How to Pay Down Debt: 3 Effective Strategies When You Have Inconsistent Income

Treyton DeVore
May 6, 2023

Given that household debt in America reached $16.9 trillion in 2022, it's safe to say that if you have student loans or an overdue credit card, you're far from alone.

Before we dive into it, it's worth noting that not all debt is equal.

A mortgage with a 3.5% interest rate and $20k credit card balance at 24.99% are two drastically different situations.

The mortgage is providing a place to live and carries a low interest rate. The credit card balance is likely a result of overspending and with the interest rate, is some of the most expensive debt you could own.

A general rule of thumb: if the interest rate is over 7%, work to pay it off as fast as possible

We'll walk through specific payoff strategies, but I want to talk about the two most common principles first:

Debt Snowball vs Debt Avalanche

With the "avalanche" method, you pay as much as possible towards the highest interest debt while making minimum payments on everything else.

Once the highest interest debt is paid off, you move onto the next highest interest debt until they're all gone.

With the snowball method, you pay off the smallest balance first to gain momentum and then work your way towards paying off the biggest balance.

Mathematically, the avalanche method makes the most sense. Psychologically, the snowball method can be better because you're seeing progress and removing little chunks of debt from your life quicker.

In the example above, the avalanche method saves roughly $800 and gets you out of debt 2 months quicker.

Either way, before creating a payoff strategy, I recommend using a debt calculator so you can see the true cost of debt.

For example, if you had $10,000 worth of debt at a 15% interest rate and you were paying $150/mo, it'd take almost 5 years and cost almost $4,500 in interest:

You can use this calculator from Credit Karma or search "debt payoff calculator" to help you get a better understanding of your own specific numbers.

With a calculator, you can start to do some DIY financial planning. In the example screenshot above, you could play with the "monthly payment" amount and see how much more you could afford to pay and how much you'd save in interest. You can also reverse the calculator and tell it how quick you'd like to pay off debt, and then it'll give you the necessary monthly payment amount.

Whatever you do, I recommend using simple pen & paper to get a clear understanding of what you owe and what the interest rates are.

Once you've got your liabilities mapped out, these are three strategies I've seen as the most effective for paying them off:

1) Minimum Payments + Every Extra Dollar

Depending how much money you left over each month, you might only be able to make the minimum payments right now.

But if you have a higher-earning month or get extra cash, ALL of it goes towards debt until it's gone.

For example, let's say you make anywhere between $2-4,000/month from freelance work and you're using every dollar each month between regular spending and paying off debt. Then one day, you sign a new one-off project for $5,000. Rather than spending the money, use all of it to pay off the debt. It's not the most enjoyable option in the short-term, but you'll be able to use all of your extra money in the future for fun stuff once debt is gone.

  • You'll be using the snowball or avalanche method by putting the extra dollars towards either the smallest balance or the highest interest rate

With minimum payments + every extra dollar, you're not limiting your current lifestyle, but you're prioritizing your financial health over other spending in the meantime.

2) Consolidation / Balance Transfers

If you have multiple types of high-interest debt, consolidating can be one of the most effective options out there.

In this strategy, you combine several debts so that you're only responsible for making one payment:


Oftentimes, you can get an overall lower interest rate so it not only simplifies your financial life, but you're saving money at the same time.

Another similar option is a "balance transfer". Typically seen as an introductory offer with new credit cards, you can take overdue balances and 'transfer' them to a new card with a limited-time 0% interest period. There's usually a fee to do this and when you apply for a new card, your credit score will likely drop for a few months.

Guide to Balance Transfers

While not a direct form of consolidation, another option to simplify your debt picture if you own a home is using a HELOC (home equity line of credit). You need to have a clear strategy when doing this because it's another form of debt, but it can be helpful to reduce interest rates and clear multiple debts off the table.

3) Increase Income

This is the most enjoyable option.

When you’re self-employed, you’re not limited to a capped monthly salary.

If you’re able to sign a few more clients or take on a couple extra projects, you could jumpstart your payoff journey by taking ALL of the new money and putting it towards debt.

With this strategy, your regular spending & income isn’t affected and you’d be making significant payoff progress.

Combine it with the debt avalanche and you’ll be debt-free in no time.

(Bonus) Using Retirement Funds

I didn't want to include this as a primary option since it should be a last resort, but it's a worthwhile consideration if you have a lot of debt.

Depending on the type of retirement account you plan to withdraw from, you may not have to pay any taxes or penalties - or you could owe up to 10% + income tax.

For example, if you withdrew contributions (the money that you put into the account) from a Roth IRA, you wouldn't be penalized or owe taxes because that money has already been taxed - it's yours to take back. But if you wanted to withdraw earnings (growth), you'd owe a 10% penalty and likely be subject to capital gains tax.

With a 401(k) or Traditional IRA, you'd likely owe 10% + capital gains on all funds withdrawn if used for debt payoff.

The total amounts will depend on your account value, but the costs of withdrawing can be worth getting rid of all debt. You just need to run the numbers to see what makes the most sense.

The Wrap Up

These aren’t the only ways to pay down debt and you may combine some of these strategies, but the most important part of managing debt:

  • ‍Be aware of the situation and the numbers, then create a plan that works for your unique situation
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