Repaying Debt with Unsteady Income

Most content on the internet on debt repayments are based on the presumption that the borrower has a constant source of income. For one who does have a constant source of income, it can be quite easy to clear of debts sooner.

But that of a person who does not have a constant source of income? Such a person can be one who depends on commissions or one who is self-employed and thus has an unsteady income. How can such a person clear all debts in time? 

Budgeting can be pretty tough when you don’t have a regular income source. You have to meet all regular expenses while having to save for the future at the same time! If you have to do these with irregular income, imagine the chaos that can follow.

However, it is not impossible. It just needs discipline and a different approach for paying off outstanding dues. 

Here are some ways to pay off dues when you have an irregular income. 

1. Build an emergency fund: The very first thing you need to do is to build an emergency fund. It may seem hard when you have limited money and irregular income, but doing so will help you in the long run. Besides, you don’t have to keep a huge portion of your income in an emergency fund. Just make it a habit and start building that fund. It will help you when you have no incoming income.
2. Manage your money closely: When you have a steady income, it is easier to manage your money. With an irregular income, you need to keep a closer eye on income and expenses. This will help you to manage your money more efficiently.
3. Be jealous when spending money: There will be times when you start getting a lot of income. But don’t splurge at this time. This is the time when you need to save the excess income, or at least spend only what you absolutely need. You can keep the excess income in your emergency fund. 
4. Get and keep a good credit score: This one’s very important. You need to maintain a good credit score in case you really need credit cards and loans. One easy way to increase the score is to take on small loans which you know you can repay easily. This increases your credit score.

Whether you have an irregular income or not, you require a long-term strategy for clearing debts and increasing your wealth.

Dangers of Debt Consolidation

No one feels good when they have debt. Debt makes people helpless and irritable. They limit how much you can save each money for a long time, depending on your loan tenure. And if you have multiple debts, you need help. This help comes in the form of debt consolidation.

Debt consolidation lowers your monthly payments, interest rate and makes repaying loans simple. However, even debt consolidation is not a risk-free option.

To make sure debt consolidation does not make your life worse, you need to understand its dangers before you make a choice. Below given are the four major risks one can face with Debt Consolidation.

You could fall deeper into debt: Your first priority is to pay back your current debts and to ensure you don’t fall deeper into debt. However, with Debt Consolidation, there is the risk of just that.

Let’s say you take a personal loan and a balance transfer to repay current debts. This frees up your burdened cards, which means you’ll have a lot of available credit on those cards. However, if you start using those cards again, you’ll soon be having a debt on your debt consolidation loan. Thus, this is where you need to tread lightly.

Further, don’t go into debt consolidation before you have a plan to avoid overspending. Create a budget and stick to it. Create an emergency fund too and seriously decide not to use your credit cards to make new purchases.

You may end up paying more in interest: You take debt consolidation to lower your interest rate, right? Now, a balance transfer credit card or a personal loan can give you 0% for a few months, giving you much lower interest rates than all of your current credit card debts.

However, at the end of the day, your interest rate is not the only thing in your interest to be paid. Your tenure for debt repayment has a big role to pay as well in counting towards the interest rate.

You can take a debt consolidation and lower down your monthly payments by extending your tenure, but then your total costs shall be even more since you’ll be paying over a longer period of time.

If you want to avoid this, consider making your monthly payments, or more than that if you can manage, to repay your debt faster. But do make sure you don’t incur any prepayment charges.

There are consolidation scams: Unfortunately, there are some unscrupulous lenders who are in the market only to find customers who are in grave financial difficulty. The problem is that these loans are not good for your finances.
You’ll have to deal with high interest, longer tenures and various other unfavourable terms. And if you miss a payment, you’ll have to deal with exorbitant penalties.

Balance Transfer or Personal Loan - Which is Better?

When you are already in debt and looking to repay it with another loan, you need to be very careful so that you don't plummet into the vicious cycle of more and more debt. Personal loans and balance transfer cards might seem appealing, but they can be beguiling too. However, the biggest catch is deciding which one to go for. Here are few pointers that you must consider before you apply for either of them.

