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How to Survive a Layoff and Other Employment Issues without Debt Problems

Tips and pointers to help you through the days, months and sometimes years after a job loss.

Losing a job is one of life’s most stressful events and staying positive while looking for a new one can be challenging. Constant worry about how you will pay your bills takes over your mind; and shame, anger, betrayal and other emotions may even come into play. Still, all is not lost in a job loss. In fact, it may be an opportunity for you and your family to pull together and implement some financial planning. You may even find better paying or more satisfying work – you just need a plan for how to survive a layoff without amassing significant debt problems.

Regardless of the time, it might take to find another job, it’s important to put a plan in place, just in case.

Here are some financial strategies to help you survive a layoff.

  • Budget. Create, re-evaluate and amend your budget. Cut spending to avoid using credit cards to fill in the gaps. Those debts can quickly add up and become unmanageable.
  • File unemployment benefits immediately. Find out if you’re eligible. Most workers are eligible if the layoff or job loss was through no fault of their own. Visit click on “unemployment” for information on benefits and links to your state’s information. If you qualify, be sure to withhold taxes on the money you receive now to avoid a larger than expected tax bill when you file for the year.
  • Check your benefits. Find out what kind of severance you may receive from the layoff. You also need to see if you can keep the money you’ve accrued in a company retirement plan, whether your company will offer job placement or resume writing assistance, and whether you have unpaid overtime or vacation pay that you’ve earned. If you aren’t leaving on negative terms, ask your supervisor for a reference letter and some suggestions for your job search.
  • Create a plan for your bills. If you believe you will have trouble making your payments, get help quickly to avoid becoming over-indebted or filing for bankruptcy. Negotiate with your creditors to work out a lower payment arrangement on a temporary basis. Negotiating with your creditors on your own is possible but can be stressful. You may want to enlist the help of a nonprofit credit counseling agency to work with your creditors on your behalf.
  • Stay insured. If you were covered by health insurance, you may be able to continue your coverage under COBRA at your own personal expense. You’ll likely have to pay the entire premium, plus a 2 percent administrative fee. The Affordable Care Act may be a cheaper alternative, as coverage is based on the individual’s income.
  • Make contingency plans. While it may be difficult to think about, consider selling assets such as a boat or an extra car if you can’t find a job soon at your old salary. Downsizing to a less expensive home, or tapping into your life insurance policy if possible, are good options to consider if you are struggling to make ends meet. However, before you do, seek professional advice to review your options and to avoid wiping out everything you own.
  • Get creatively frugal. Look at each expense and see where you can make changes until you’re back on your feet. Eating out less, for example, may be a good place to start.
  • Ask for help. Don’t be shy about seeking help from government and community agencies. Find out what resources are available in your community and take advantage of them.
  • Temp it. Temporary work may not be your first choice, but it can help pay the bills. It can even turn into a “real job” after your assignment is over.

Job search strategies

Searching for a job can be stressful and can be a very anxiety-producing experience, but there are ways to keep sane during the job hunting process.

  • Evaluate your skills. Take some time to reflect and recall the jobs you’ve really enjoyed in the past. Doing so may help you think of new jobs or careers you’d like to try.
  • Prepare the paperwork and create or update your resume. Gather your information – work history, job duties and accomplishments and have them handy for all the applications you will likely be filling out.
  • Review your credit report. Most employers these days conduct a background check that also includes a review of the employee’s credit report. Check yours in advance to make sure the information contained therein is accurate and up to date. Fix mistakes immediately.
  • Seek references from your circle. Personal references are the best way to find a job. Contact everyone you know for ideas and suggestions of potential jobs and employers. Ask if you can use their name when contacting a referral, and don’t forget to thank them afterward.
  • Go on a hunt. Look for jobs online, in your local newspaper, and through local employment agencies. Visit the library for books on resume writing and job interviewing. Your local unemployment office/Workforce One also conducts workshops and has resources for jobseekers. Take advantage of these free resources and seminars.
  • Protect your identity. Be very careful about providing personal information to a prospective employer over the Internet. Call up the company to verify that the job posting is legitimate.
  • Prepare for interviews. Scour the internet and search for tips on what HR professionals are looking for in job seekers. Research the questions they are likely to ask and practice. Ask family members or friends for feedback on what you intend to say and even what you want to wear. Don’t forget to assemble the documents you’ll need, including your driver’s license and Social Security card.
  • Consider a career change. If you worked in an industry that is declining or sending jobs overseas, you may want to consider a career change. Before you do however, you may want to work or intern in that new field to make sure it’s something that you want to do.
  • Consider starting your own business. If it seems that all is lost you may want to start a business. Bear in mind that it may be very risky, as most new businesses don’t make it through the first two years. So, choose a business with a solid track record and get advice from others with experience. Also make sure it’s an industry you know and that you have the right expertise to be successful.
  • Develop a routine. Set a schedule for researching jobs, making phone calls and networking. It may take a while to recover so prepare yourself mentally. Be sure to eat right, exercise and get enough sleep. If you’re experiencing panic attacks, anxiety, or depression, get help from a mental health professional.
  • Find the support you need. Keep the communication lines with your spouse open. Joining a support group is a great coping mechanism.

