Debt-Free Job Transition Plan

How to change your job or career path without going into debt.

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.

The information below is designed to help you transition to a new job without going into debt. If a job transition or another change in your unemployment already has you in a bind with debt, we can help. Call Consolidated Credit today at or complete an online application for a free debt analysis with a certified credit counselor. Together, you can make a plan and find solutions that can help you regain control.

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 like you have in other situations. You’re not moving to a new location, so there’s not moving costs, deposits or bill adjustments. There’s also no budget adjustments need 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. We recommend reading Tip No. 1 in our Unemployment Guide and padding your savings accordingly to cover at least a few months’ worth of expenses.

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.