5 Debt Payoff Mistakes Millennials Keep Making With Side Hustles
Side hustles are a growing reality for many millennials as debt balances increase alongside the cost of living. According to LendingTree, nearly half (45%) of all millennials have a side job in 2026. That extra income can be a great way for millennials to pay off debt, but only if they use it wisely. Unfortunately, having more money doesn't necessarily guarantee a debt-free life. And without a plan for that cash, your side hustle income can leave your bank account with minimal impact on your debt balances.
If you're taking on side gigs with the hope to pay down debt, you should be aware of the landmines that can quickly derail your progress. Avoiding these five debt payoff mistakes can help you ensure your extra income does more for you.
Read Next: 7 Alternative Side Hustles To Make Extra Cash
Check Out: 9 Unusual Ways To Make Extra Money (That Actually Work)
1. Handling Side Hustle Income Like Extra Spending Money
Earning extra income can feel like a burst of confidence, especially on a tight budget. That confidence can easily result in justifying needless spending.
"It’s easy to treat that income as ‘extra’ money and spend it on nonessentials instead of putting it toward debt. That mindset often leads to inconsistent or even nonexistent payments," said Leslie H. Tayne, Esq., founder of Tayne Law Group.
When your goal is debt freedom, splurging on nonessentials can make achieving that goal more difficult. While it's fine to devote a portion of your side hustle income toward something you enjoy, you should also have a plan in place that consistently puts some of that money toward your debt.
2. Not Adjusting Your Budget
Repaying debt often involves adjusting two levers: reducing spending and increasing income. Paired together, you maximize your efforts. But adjusting one without the other can lead to less than stellar results. If you don't alter your spending after securing a side hustle, the extra income won't have nearly as big of an impact.
“Millennials don’t like restrictions, and taking on a side gig to earn extra income may feel more like ‘extra money’ that can then be put towards debt, instead of having to cut the budget elsewhere," Tayne said.
Debt is a cycle. In order to fix the problem, you have to address the spending that got you there in the first place. Once you get the extra income, it's time to review your budget and identify ways you can cut costs.
3. Using BNPL Apps While Repaying Debt
Buy now, pay later (BNPL) apps make it easier to purchase items you can’t afford. Approximately 44% of millennials use BNPL apps, according to Fortune. For those already in debt, using BNPL apps largely only continues the debt cycle.
“Making extra payments to your credit cards while still using them and/or using buy now, pay later plans, is essentially canceling your progress,” Tayne said.
Although helpful, BNPL apps still establish a future payment obligation. Just like with credit cards, that obligation can impede debt repayment.
4. Failing To Build an Emergency Fund
Building an emergency fund may seem counterproductive when repaying debt. It’s understandable to want to apply every dollar possible towards debt, especially when you’re earning extra income. However, foregoing starting an emergency fund can hinder your goal of being debt-free. In reality, even a minor emergency may require you to use a credit card, only worsening the situation.
Start by opening a high-yield savings account and setting a goal to save $250, then continue to grow it. It may seem insignificant, but if the goal is to avoid future debt, a small emergency fund is the best way to achieve it.
5. Not Being Consistent
Tayne recommended consistency over intensity.
"Keep it simple, and create a budget that will work for you, and funnel any additional income directly to your debt balances,” Tayne said.
Working a full-time job plus a side hustle can be tiring. The additional income can intensify your debt repayment strategy, but you can only go so hard for so long before burning out. Avoid overworking yourself by maintaining a reasonable side gig schedule. Pair that with automated debt payments, and you can achieve more without burning out.
While having a second job is a good way to speed up debt repayment, it doesn't guarantee freedom. Avoiding common pitfalls and addressing the root cause of debt are effective ways to achieve a debt-free future.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
More From MoneyLion:
How Middle-Class Earners Are Quietly Becoming Millionaires — and How You Can, Too
7 Kirkland Signature Items at Costco Worth Buying This Spring
4 Financial Decisions Young Adults Make That Are Hardest To Undo