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What to Do When You’re Unemployed with Credit Card Debt

Written by:
Financial Literacy Specialist

There are steps you can take to reduce your bills, so it’s easier to keep ahead.

Find Plan B if you're unemployed with credit card debt

When you lose your job, high interest rate credit card debt can quickly become your best friend and worst enemy. They are your best friend because, many times, people use their credit cards to cover the temporary income loss. However, the bills can easily become an issue as they drain your budget with high interest charges. It’s an expensive way to get by while you look for another job. And if your job hunt takes too long it can lead to bankruptcy.

The three tips below can help you manage credit card debt during unemployment. If you’re having trouble and need help setting up an emergency budget to get you through this period, call (844) 276-1544. Our certified credit counselors will be happy to help!

3 Tips for Managing Credit Card Debt During Unemployment

#1: Look for ways to reduce your bills

Don’t wait to dip into your savings or start juggling the bills. Immediately after you lose your job, start looking for ways to minimize the monthly cost of your credit card debt. There are several ways to do this:

  1. If you have large balances on one or more accounts, call each individual credit to negotiate lower interest rates. This will slow down the accrual of finance charges on your account. It also makes it easier to pay off the debt, because more of each payment goes to eliminate the principal.
  2. Consider options for debt consolidation. Consolidation often reduces the monthly payments you make on your debt. For instance, a debt management program can reduce your total monthly payments by up to 50 percent. You’ll still have to pay something, but paying less might make it easier to stay afloat.

Basically, you ideally want to find a solution that allows you to stay afloat until you find another job. So, if you can cover the reduced payment for savings for a period of time, it may mean you get by without much financial upset. There is a risk that if you consolidate and end up not finding a job quickly, you could still face collections or default. However, consolidating debt can often delay how fast both of those happen so you have more time to look for a job.

#2. Avoid charging as much as possible

It’s all too tempting during unemployment to use your credit cards to get by. However, it can leave you in a situation that may be worse than when you started.

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As soon as you lose your job, review your budget to find any expenses you can cut. Anything that’s not a necessity should go until you find another job.

  • Limit your budgets for dining out and entertainment
  • Avoid any shopping that’s not a must-have
  • Cancel streaming services for music and video
  • Cancel or suspend services you can do yourself, such as lawn work and pool service

Strip your budget down as much as you can. This will minimize the costs so you can survive for longer on your savings. It also means you’ll be less reliant on high interest rate credit cards.

#3: Recognize that alternative financing is even worse

Some people think payday loans are a better solution than credit cards when you don’t have income, but they’re worse. At best, as the name suggests, payday loans are only intended for short-term use – i.e. they help you get by until your next payday. If you don’ know when your next payday will be, these loans are a recipe for financial disaster.

For payday loans and other short-term financing, you’re only supposed to carry the debt for a few weeks, at most. If you carry it more than that, you can face interest rates that can be over 300%; in some cases, you also pay $30 in finance charges for every $100 you borrow.

So, as much as you want to avoid credit cards during unemployment, you want to avoid alternative financing even more.

Act quickly as soon you find another job

The tips above can help you minimize the debt you take on during a period of unemployment. Hopefully, you can find another job quickly before you drain your emergency fund and other savings. Once you start receiving regular paychecks again, eliminating any credit card debt you took on should be your top priority.

  1. Gather up your most recent credit card statements so you can prioritize the debt repayment.
  2. Note the total balance owed and interest rate on each account
  3. Take as much extra cash as you can out of paychecks from your new job to pay off your credit cards quickly
  4. Focus on one debt at a time, while making the minimum payments on all the others.

Ideally, you should start with your credit card debt that has the highest APR. Eliminating high interest debts first helps you save money over time. However, if you have a large amount of debt and little extra cash, start with the lowest balances first. Each debt you eliminate will give you more cash to knock out the next.

Of course, keep in mind that at a certain point, you may have too much debt to eliminate it effectively on your own. That happened to Leslie, but with the help of Consolidated Credit, she was able to pay everything off.

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Customize a plan to get out of debt after unemployment.