When you’re trying to get out of debt, bringing in more income can be a game-changer — so long as that money actually goes towards your debt.
There’s a strategy to making the most of your extra income as you pay down debt. This article isn’t a list of side hustles: It’s a guide to ensuring your efforts actually gets you closer to financial freedom.
Money’s Only Useful if Applied Correctly
It seems fairly obvious, but it bears repeating: Earning more doesn’t fix your debt unless you point that money directly at what you owe. Otherwise, it can easily find its way into your regular spending.
That means your first step is a mindset shift. Think of the extra income you’re putting towards debt not as a loss — but as a means of protecting your money in the future. For example, if you earn an extra couple hundred dollars per month and use all of it to pay off debt, you could shave a potentially significant amount of time off your payoff period, depending on your total balance and interest rate.
Paying down your debt more aggressively can help you stay out of the cycle of debt — and save you money in the long run. When you use your income with intention, even small amounts can create serious momentum.
Step One: Set the Target Before You Work More
Before you add a new income stream, figure out exactly what you want it to do. Decide the first debt you’d like to target, how much extra could significantly change your payoff timeline and what kind of work would most efficiently provide the money for that extra payment.
When prioritizing your debts to pay off, consider:
- The current balance
- Your current payment
- The debt’s interest rate
Typically, people prioritize the account with the highest interest rate to go after first. We recommend using a payoff calculator to see what kind of difference an extra $100, $200 or $300 per month could make on all your debts, then going with the account that will save you the most overall, first.
Choose the Path That Fits Your Life Best
Not everyone needs to drive for apps or sell stuff online. The best income stream is one that works for your energy, schedule, and skills. Here are four income paths to consider, based on your strengths:
1. Leverage High-Value Skills
Have a specialized skill? Then this one’s easy: Just use what you already know.
- Pick up a freelance side gig
- Tutor kids or adults
- Start consulting with businesses about your specialty
2. Monetize Your Hobbies
Creative? There’s probably a market for what you make — and that means creating extra money from something you enjoy.
- Sell art or handmade goods
- Create printables, templates or designs
- Launch a YouTube or TikTok channel
3. Optimize Your Current Role
Earn more where you already work. Don’t be shy — you’d be surprised at the results of diplomatically asking for what you want.
- Ask for a raise or a title bump
- Pick up overtime or extra shifts
- Look into internal job transfers with better pay
4. Establish a Passive Income Stream
These are opportunities to generate money for the long-term — they just require some work up-front to get started.
- Rent a room or space
- Start affiliate marketing
Determining Your Best Income Opportunity
When embarking on this “side quest,” assessing where you stand now can help you find the solution most likely to work in the long-run. Before jumping into a method whole-heartedly, ask:
- Can I actually stick with this for 3 to 6 months?
- Will it fit around my current schedule?
- Will it pull too much energy from work, family, or health?
- Will I be tempted to spend it instead of use it for debt?
As with most things, honesty is the best policy. So be real with yourself about high startup costs, apps with unclear payment terms, anything that promises “guaranteed” results or side hustles that make you hustle too hard. Go with the path that offers the least disruptions and unknown factors — remember, this is serving your future, so don’t spend too much time investing in something that may not pay the dividends you need.
Keep Extra Money From Slipping Away
It’s easy to spend new income before it even hits your account. Here are three ways to stop that:
- Open a separate checking account just for side income
- Set up auto-transfers to your debt account once a week or month
- Tell someone your goal (a friend, partner, or group) to help you stay accountable
Even better? Make it a challenge. Try to put 90 percent of your extra income toward debt for one month and see what changes.
Plan for Taxes So You’re Not Caught Off Guard
When working as a freelancer, you need to set aside money to pay taxes on a quarterly basis. Like your main income, keep track of what you earn vs. what you spend. If you’ve invested in materials to make your side gig more efficient, keep those receipts! They’ll be useful as write-offs come tax time in the new year.
Because freelancers pay taxes every three months, you should also set aside 25-30% of those earnings to cover taxes. (That’s why that separate savings account is a good call). The free IRS Tax Withholding Estimator can help you here, too.
Check in With Your Progress Regularly
Is your extra work making a dent? Checking in on your progress is almost as important as putting in the work — there’s no point to stretching yourself if it’s not serving you!
So every few months, take a look at how your extra income is working. Assess if your debt has gone down, if you’re sticking to your goal and if the side gig is sustainable. Adjust if needed. The right income strategy should fit into your life, not drain it.
And remember, this isn’t forever. This is just a season of focused effort. The goal is to move beyond debt — faster, and with a whole lot more peace of mind.
And if you’re not seeing as much light at the end of the tunnel as you’d hoped, know that there are professional options out there that can make your journey to debt-free easier. We’re here to help!