How to Manage Debt While Unemployed
NEW YORK – LIVING – There was a time when the average American hired on with a company, worked there 30 years, retired to a healthy pension and went on to enjoy their golden years with few (if any) worries. Today, that person can expect to change jobs between five and seven times during their working life. This, by extension, means they will at some point experience periods of joblessness. Taken in that context, understanding how to manage debt while unemployed becomes a very real consideration. Here’s what you’ll need to know when it happens to you.
- Determine Your Survival Budget/Establish an Emergency Fund
Planning for managing debt while unemployed should begin while you’re employed. Ideally, you will squirrel away enough cash to cover three to six months of your must-pay expenses. These include food, rent/mortgage, utilities (water, electricity, telephone, internet, garbage removal, etc.), medication, transportation, insurance and recurring bills. Doing this should carry you through the typical period of unemployment if you spend carefully.
- Live Frugally
However, it’s remarkable how many people go out and spend money trying to feel better about themselves in times of strife. This is exactly the wrong thing to do when difficulties are caused by unemployment. Borrow DVDs from the public library instead of going out to shows. Eliminate shopping sprees, expensive haircuts, Starbucks, smoking, drinking and eating out. In other words, cut the luxuries.
- Inform Your Creditors
Get in touch with your creditors right away. Let them know you’ve lost your job and ask for a reduced payment plan until you’re hired on again.
Credit card issuers know their debt is unsecured and will usually try to work with you to keep you paying—when you ask. If you’re renting your place and things start looking really bad, ask the landlord for a break. If they can’t do it, look for a less expensive place to live. If you have a mortgage, you might be tempted to consider a loan modification to try to reduce the payment. Then again, this entails loan fees and closing costs, which is cash better put to other uses. Instead, negotiate a reduced payment on your existing mortgage. Student loans can usually be deferred during periods of unemployment—again—when you ask.
Do not use your emergency fund to pay off debts in full. You’ll need to hold on to as much cash as possible to keep you afloat until the situation turns around.
- Investigate Worst Case Scenarios
Consider the various forms of debt relief in case you’re out of work longer than you’re anticipating and bills get out of hand. Talking to a credit counselor will help you learn about debt management, consolidation and settlement options such as the Freedom Debt Relief program. Hopefully, things will pick up before you need a service to help you. But it’s a good idea to prepare for the worst even while working to achieve the best.
- Get a Gig
The more cash you generate on the side, the longer your emergency fund will carry you. Try to find something with flexibility so you can still go on interviews or work on starting your own business. Depending upon your skill-set, you might do well hiring yourself out on a job-by-job basis. Sites like Craigslist are a good place to look for casual work while you get your career back on track.
By the way, while these tips are intended to show you how to manage debt while unemployed, many of these ideas will help you build a stronger financial foundation while times are good. For example, dialing back on luxuries while employed gives you more cash to use to eliminate debt. This sort of sound financial advice works well in both cases.