26 June 2026
Debt is one of the most emotionally challenging topics for many professionals. It often feels personal, as the challenges vary based on individual circumstances. However, the important thing to ask those in this situation is whether the debt is manageable and helping them build the life they want.
The terms ‘good debt’ and ‘bad debt’ may be familiar. In other words, debt on assets that increase in value, such as a home, land, a business investment or education, can be considered good debt. However, debt on things that swiftly depreciate, such as credit for purchases, is frequently referred to as ‘bad debt.’
Context is crucial when it comes to debt. It’s important to understand the terms and conditions of any loan you take on. For freelancers, it’s vital to keep in mind that your income fluctuates. If you have debt, be cautious not to take on too much and ensure you have a plan to repay the debt you accumulate for your business.
Learn your Debt-to-Income Ratio
Before creating a debt payoff plan, you must have a clear understanding of your financial situation. One of the most useful benchmarks is your debt-to-income ratio (DTI), which measures the portion of your gross monthly income that goes toward debt payments.
To calculate your DTI, add up all your monthly debt obligations, such as rent or mortgage payments, credit card payments, car loans and personal loans, then divide this total by your average gross monthly income. As a freelancer, determining your monthly income can be a bit tricky; you can use bank statements or invoicing records to average your income over a few months. When it comes to reducing debt, there are two strategies you can consider:
The Debt Avalanche
- List your debts from the highest interest rate to the lowest.
- Pay the minimum on all debts, then allocate any extra money toward the highest-interest debt first.
- Once the highest-interest debt is paid off, roll that payment into the next highest debt.
The avalanche method is the mathematically optimal approach, allowing you to pay less total interest and get out of debt faster. This method is particularly effective if you are carrying high-interest credit card balances.
The Debt Snowball
- List your debts from the smallest balance to the largest.
- Pay the minimum on all debts, then focus any extra money on paying off the smallest balance first.
- Once you pay off the smallest debt, move on to the next one.
While the snowball method may take longer and lead to higher interest costs, it offers quick wins that can boost your motivation. Paying off even a small debt completely can create momentum. The best strategy is the one that you will stick with. During slower months, both strategies suggest focusing only on minimum payments and resuming extra payments when your income increases.
Create a strategy
- List every debt: creditor name, type, balance, interest rate and minimum monthly payment.
- Choose your strategy: avalanche (highest interest first) or snowball (smallest balance first).
- Find your extra payment: how much beyond minimum payments can you realistically put toward debt each month? Even R250 or R500 makes a meaningful difference over time.
- Do research: find some online tools that can help you calculate exactly how long it will take to pay off each debt and how much interest you will save.
Understanding how debt works, knowing your numbers and having a strategy can transform a chaotic and shameful situation into one you can manage and overcome.
Ref: www.freelancersunion.org www.uasaip.co.za