Stay healthy both physically and financially

A layoff, a job loss or even a pay cut can have devastating effects on our personal and financial health. Work is a major part of our identities, and not having a job can be frightening, even traumatic. Make sure you take steps to minimize and manage your financial stress.

If a period of unemployment has created challenges with debt, we can help. Review your options with a certified credit counselor so you can find the best solution for your situation.

Tips for avoiding debt problems during periods of unemployment

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.

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 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 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 concerns 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.

Worried about foreclosure? Talk to a HUD-certified housing counselor to explore options to save your home.

How to handle pay cuts or reduced hours at work

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.

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 decrease 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 are 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 position.

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 the 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 the 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 the 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 credit card debt so you can balance your budget and avoid debt problems? Talk to a certified credit counselor today to find the best debt consolidation solution for your needs.

How to make a debt-free job transition when you want to change jobs or careers.

Moving to a new job or even changing your entire career path can be an exciting time in your life, but it can also bring added stress – especially when it comes to your finances.

However, transitioning to a new employment opportunity doesn’t have to strike fear into your heart. As long as you plan ahead properly and adjust your finances accordingly, you can make the jump to a new job without the added worry of what will happen to your budget.

Transition Situation 1: No relocation, no income loss

This is the easiest type of transition to make because there are not a lot of extra concerns that you need to address as you have in other situations. You’re not moving to a new location, so there aren’t moving costs, deposits or bill adjustments. There’re also no budget adjustments needed to cover a long-term decrease in your income.

Basically, you only have four major concerns with this type of job transition:

  1. Covering any short-term income gap you may have between the last paycheck at your previous job and the first paycheck at your new job.
  2. Padding your savings in case the new position doesn’t work out.
  3. Adjusting your budget for different benefits
  4. Get a handle on your retirement accounts

For the first point, it’s just a matter of checking with your current employer on when you’ll receive your last paycheck. Then check with your new employer for your hire date and the date you can expect your first paycheck. If there’s a gap where you’ll have bills and necessary monthly expenses that occur without an income source to cover them, then you want to save up enough money to cover the paycheck gap.

On the other hand, for the second point, you’re going to want to save a little bit more than just what you need to cover that gap. Ideally, before you quit your previous position you should pad your savings just in case the new job doesn’t work out. If you have to leave right after your hire date – or worse, you get fired – you don’t want to be stuck without any income source at all.

The next points usually come after you transition. Essentially, you just need to make sure you’re new benefits plan covers everything your old plan covered so you’re not left in a bind. For example, you may have to get private health insurance if your new employer doesn’t offer it. Or, perhaps your old plan covered things like trips to the ER or a minor emergency clinic, but your new plan won’t – which might mean purchasing extra insurance. Things like dental and vision may also be different, and your life insurance plans may need to be adjusted as well

You should also take a little time to address concerns with your retirement. For instance, if you had a 401(k) at your previous employer, you need to transition those funds to a new account. If your new employer doesn’t offer a retirement option, then look into opening an IRA so you’re still saving for your future. If your new employer offers a 401(k), make sure you understand exactly when you become eligible and sign up immediately as soon as you’re able.

Transition Situation 2: Job transition with relocation

In this situation, you have to move to get where you need to be for your new job. In many cases, this can involve moving across county or even state lines – and the farther you’re moving, the more work you’ll need to do to ensure you’re ready for the transition. Keep in mind that the tips on Situation 1 will still apply, so read through that information and use those tips too in addition to the tips below that are specific to relocating.

