What Should You Do If You’re Unemployed and in Debt?

I’m still unemployed because of the pandemic. My employment just got cut, and I have no idea how to pay my bills. I’ve been keeping myself afloat with stimulus and using deferment to keep my credit cards out of collections. But my credit card companies say I can’t use any more deferment. I at least got rental assistance, so I’m not facing eviction, but I’m panicking about everything else. What can I do about my credit card debt?

Janette

Florida

Hi, Janette.

You’re not alone in asking this question. It’s good to hear that you want to be proactive and address some of your challenges. You are like a lot of people who can’t pay their credit cards because they are unemployed. The good news is if you are unemployed and in debt, you still have options. While it may seem hopeless, that’s not the case. You can take charge of your financial future and manage your current situation with some easy techniques.

Look at your financial picture and make a budget

Ask yourself, what are your current expenses?

Look through your checking and credit card statements to see what you are spending money on right now. The average consumer spends almost $18,000 per year on purchases that aren’t essential, so there may be quite a bit you can cut back. Think about what you are paying for right now—gym memberships, streaming services, dining out, cable, and so on. When you’ve lost your job and can’t pay bills, these are some of the first things you should cut. In other words, look at ALL the expenses you can eliminate. Don’t worry; you can sign back up with Netflix later and go back to trendy restaurants once your income recovers.

Then ask, what MUST you continue to pay

Any rent – and we do understand that you do have rental assistance, but many others do not – has to get paid. Bills such as rent or mortgage, if you are unable to work out a deal with your landlord or mortgage company or unable to receive emergency rental/mortgage assistance, will be priorities. Electric bills and other utility bills come next. You want your phone to continue to work so that potential employers can contact you.

To get emergency rental assistance, please use this site from Consumerfinance.gov to find an emergency rental and mortgage program near you. If you are local to South Florida, Consolidated Credit has partnered with Broward County and the City of Fort Lauderdale to provide free rental emergency assistance counseling.

Next, figure out what you can do to get by until your income recovers

Your next task is to see what assets you might have that you can use to pay down or off your debt. Maybe those old baseball cards could be sold on eBay, and perhaps you have some CDs in the bank. Now is the time to cash in on some of those assets.

NOTE: If possible, avoiding raiding your retirement fund. While liquidating assets like CDs can help you stay afloat during a period of unemployment, retirement funds are there to help you in the future.

Download our free net worth worksheet to understand what assets you may have available »

Analyze which debt(s) take priority

Look and see which debts have the highest interest rates, which ones have the largest balances, and so on. Also, just as importantly, find out which bills are due right away. One mistake you do not want to get into is missing credit card due dates. Missing due dates will mean you immediately incur late fees, which average roughly $36 for a first-time offense and more for each late payment thereafter. If you miss a payment by more than 60 days, you can also face penalty APR, which is a much higher interest rate on your account.

Download our free credit card debt worksheet to help total up your debts »

Understand you are not alone

You are like a lot of people who can’t pay their credit cards because they are unemployed. The pandemic has caused hardship to millions of Americans and you are not alone. When you talk to your creditors, the people you owe money to, many of them will be understanding, especially if you’ve been paying on time in the past. If you cannot pay the full amount on your bill, ask if you can defer the payment or pay a partial amount.  Credit card defaults are expected to rise in 2021, but people who attempt to reach their credit card companies and work out a payment plan may be treated with leniency. There is an extensive list of credit card companies that have set up programs that offer some relief. You may also be able to change your due date, which might get you a little extra time.