Gig working is not new at all. The term gig, which also refers to part-time, side, or freelance work, started in 1915 when jazz musicians used the term gig’ when talking about their performances. Over one hundred years later, gig workers have become commonplace.

Companies such as Uber, Upwork, and TaskRabbit are leaders in what is being termed the ‘gig’ economy, but freelancing has always been an option for unemployed or underemployed individuals. For example, temp agencies have been using gig workers (freelancers) for decades.

The gig economy is here to stay but has evolved significantly over the past ten years. While some reports reveal that many workers are being forced to rely solely on the gig economy, for many it’s flexible and fulfilling.  In fact, a recent survey found 79% of full-time gig workers are happier because they can choose the work that they like. Currently, the global gig economy for 2021 is valued at about $347 billion and it’s only expected to continue to grow.

Given that the gig economy is becoming so prevalent for American workers, gig workers need to adjust how they manage their finances accordingly. Gig workers often have difficulty getting out of debt, but it doesn’t have to be that way. We’ll show you some easy ways for freelancers and gig workers to escape the debt trap and live life debt-free.

Table of Contents:

Want to learn how to start a side gig or become a gig worker? Read our guide on finding the best side hustles.

The best place to start managing your finances

One of the most important things a freelancer or gig worker can do is to start a budget. When you don’t have a steady income, you need to understand your expenses and save money for the lean times. One of the most critical aspects of that budget, as a gig worker, is that you have to think like a purchasing manager when you buy things. Most consumers buy things based on their emotions, but purchasing managers buy things based upon the lowest price for the most utility. For example, if you need a computer for work, but only write documents, use the web, and send e-mail, you can spend $600 to get a modest, reliable computer instead of a $1200 top-of-the-line model that high-end users want.

Better budgeting strategies for gig workers

Traditional budgeting can be difficult as a gig worker because your income may not be steady from one month to the next. But there are budgeting strategies and tools that can work effectively for variable income. Don’t forget to budget for your taxes and other expenses.

  • Envelope budgeting can be an effective budgeting strategy for gig workers because you budget each month for the income you’ve actually received. You divide your income between envelopes to cover all your bills and necessary expenses. Once you see an envelope is running low, it’s a physical signal that you need to slow down your spending so you don’t run out of income before the end of the month.
  • Tiller spreadsheet budgeting can also make budgeting easier for a gig worker because your income will adjust automatically. Tiller syncs with your bank accounts, meaning you can easily account for the variable income you’re likely to have with freelance employment.
  • Mint is a budget tracker that interacts with your spending, bank balances, and more. It’s made by the same company as QuickBooks and TurboTax but is more consumer-oriented. It records all of your spending and even integrates with PayPal, which many gig workers use. It’s also great for setting up a budget. If you’re not a full-time gig worker, this free program can work for you.
  • Quickbooks is a program that is optimized for businesses. Small business owners have been using this program since 1983, so it’s reliable. It helps you keep track of expenses by allowing you to take photos of receipts. You can track sales tax, create invoices, account for mileage and so much more. It can also help with your taxes. If your gig is full-time this app can work well for you.

The pros and cons of being a gig worker

What’s so great about gig work anyway?

The popular thought is that gig work is low-paying. Maybe Gig Uber drivers average just under $12 per hour, but blockchain developers can earn over $80 per hour!
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People are choosing gig work over ‘real jobs.’ 67% of full-time employees intend to leave their positions for their gig work. But only 48% of gig workers would leave their gig behind.
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About 34% of the US workforce are involved in the gig economy in some way, and many of those gig workers still have regular jobs. Read more about side hustles here.
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Full-time gig workers average 33k per year. But skilled gig workers can earn much more. Some gig workers can earn more than traditional workers.
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When Uber enters a region, unemployment claims by people who own a car are nearly 5% lower than people who do not. 

But it’s not all roses

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It’s far easier to budget when you get a steady paycheck, but most often, income isn’t stable for gig workers. Forbes lists a few budgeting techniques, including adding up your yearly expenses and dividing by 12.
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Working for yourself means you don’t get paid on holidays. There are no sick days or paid vacations. If you don’t work, you don’t get paid.
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You’ll have to pay for your own benefits, including health insurance. Luckily, the cost of getting health insurance for healthy individuals is going down to $80 per month (on average).
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It takes a lot more effort to get a mortgage. Be prepared to have at least two years of income and other financial documents.
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Of course, you can and should get out of debt. But gig work makes that effort just a bit more intricate.
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Self-employed individuals are required to pay taxes Plus, there is a ‘self-employment tax.’ Employers often pay some of that tax that you now have to pay on your own.

2021 unemployment benefit updates for gig workers

Gig workers are 1099 workers, so they don’t traditionally don’t qualify for unemployment insurance (UI).

