Facing Unemployment without Going into Debt
How to maintain financial stability in spite of the loss of your job.
Losing your job is never easy, but the stress of being out of work is only compounded by the financial hardship you can face from the resulting loss of an income source. If you aren’t financially prepared to deal with a period of unemployment by relying on your savings, then chances are high that you may wind up in debt if it takes you some time to find your next employment opportunity.
Still, even if you don’t have your savings padded to weather a period of unemployment, there are steps you can take to minimize the risk and potential damage you can do to your financial stability. The information below can help you get by during your unemployment while minimizing the threat of bankruptcy and financial distress. If you need help or have questions, call us at to speak with a certified credit counselor. You can also request a free consultation buy completing our online application.
Tip No. 1: Pad your savings when things are good
The first and best tip for avoiding debt during unemployment requires some advance planning – so if you’re already facing unemployment, go ahead and skip to Tip No. 2. Otherwise, if you’re just planning for the worst, this is the perfect tip for you.
Financial experts recommend that key income earners in a household should always pad their savings to safeguard their finances against the risk of unemployment. Basically, if your income is necessary in your family budget to pay bills and cover necessary expenses, then you should create a financial safety net for yourself in case you ever lose your job.
This means you save up enough money to cover all of the monthly bills and other necessary expenses like groceries and gas that occur in your budget. Every month of budgeted expenses saved is one month where you could go without any paycheck and still be fine. Most experts recommend having at least 3-6 months’ worth of savings set aside. However, if unemployment is high or your particular job market is highly competitive, you may want to save for up to a year of being out of work. It may not be easy to save that much, but it will be worth it if you lose your job and can’t find work immediately.
Tip No. 2: Do some budgetary damage control
The first step you need to take when you lose your job is to review your household budget. Cut all unnecessary expenses, such as: your morning trip to the barista, dining out, extra entertainment costs, magazine and entertainment account subscriptions. Anything that you don’t need should be temporarily cut until you have a new job and a new stream of paychecks coming in.
Of course, keep in mind that cutting out EVERYTHING extra out of your budget may not be easy and it can also be difficult to maintain over time – like eating a constant diet of only rice cakes. So if you’re fairly confident you can get a new job quickly, you may decide you only need to scale back instead of cutting completely. For instance, you may choose to keep one movie streaming service, but cut out the others if you currently have more than one service. If you’re a foodie, you may just choose to reduce your meals out to one weekend night instead of going out 3-4 times per week.
Tip No. 3: Talk to service providers to cut your bills
In some cases, you may also be able to scale back on your monthly bills by talking to service providers to reduce the cost of your plans. For instance, if you have cable or satellite, see if you can cut premium channels or extra packages you have on your account and just pay for a basic service. Depending on your contract terms, you may also be able to reduce the data allowance on your mobile plan to cut your cellular bill.
And – referring back to Tip No. 2 – some services should just be cut entirely. For any streaming service that offers a free option, you should cancel your plan if you can get out of it without penalties. Often the free options mean more advertisements, but it’s worth the savings to listen to or watch a few ads when you have no income coming in.
Tip No. 4: Maintain your unemployment status
If you’re able to receive unemployment, sign up ASAP! Visit www.dol.gov click on “unemployment” for information on benefits and links to your state’s information.
Make sure you understand how much you’ll receive, how long you can receive it, and what you may be able to do to extend it if your unemployment period is longer than expected. The last thing you want to do is allow your unemployment benefits to stop because you forgot to file the paperwork on time and correctly to get an extension.
You should also read the rules for unemployment benefits in your state carefully to ensure you don’t do anything to jeopardize the funds you receive on a technicality. For example, if you have the ability to freelance or do consulting work in your field, you can reduce or eliminate your unemployment benefits entirely. The same is true if you pick up a part-time job.
In any case, you may also need to file paperwork detailing the work you’re doing and the hours you work while seeking full-time employment. Make sure to be accurate and honest, because you can hurt your eligibility for benefits and the unemployment checks may simply stop coming.
Also note that even volunteer work can impact your benefit eligibility. Since unemployment benefits are only doled out if you’re able to work and volunteering means you’re not available for a certain number of hours each week, you may not qualify to receive unemployment. Again, rules vary by state, so make sure you understand your state’s rules before you take any work on the side.
Tip No. 5: Consider options to consolidate credit card debt
The last thing you need to worry about when you’re unemployed is a bunch of high-interest credit card bills. If you lose your job and have a lot of outstanding balances on your credit cards, it’s unlikely that you’ll be able to make anything but the minimum payments on your bills until you find another income source. This means you’re not really going to make a dent in your debt with the payments and in some cases you can wind up paying more over time with extra interest added.
With that in mind, debt consolidation may be a good option to reduce or eliminate the interest rates applied to your debt. The right consolidation option could significantly cut the interest applied to your debt or even temporarily suspend added interest entirely. This will mean that every payment you make goes to keeping the debt under control instead of just covering that month’s added interest.
In some cases, debt consolidation can also reduce the total amount you pay on your credit card bills every month. You’ll also usually only have to worry about one bill to cover all of your debts. This helps ease up some financial stress so you can focus on finding a new job instead of worrying about bills.
Tip No. 6: Explore options to avoid foreclosure
If you’re a homeowner, the last thing you want to face during unemployment is the added threat of foreclosure on your home. With that in mind, you should look into foreclosure prevention options if you have any concern that you won’t be able to cover your monthly mortgage bills (and HOA and other fees you may need to pay to maintain your home).
In some cases, depending on when you took out your mortgage, where you live, and what kind of loan you have, you may also be able to take advantage of mortgage payment assistance programs in your state. These options may allow you to refinance or modify your existing mortgage. Some programs even offer assistance to cover mortgage payments missed during a period of unemployment.
Since programs vary by state, make sure to talk to a housing counselor certified by HUD to work in your state. For instance, Consolidated Credit’s housing counselors are certified to work with Florida Residents. If you live somewhere else, we can refer you to counseling for your area. Call 1-800-435-2261 for more information.