Type of Debt

The choice between a balance transfer card and a personal loan lies entirely on the types of debt that you have. In case you are planning on consolidating and paying off different types of debt, a personal loan might be the most flexible option for you. A personal loan brings a lump sum to your bank account. You are free to decide how you want to utilize it.

Balance transfer cards, on the other hand, are often restricted to a particular type of debt, usually credit card debts. However, some card issuing companies cannot do a balance transfer to their own credit cards. Moreover, a very few card issuing companies allow you to transfer other types of debts (like a student loan, mortgage or auto loan).

Rate of Interest

Personal loans barely offer zero interest promotional or introductory offers, but the interest rates might be lower than your credit card's APR. Alternatively, a balance transfer card could be your cheapest and most ideal option if you can repay the entire debt within the introductory period as most balance transfer cards offer a low or even no interest scheme for a limited period in the beginning.

However, if you take a balance transfer card but do not settle all your debt within the introductory period, you could end up paying a higher APR which might even be more than the APR of your old credit card.

Credit Score

When you apply for a new line of credit, the lender will make a hard inquiry, which will slightly bring down your credit score. This inquiry will stay in your report for a long time, but your credit score will recover within a year.

A personal loan will add variety to your accounts, which is good for your credit score. You won't get this advantage from a balance transfer credit card. On the other hand, a balance transfer card will add to your total credit limit and bring down your credit utilization rate, which will boost your credit score.

If you pay off outstanding balances in several credit cards and move the debt to a new loan or credit line, it will reduce your utilization rate and shoot up your credit score. However, closing these credit card accounts may negatively impact your credit score. It entirely depends upon how you handle the new loan or credit card. That being said, weigh the consequences before you make a choice.

Repayment

If you are accustomed to low credit card payments, you might face a problem in cash-flow as your monthly payment on a personal loan will most likely be higher than the minimum payment on a credit card.

But you might have to pay more than the minimum in case you plan on repaying the card's balance before the promotional period gets over. You should carefully calculate your monthly payoffs in order to be able to repay the whole amount within the promotional period. Confused? Try using a debt repayment calculator for further clarity.

Balance Transfer or Personal Loan - Which is Better?

Type of Debt

The choice between a balance transfer card and a personal loan lies entirely on the types of debt that you have. In case you are planning on consolidating and paying off different types of debt, a personal loan might be the most flexible option for you. A personal loan brings a lump sum to your bank account. You are free to decide how you want to utilize it.

Balance transfer cards, on the other hand, are often restricted to a particular type of debt, usually credit card debts. However, some card issuing companies cannot do a balance transfer to their own credit cards. Moreover, a very few card issuing companies allow you to transfer other types of debts (like a student loan, mortgage or auto loan).
Rate of Interest

Personal loans barely offer zero interest promotional or introductory offers, but the interest rates might be lower than your credit card's APR. Alternatively, a balance transfer card could be your cheapest and most ideal option if you can repay the entire debt within the introductory period as most balance transfer cards offer a low or even no interest scheme for a limited period in the beginning.

However, if you take a balance transfer card but do not settle all your debt within the introductory period, you could end up paying a higher APR which might even be more than the APR of your old credit card.
Credit Score

When you apply for a new line of credit, the lender will make a hard inquiry, which will slightly bring down your credit score. This inquiry will stay in your report for a long time, but your credit score will recover within a year.

A personal loan will add variety to your accounts, which is good for your credit score. You won't get this advantage from a balance transfer credit card. On the other hand, a balance transfer card will add to your total credit limit and bring down your credit utilization rate, which will boost your credit score.

If you pay off outstanding balances in several credit cards and move the debt to a new loan or credit line, it will reduce your utilization rate and shoot up your credit score. However, closing these credit card accounts may negatively impact your credit score. It entirely depends upon how you handle the new loan or credit card. That being said, weigh the consequences before you make a choice.
Repayment

If you are accustomed to low credit card payments, you might face a problem in cash-flow as your monthly payment on a personal loan will most likely be higher than the minimum payment on a credit card.

But you might have to pay more than the minimum in case you plan on repaying the card's balance before the promotional period gets over. You should carefully calculate your monthly payoffs in order to be able to repay the whole amount within the promotional period. Confused? Try using a debt repayment calculator for further clarity.