Controlling debt when you’re a freelancer might be difficult. That’s why, in this article, you can see the debt consolidation strategies for freelancers or gig workers. Read this article to learn how to consolidate your debts effectively.
4 Debt Consolidation Strategies for Freelancers
As a freelancer, you need to plan out strategies to pay out your existing debts. There are three easy ways to manage those debts, each of which will be thoroughly explained below.
1. Balance Transfers
If you still have difficulty paying off debts from high-interest credit cards, you might want to transfer the balance. This allows you to move your debt to a new credit card with a lower or 0% introductory interest rate. However, remember that the introductory rates can expire, so don’t forget to read the terms before applying.
2. Debt Management Plans
Consult your problem about debt with a professional credit counseling agency. You can find a proper plan to pay your debt over time by consulting your debt. Usually, some of the plans offer you a reduced interest rate, so it will be easier to control your debt.
And, remember that this kind of plan will include the organization’s involvement and expertise as the counselors.
3. Consolidation Loans
Another strategy you can pick is a consolidation loan. By acquiring a new loan, you can pay off your current debt by effectively combining many high-interest debts into one. This way, you might gain a lower interest rate, manage your monthly payments, and even increase your savings.
4. Use Your Life Insurance
Having life insurance can be one of the best debt consolidation strategies for freelancers. You can always use the money from the life insurance to pay off your debts. Simply call your insurance broker to know how much you can get from the policy.
7 Requirements to Get a Debt Consolidation Loan for Freelancers
Even though there are various ways to acquire a debt consolidation loan, you should know that there are requirements to follow. Seven requirements you need to know before applying for a debt consolidation loan for a freelancer can be found below.
1. Prepare Your Proof of Income
Proof of income will help you convince lenders that you can pay back your debt on time. Some documents that will help demonstrate your steady income are tax returns, 1099 forms (tax statements with a list of how much income you received), invoices, contracts, and bank statements.
2. Ensure You Have a Good Credit Score
One of the debt consolidation strategies for freelancers is ensuring that you have a good credit score. This factor will improve your chances of getting loan approval, so remember to develop your credit score to 650 or higher. You can always increase your credit score by making punctual payments and taking smaller credit.
3. Maintain a DTI Ratio
Based on CBS News, you’ll need a DTI ratio below 43% to get the best loan. If you earn $6,000 monthly, you shouldn’t have more than $2,580 (43% of $6,000) in monthly loan obligations.
However, you don’t need to add debt to your budget until you get a 43% DTI ratio. As long as you have a ratio under or within 43%, you’ll be safe and be able to get a loan approval.
4. Provide Work History
Remember to provide evidence of consistent freelance work. A freelancer’s work history can be acquired through client invoices or contracts. Written references from the clients that prove you have worked for them within a specific time can also be used as a work history.
5. Consider Secured Loans
You should consider secured loans if you are a freelancer. Sometimes freelancers can’t meet credit criteria alone, so it’s best to get a loan with collateral like a home or a car. The good news about considering secured loans is that the lenders might offer you more significant borrowing limits and lower interest rates.
6. Create a Detailed Business Plan
Creating a detailed business plan is similar to providing work history documents. However, arranging a detailed business plan can strengthen your loan application. The best way to create a business plan is by outlining growth strategies and financial projections.
7. Prepare Additional Documents
The last step in getting debt consolidation for freelancers is preparing additional documents. Extra documents you can include are letters from clients or evidence of an emergency fund.
4 Benefits of Creating Debt Consolidation Strategies for Freelancers
By consolidating debt, you can save money more effectively. How can it be? Let’s look at the explanation of each benefit of creating debt consolidation strategies below.
1. Lower Interest Rate
The average personal loan rate is much lower than the average credit card rate so it could be added to your benefit! According to Bank Rate, the average personal loan rate is only 12,41%, while the average credit card rate can reach 20,51%.
Improving your credit score may result in a lower interest rate. Hence, remember to increase your credit score consistently.
2. Fixed Repayment Schedule
The best part of getting a debt consolidation loan is that your interest rate and payment will remain the same, and there will be no unexpected fluctuation. You’ll always pay the same amount monthly, and the time of your last payment will be.
Therefore, a debt consolidation loan is better than a high-interest credit card.
3. Easy to Manage
You won’t have difficulty managing debts by having debt consolidation strategies for freelancers. Instead, you’ll only have one monthly payment, which will be easy to remember and manage.
4. Fast Debt Repayment
Save up some money in interest by consolidating your debt. You can also fasten the debt repayment since consolidating debt loans has a set repayment term.
5. Credit Boost
Debt consolidation loans can improve your credit score, even though, at first, your credit score may be decreased by a few points. As long as you can make punctual payments with a consolidation debt, you can see that your credit score has increased slowly.
Let’s Implement the Consolidation Debt Strategies for Freelancers!
Remember to carry out the consolidation debt strategies for freelancers to get all the benefits of debt consolidation! Enjoy the lower interest rate and fast debt repayment once you get a consolidation debt loan. However, don’t forget to pay attention to the requirements before getting the debt consolidation loan.
Once you tick all the requirements, look how enjoyable your life will be! No more difficulties in paying different debts, and you’ll be able to manage your debts quickly.