Q: I work as a freelance graphic designer. There are months when I earn a lot, and times when I'm not. Since middle of last year, my income has gone down mainly because my existing clients were all affected by the typhoons, and decided to cut down on some projects. Sometimes I earn just enough to get by. I have some savings, but I am having second thoughts on whether to continue saving at this time. My credit card debt is piling up, and I am afraid it will even be bigger unless my income situation improves. Will it be a good move to stop saving and just pay off my debts? But this will bring my savings back to near zero. - Julie
A: Working freelance gives you the opportunity to choose your projects and work at your own pace at your own time. The downside of this is that, as you have discovered, the income stream may not be steady. You don't have a fixed salary that you collect every 15th and 30th day of the month. You also don't know when you will be able to collect payments from your clients. However, the possibility of earning more than what you may earn as a full-time employee is there; you do not have set limits.
So there would be days when you have much work and much income, and less work and less income. For some people, they prefer this arrangement as it allows them to be their own boss. It's like going into business, which comes with risks.
It is good that you have built up some savings at this point. This will tide you over when you go through the lean months. However, with your debt piling up, it is indeed tempting to just pay off all your debts and start clean. After all, interest charges on unpaid balances can indeed be an added burden. But paying off all your debts now will also decrease
your savings greatly or wipe it out altogether.
Should you hold off saving for now and just pay off your entire credit card debt? We say no.
The purpose of saving is to sustain you during the times when you really need extra funds. This may happen when you lose a job, go through a difficult time when death happens in the family, or when you finally decide to retire. You have seen how important savings is; now that your income is not steady, there is a pot of funds readily available. But if you wipe out all your credit card debt now with your savings, you may not have enough funds left should something happen to you tomorrow, the day after, next week, or even a year from now. You have to be ready for what may happen and not just rely on the thought that you can rack up new charges on your credit card.
How then can you deal with your situation? Here are our suggestions:
1. Assess how much you exactly owe. Write down the amounts you owe on your credit card, including finance charges and interest charges, if any.
2. Find out how much is the interest rate used by your credit card.
3. Check with SSS or GSIS if you can get a loan for a much lower interest rate. If so, take out a loan and use the proceeds to pay off your credit card debt in full. The monthly amortization of your loan payment to SSS or GSIS will be easier on your pocket as you may access low-interest loans from these institutions.
4. In case you cannot get a loan from SSS or GSIS, call your credit card company and ask if they can amortize your existing balance over the next few months at a lower interest rate. If you have been a loyal customer with a good paying record, they just might accommodate your request.
5. Look for other ways to increase your income. Search aggressively for potential clients, ask for referrals, and show off your portfolio. Partner with another business, such as a web developer, in offering your services to potential clients. And look for possible sidelines you can do also, such as teaching, to augment your income. Then use this
additional income to pay off debt.
6. Sell off an asset you have but don't use. Maybe you have an extra computer that you don't really use much, or an antique table that just gathers dust in the corner. Turn that nonperforming asset into cash and use the proceeds to pay off your loan.
7. Cut down on unnecessary spending. If you like eating out, do it less frequently. When you're tempted to get gourmet cafe at a coffee shop, promise yourself you'll brew a good cup at home instead. Little things like this can help you free up more money for saving.
8. Continue to save. Set aside money for savings even before you spend the rest of your income for the month. This will be for your future.
9. Follow your budget. Experts recommend that debt repayment should be no more than one-third of your take-home pay so that you will have money left for your living expenses. Set a limit for your other expenses and live within your means.
By following the above suggestions, you will eventually find out that you have finally paid off your debt and still have built up some savings. Discipline is the key.
Source:Inquirer.net
A: Working freelance gives you the opportunity to choose your projects and work at your own pace at your own time. The downside of this is that, as you have discovered, the income stream may not be steady. You don't have a fixed salary that you collect every 15th and 30th day of the month. You also don't know when you will be able to collect payments from your clients. However, the possibility of earning more than what you may earn as a full-time employee is there; you do not have set limits.
So there would be days when you have much work and much income, and less work and less income. For some people, they prefer this arrangement as it allows them to be their own boss. It's like going into business, which comes with risks.
It is good that you have built up some savings at this point. This will tide you over when you go through the lean months. However, with your debt piling up, it is indeed tempting to just pay off all your debts and start clean. After all, interest charges on unpaid balances can indeed be an added burden. But paying off all your debts now will also decrease
your savings greatly or wipe it out altogether.
Should you hold off saving for now and just pay off your entire credit card debt? We say no.
The purpose of saving is to sustain you during the times when you really need extra funds. This may happen when you lose a job, go through a difficult time when death happens in the family, or when you finally decide to retire. You have seen how important savings is; now that your income is not steady, there is a pot of funds readily available. But if you wipe out all your credit card debt now with your savings, you may not have enough funds left should something happen to you tomorrow, the day after, next week, or even a year from now. You have to be ready for what may happen and not just rely on the thought that you can rack up new charges on your credit card.
How then can you deal with your situation? Here are our suggestions:
1. Assess how much you exactly owe. Write down the amounts you owe on your credit card, including finance charges and interest charges, if any.
2. Find out how much is the interest rate used by your credit card.
3. Check with SSS or GSIS if you can get a loan for a much lower interest rate. If so, take out a loan and use the proceeds to pay off your credit card debt in full. The monthly amortization of your loan payment to SSS or GSIS will be easier on your pocket as you may access low-interest loans from these institutions.
4. In case you cannot get a loan from SSS or GSIS, call your credit card company and ask if they can amortize your existing balance over the next few months at a lower interest rate. If you have been a loyal customer with a good paying record, they just might accommodate your request.
5. Look for other ways to increase your income. Search aggressively for potential clients, ask for referrals, and show off your portfolio. Partner with another business, such as a web developer, in offering your services to potential clients. And look for possible sidelines you can do also, such as teaching, to augment your income. Then use this
additional income to pay off debt.
6. Sell off an asset you have but don't use. Maybe you have an extra computer that you don't really use much, or an antique table that just gathers dust in the corner. Turn that nonperforming asset into cash and use the proceeds to pay off your loan.
7. Cut down on unnecessary spending. If you like eating out, do it less frequently. When you're tempted to get gourmet cafe at a coffee shop, promise yourself you'll brew a good cup at home instead. Little things like this can help you free up more money for saving.
8. Continue to save. Set aside money for savings even before you spend the rest of your income for the month. This will be for your future.
9. Follow your budget. Experts recommend that debt repayment should be no more than one-third of your take-home pay so that you will have money left for your living expenses. Set a limit for your other expenses and live within your means.
By following the above suggestions, you will eventually find out that you have finally paid off your debt and still have built up some savings. Discipline is the key.
Source:Inquirer.net
Helpful suggestions, I agree saving is must. It is a good idea to set aside money for savings even before you spend the rest of your income for the month.
ReplyDeleteThanks,
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