - not debit...cash. It gives you a true feel of how that purchase affects the bottom line.
And write down absolutely everything you spend.
There are a pile of free apps that make it convenient. But having a book and receipts sure helps the visualization

We’ve been self employed for over 20 years - have had a couple of businesses that pretty much only made expenses but have managed to now be (sort of retired) and the house is paid off.

We all just have to remember it is far easier to live within your means than dig out of debt.....but temptation sometimes has to be denied


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Originally Posted by Brasileira

We are following the Dave Ramsey baby steps. It has been life changing for our family. He has lots of videos on YouTube explaining this method to pay off debt, stay off debt and build wealth.

We also own a business and the best think we’ve ever done financially was set a salary. So I’m the months when you make extra you leave it in your business account and use that to supplement months when you make less

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I too enjoy David Ramsey. We skipped Step 1 and Step 2, as we don't carry debt. Did Step 3 and now we are on step 4 and 6.

Which step are you on?

We’re on step 2. Unfortunately we have debt from school. But hoping to finish step 2 this year. Really looking forward to step 3 :)

I've trained myself to always think I am poor, even though I am not. That way I avoid frivolous spending, and I've come to always ask myself "is this a want, or a need" when buying something. I don't need "needs." I put all the extra money towards the mortgage, which is the only debt I currently have.

My biggest financial debt success was my $24k in student loans which I paid off 2 years all by myself after graduating university.

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Originally Posted by mulock

I've trained myself to always think I am poor, even though I am not. That way I avoid frivolous spending, and I've come to always ask myself "is this a want, or a need" when buying something. I don't need "needs." I put all the extra money towards the mortgage, which is the only debt I currently have.

My biggest financial debt success was my $24k in student loans which I paid off 2 years all by myself after graduating university.

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Great idea - but from experience - one does have to get the odd ‘want’ otherwise you feel like your hands are tied all the time.



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Been there, done that.
There are a number of decisions to be made, but the biggest one is this - is your current situation the result of some short term bad luck, or is it an issue with the irregular and too small paycheques?

In my situation, there was some bad luck that made the crunch happen, but it was the realization that self employment just wasn't working out that really changed my life. So we sat down, had a serious discussion and decided that I was to take the best paying job that I would enjoy for one year.

Best financial decision ever. That was 21 years ago, and I am still working in a similar situation and greatly enjoying the work and security.

You can have the best products or services in existence, but if you live in an area with minimal call for them (partially my problem) and/or you aren't the best sales person (also part of my problem), then you are in a situation that is almost guaranteed to fail financially speaking. Failure is not necessarily your fault, but failing to recognize it and act accordingly is.

I would seriously consider taking a regular job - full time preferably, but part time is possible if you are just under the break even point. Commit to a length of time, and save like the dickens during that period. You may find that the extra financial security beats the freedom of being self employed hands down.

The discussion about what to do when there is money left over-it reminded me of Gail Vaz Oxlade's column on variable income (the article in the Star had her write that people need to prioritize things as A's, B's and C's).

The one from her website is almost the same article (without the letters-I'll look up the article I photocopied for my reference at home):
http://gailvazoxlade.com/blog/archives/97

hubby and i always pay our credit card off every month ,have been doing that for 30 some odd years
we try to save for a rainey day
always buying on sale or price matching or waiting for a sale ,or buying thrift
stocking up on various items
not going above our means or living up to the jones
we now have gone down to one carwe
own our own home -have no mortgage or car payments

Global News posted an item about the gig economy and cash-flow management. New York state has an act to protect freelancers!
https://globalnews.ca/news/5169041/f...ow-management/

Another way of paying off debt is by taking online survey that pays cash you can easily make money everyday with survey companies i have one where i make up to $100 per day , you can easily earn $700 per week check about me on my profile for more info

My two cents.... the first step would be to get into a position where your income is predictable, and to a point where it reliably exceeds your spending. This may mean looking for longer term contracts, charging more for your services, or considering going back to working at a company for a regular paycheck for the short term (lots of companies open to remote working these days!). With that in place, you can focus on paying off your debt, since you are losing money every month on interest payments that would negate any gains you would make by rrsp contributions. Hope that helps!

I am also interested in feedback from the community here so I can help more with situations like this one.. I am doing some research to help people understand their spending habits and have a 1 question survey that I'd love any and all feedback on for those interested. If interested please DM me.

Cheers

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Originally Posted by wimbly11

Thank you for the response! We consolidated debt and it is all on a LOV with a 7% interest rate so one payment.

Our children are young (4 and 18 months). I do talk to our oldest about money through. Our step daughter is 17 and lives with her mom who is careless with money and spends ridiculous amounts on items and we end up on the hook for things we did not consent to. But that’s a whole other conversations [emoji849]

So would the smartest idea be to put all extra money into an emergency fund until we’ve built up enough and then work on debt?


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Oh, being on the hook for things you didn't consent to adds up fast! That's happened often with my Stepson's momma too. Sports, clothes, extra items... And EVERY time we travel south (we are super remote) she seems to think that we have tons of money to blow and starts texting DF get this and that and how about this pricey item for them.

When i started reading the thread my first thought was if debt is creeping up (it has been for us too) My suggestions are:

-Try not to use your credit cards.
-Move any Credit Card debt over to a line of credit with a lower interest rate.
-Look at things like Satellite, Cell phones, Phone and see if there's newer better priced plans that meet your needs to cut costs (we cut 35 dollars off our satellite bill this spring by taking away a bunch of channels we or our now teenage boys don't watch)
-Try a week or two of pantry/fridge/freezer only eating - you may be surprised at what you actually have.
- if you do have a month with extra income try to put some of it back into your emergency fund and some of it on to the debt.
-Make a little cash back by having a Facebook or online "yard sale" in the classifieds group for your area. Or look for ads where people might be looking for something you have but dont use.

Aside from the money you need to live (rent/food), get that debt paid off first. Then you can start with an emergency fund.

When all that is done, I would just have money set aside. My wife does contract work and we keep $5K set aside for her down months. I get that sometimes it sucks to have $5K just sitting there, doing nothing but that's what it takes to be financially safe.

The best option to deal with your debt is to pay your credit card bills every month.