However, the 2021 stimulus package created Pandemic Unemployment Assistance (PUA) program which allowed freelancers and gig workers to qualify for unemployment. PUA can provide up to $300 per week in unemployment to gig workers who qualify.

That catch is that many freelancers will no longer qualify if they live in certain states that rolled back unemployment extensions. Those include Arizona, Arkansas, Florida, Georgia, Idaho, Indiana, Iowa, Maryland, Mississippi, Missouri, Montana, Nebraska, New Hampshire, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, West Virginia, and Wyoming.

The PUA program is set to expire on September 4th in states that are still providing these benefits. If you don’t live in the states mentioned above, you can still apply for PUA. To apply:

  1. You’ll need detailed documentation, including your 1099 forms.
  2. You also must first apply in your state for regular unemployment insurance and be denied.
  3. Then, you can apply for PUA benefits using your state’s unemployment program

As with any unemployment insurance, you cannot apply directly with the federal government; you must apply through your state. Lawmakers could extend PUA benefits, but there is currently no indication that they will, so act quickly if you can take advantage of this relief program.

Gig workers face unique challenges with debt

Since many gig workers experience financial uncertainty, they tend to dip into their savings more often and are more likely to face challenges with debt. Moreover, getting into hardship programs offered by credit card companies can be more challenging when your income is not steady.

Taxes

Anyone who has their own business, including gig workers, must file taxes. Gig workers and freelancers are also expected to make quarterly payments based on your estimated income for each quarter. If you don’t make these payments or don’t file on time, you can face significant penalties. In fact, the IRS can charge penalty interest of up to 25%, so a small issue with back taxes can become a big problem quickly.

If you find that you can’t pay your taxes, the IRS does have online payment plans available, both for the short and long-term. Even if you cannot pay what you owe on time each year, make sure to file. The penalty for not filing your taxes is ten times the penalty for not paying. Make sure you pay your taxes; the IRS does not forget.

Student loans

If you have issues paying student loans, you can apply for an “Income-driven repayment” (IDR) plan. The IDR plan makes your student loan payments fit your budget by lowering your monthly payment. Some plans may mean that you pay nothing if you are not making any income.

It’s worth noting that federal student loan payments are currently in automatic forbearance and interest is suspended until January 31st, 2022. All collection actions on defaulted federal student loans are also suspended until that date. This can give you some breathing room while your gig income recovers from COVID.

Mortgage

If you have a federally backed mortgage (most homeowners do) you are safe from foreclosures for now because of the Cares Act.  You still have to apply for forbearance, allowing you to temporarily reduce your mortgage amount or stop payments for a limited time. The window on requesting forbearance may be running out, however, so don’t delay. It is currently set to expire on September 31st, 2021.

Rent

According to federal law, you should be protected against evictions for now. In September of 2020, the CDC (Centers for Disease Control) ordered a nationwide stop to evictions. If you haven’t already given your landlord a CDC Declaration, take action to avoid eviction today. The current ban on evictions is set to expire on October 3rd, 2021. The CDC may extend the ban in counties “experiencing substantial and high levels of community transmission levels” of Covid-19. However, this is being challenged in court in some states, so you may still receive an eviction notice.

A better option given the eviction ban uncertainty is to apply for the Emergency Rental Assistance Program (ERAP) program in your city or county. These programs can pay current and back rent up to twelve months and may also cover utilities.

Medical bills

About 25% of American Adults had issues paying medical bills this past year. With Coronavirus, those costs are likely to rise. You still have options. You can check for errors on medical bills as well as negotiate the charges. That’s what insurance companies do anyway. You can also call billing departments or debt collectors if it’s in that stage and negotiate payment plans that you can afford.

Credit Cards

It doesn’t matter if you are a gig worker or a full-time employee. Credit card companies want their money when it is due. Credit card companies, especially since the pandemic, are willing to work with those with difficulties. But you must be very proactive. If you feel you can’t make the minimum payment or can’t make any payment, you need to reach out to them as soon as possible.

Don’t miss any payments. When you miss a payment, you will immediately be assessed late fees, which can be high. Your interest rate can also increase, generally, if you miss a payment by more than 60 days. The average penalty APR is 29.99%, which can result in overwhelming debt. Additionally, your credit score will suffer, making getting new credit more difficult.

When you reach out to the credit card companies, you want to first ask for a deferment. Deferment means you pay less than what you owe or even skip some payments until your income recovers. Another option if you expect new gig income soon would be to change your payment due date to “buy” some more time. Your chances of successfully negotiating these special allowances will be higher if you’ve been on time previous to when you call.

Contact us if you need help

No matter what type of debt you’re facing challenges with, Debt.com can connect you with a solution. Whether you’re behind on payments, facing collections, or simply worried you may fall behind, we can help. Get a free debt and budget evaluation to find the right solutions for the financial challenges you’re facing.

Find the best debt solutions for your unique financial situation.

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Article last modified on August 24, 2021. Published by Debt.com, LLC