Email question: How do I handle the transition from salaried job to part-time work?

Pete,

I am 41 years old single and recently got laid off in Feb. I am consulting part time for about $12k a month (NET) and that may be ending very soon or going full-time (hopefully). Should I pay off debt and spend all my cash?

Name: Medad

City: Boston

First off, great job transitioning into a consulting gig. It's challenging to keep your head in the midst of a layoff, and make strategic decisions, but it looks like you were able to do it.

I probably wouldn't wipe out all of your debt, until your employment gets back on solid ground. Oddly enough, I view your situation as similar to what realtors go through. Realtors make big chunks of money, intermittently. Between these chunks of money, are occasional long periods of time with no income and mounting debt. In other words, exactly what you are going through.

If you were to take your cash and payoff your debt, you risk slingshotting back into debt, if the income doesn't start to flow again. You should also know that your net worth won't change a lick if you use your savings to pay off your debt. It will be a net zero transaction. Yes, you would eliminate interest expenses, and yes, you would eliminate the monthly obligation, but you still shouldn't do it until your income bleeding has stopped.

Your focus should be to stop going deeper into debt and to find a job. Once you are on solid employment ground once again, pay the debt off, and begin to save money aggressively.