Facing a Pay Cut or Reduced Work Hours without Going into Debt

How to handle income fluctuations without financial distress.

A change in your income is fine when it’s in your favor. On the other hand when the amount you receive in your paycheck suddenly drops because of a change in your employment situation, it can be disastrous for your budget and your ability to maintain financial stability. If you don’t make some adjustments and the income drop continues, you’re likely to take risky financial actions like dipping into your savings or using credit to cover your expenses. All of this has a high potential to end in financial distress.

The information below is designed to help you understand how to successfully weather temporary changes in your employment situation that can hurt your outlook. If you’re having trouble with debt or need help planning a budget on limited income, call us at or ask for help through our online application.

Step No. 1: Immediately cut discretionary expenses

Discretionary expenses are anything that’s not a necessity in your budget, and they’re the first things that should go when you have a decreased in your monthly income. You may not need to cut absolutely everything, but it’s better to err on the side of caution. Cut anything that you don’t absolutely need right from the outset – immediately after you aware that your hours or pay will be cut.

Then, as you adjust and get comfortable with your reduced paycheck amount, you can start to add these expenses back in slowly to ensure your budget can handle those extra costs without slipping into the red.

Step No. 2: Make a plan for restoring your earning power

Adjusting your budget is fine for a short-term solution, but you’re not going to be happy living on a bare-bones budget indefinitely. First assess how likely your current employer is to reinstate your previous income level or restore the hours taken from your schedule.

If the answer is that they’re not likely to do it – or that you expect it will take an unspecified amount of time to happen – then it’s time to move on. Get your resume together and start looking for another positon.

On the other hand, if the change is only temporary and you’re willing to stick it out, then you should explore options for supplementing your income. Consider a part-time or second job, take consulting or freelance work if it’s available in your career field, or look consider employment opportunities for other members of the household to help out and fill the gap.

Step No. 3: Consider a tax withholding adjustment

Tax withholding is the amount of money that’s taken out of every paycheck for W-2 employees to cover income taxes. The amount withheld is an approximation of what you should owe to the government on April 15.

However, when your withholding is too high, it means that government is taking more money out of every paycheck than they need to, which is why you get a refund. A refund isn’t the government rewarding you for paying – it’s them giving you money back because they overcharged you.

Decreasing your tax withholding means you get more money coming to you in every paycheck. It may help offset whatever income loss you are facing. You may not get as big of a refund at the end of next tax season, but when withholding is done correctly you break even and don’t have to pay, while you have more money available every month of that year.

Step No. 4: Explore debt consolidation

The key to avoiding financially risky actions like dipping into savings or using credit cards to cover your bills and budgeted expenses is to reduce your monthly budgeted costs as much as possible. While cutting discretionary expenses is a first step on that path, depending on your lifestyle that may not cut enough out to balance your budget at your new lower income level.

This is where debt consolidation can prove invaluable, because it may provide a way to lower your total monthly payments depending on the nature of your current debt load and which consolidation options you’re eligible to use.

For instance, let’s say you have several high-interest credit cards, each carrying a balance that’s over 50% of the available credit line for a total debt load of over $5,000. Carrying balances that are that high relative to those credit lines costs you money over time, because the added interest charges add up at high interest rates when you have big balances that carry over month to month.

Now let’s say you consolidate those credit cards into one payment using a debt management program that you can enroll in through a credit counseling agency. On average, this program may lower your total monthly payments by 30-50% while rolling all of your debts into one easy payment every month. You still pay off your debt in-full – you just do it in a way that’s more manageable on your limited budget.

If you have federal student loans, you may also want to consider options for student loan consolidation. It may offer the same advantages of simplifying your monthly payment schedule into one bill while lowering your total payments. Just keep in mind that you have to pursue student loan consolidation and credit card debt consolidation separately – i.e. you can consolidate both types of debt, but you can’t put them together.

Need to consolidate to lower your payments?

We can help. Call Consolidated Credit today at to speak with a certified credit counselor at no charge. You can also complete this easy application form to request your consultation online.

Your credit counselor can help evaluate your budget and debt to help stabilize your finances and if need be, they can assist you in debt management program enrollment if you’re eligible. They can also direct you to other resources and services that may be able to help with your situation.

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