  • See if your new employer offers money to relocate. Often employers are willing to offer you money upfront as incentive and assistance to help you move to where they’re located. See if your new employer offers any relocation assistance plans and take advantage if they do. Even if you weren’t offered one, you should ask what they’re willing to do – ideally, this should be part of your negotiation as you secure your salary for the new position.
  • Determine exactly what you’ll need to get settled into a new home. If you’re renting that means getting security deposits, pet deposits, first/last month’s rent and moving costs. For homeowners, you’ll have down payment, inspections, closing costs and moving costs to cover. Get housing organized before you relocate and save this amount at minimum, before you move.
  • Check rates for bills and services in your new location. Everything from how much you pay for electricity to what your city charges for waste management may vary when you move. Even cable and communication costs can vary by location. Do some research to see what you can expect out of your new bills. Your Realtor® or new employer may be able to help you get estimates so you can know what will happen with your budget ahead of time.
  • Save a little extra for settling in. In addition to saving up for your moving costs, make sure that you have a little extra in savings that you can use once you move. This money can go towards decorating your new home and helping you get settled or if you don’t need it for that you can use it to explore your new city and jump into your new social life.
  • Make budget adjustments after one month of moving. Even with due diligence and the right research, you won’t know exactly what will happen to your budget until you get there. After you move in and start your new job, wait for one month of bills and expenses to pass, then review your budget and make adjustments for your new location.

Transition Situation 3: New career, different earning potential

When you change jobs in the same field, you’re usually assured that your income will stay relatively the same – you may have to take a slight pay cut, but it’s rare that you’ll end up in a lower income bracket entirely. In any case, any income loss may be temporary until you can prove yourself and get a pay increase.

However, if you change your career path, then it may come with a significantly different income level and earning potential – in other words, you may never make what you made before. If you were a high-powered attorney working for a major firm and then you decide to move to a retail job, you’ll be in an entirely different income bracket and may never regain the earning potential you had before no matter how many raises you get.

In this case, you’ll need to do a serious overhaul of your budget to ensure you live within your means. People tend to live to the standard they can afford. So if you take a significant salary loss to transition to a new career path, then it’s likely you’ll be living above your means unless you consciously make the proper adjustments.

You may need to consider the following options if you take a pay cut to pursue your new dream job:

  • Downsize your home / transportation. If your new salary can’t cover the mortgage payments on your McMansion, don’t wait to default before you consider a sale. Start making plans to sell early and downsize to something that you can afford with your new salary. The same is true with your car – if you’re driving a luxury car but getting paid by the hour then you could run into trouble.
  • Review all paid services to see if you can cut back or if you need them at all. This includes your cable or satellite service, mobile plan, movie/music streaming service, gaming accounts, specialty delivery services (for things like food or coffee), magazine subscriptions, gym memberships. If you don’t need them, cancel. For necessary services like cellular, cut back to the bare bones minimum. Remember, you can always add services back once you get comfortable with your new income level.
  • Make any one-off purchases before your salary changes. If you know well enough in advance that you’re going to make this transition then you can plan ahead and make any key purchases you need to make before you lose income. That includes things like: clothing for your new career path, electronics, key car maintenance and repairs, home repairs or renovations, and possibly even any upcoming gifts you’ll be giving for birthdays or holidays in the near future.
  • Then don’t splurge. Cut any unnecessary expenses from your budget and stick to the budget you make religiously. That means eliminating things like dining out, trips to the barista, extra visits to the salon, and weekly visits to the mall. You should also avoid shopping online since targeted advertising makes it all too easy to impulse shop.
  • Also, pay off debts before your salary changes. The more debt you can eliminate before your job transition, the fewer bills you’ll have to worry about covering once you make the switch. Every credit card debt eliminated is one less bill to cover. This also leaves you plenty of available credit to cover one-off expenses like a car repair or new appliance after you take the new job since your income and budget may not be ready to cover any added burdens. You should also consider paying off your car loan if it’s possible. You not only eliminate a bill, but you ensure you keep your transportation even on a tighter budget.

Of course, depending on the circumstances, you may also need to follow all or some of the advice provided in Situation 1 and Situation 2. Pad your savings in case the new job doesn’t work out, address benefits and retirement changes and address challenges you may face if moving on to greener pastures requires an actual physical change of address.

Still have questions about avoiding debt when you’re faced with employment challenges? Ask our certified financial coaches now!