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Wednesday 24th April 2024

What to do if you’re self-employed and in debt 

Tolu Frimpong looks at how to tackle debt when you’re self-employed and on an inconsistent income


There are many great benefits to being self-employed; from the creative freedom it gives you to its high potential for earning and time flexibility, it’s easy to understand why over 4.31 million people in the UK have chosen this path. 

With that being said, while there are many benefits to being self-employed, it’s not without its unique difficulties.

One particular challenge with being self-employed is the variable income it comes with. One month, you could earn £3,000; another month, it could be £10,000. In this article, we’ll add an additional layer of debt and address strategies you can explore to tackle debt while being self-employed successfully.  

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Separate business and personal expenses 

As a self-employed individual, it’s essential to maintain a clear separation between your business and personal finances. Establish separate bank accounts and credit cards for business expenses to avoid mixing funds.

This not only simplifies your accounting processes but also ensures accurate tracking of business expenses for tax purposes. By distinguishing between business and personal expenses, you can better assess your financial health and prioritise debt repayment effectively. 

Stay calm and take action  

Being self-employed means riding the waves of variable income, which can sometimes lead to unexpected financial bumps. Whether it’s underestimating start-up costs or facing surprise expenses, personal debt can creep up from various corners.  

When navigating the whirlwind of financial stress, keeping your cool is critical. Remember, every setback is just a stepping stone to getting back on track as long as you take proactive steps. Do not hesitate to lean on support from organisations specialising in debt reduction

Understanding priority debts 

Not all debts are created equal, especially for the self-employed. It’s essential to prioritise those high-stakes debts, like council tax and rent/mortgages, to avoid legal headaches down the line. By tackling these debts first, you can breathe easier knowing you’re taking care of the most pressing matters. 

Debt management options 

Navigating debt as a self-employed individual presents challenges, but there are diverse avenues to explore for resolution.

Whether devising a debt management plan, considering an individual voluntary agreement (IVA), or contemplating bankruptcy, there’s a solution tailored to your circumstances.

Seeking guidance from reputable organisations such as Stepchange, Citizens Advice, and the National Debtline will provide expert assistance throughout your journey to financial stability. 

The Debt Respite Scheme  

The Debt Respite Scheme (a.k.a. The Breathing Space scheme) could be a game-changer if you’re overwhelmed by debt.

Introduced in May 2021 for residents of England and Wales, this program offers a 60-day grace period free from interest and fees on debts, giving a person in debt legal protection from their creditors.

It’s a chance to catch your breath, assess your options, and chart a course toward debt freedom without the added pressure of mounting costs. 

Tax-related financial issues 

The Time to Pay arrangements with HMRC can offer some relief for self-employed individuals dealing with tax arrears.

These arrangements allow you to propose a realistic payment plan to settle your tax debts over a specified period, giving you the breathing room you need to get back on track. 

Seeking professional advice 

Last but certainly not least, don’t hesitate to seek professional advice regarding managing your debt. Whether it’s from financial professionals or organisations such as Stepchange, Citizens Advice, and the National Debtline, a wealth of support is available to help you navigate the choppy waters of debt repayment.

Remember, you’re not alone in this journey; with the proper guidance, you can achieve your goal of debt freedom. 

Photo by Mikhail Nilov

Tolu Frimpong

Mouthy Blogger

Tolu is a Money Coach and Content Creator, passionate about helping others break the payday-to-payday cycle and achieve their financial goals, through the power of intentional budgeting, saving and investing. When she’s not talking about money you can find her spending time with her 3 boisterous boys.

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