It’s bad enough when you feel as though you are being crushed by the weight of your debt. Even worse is when you lose your job on top of it.
What can you do if you have debt and you are unemployed? This situation calls for some serious planning – and up front communication with your creditors.
Prioritize Your Debts
Your first step is to prioritize your debts. As much as you would like to be able to make each of your payments during this time, the reality is that some might have to slide.
Figure out which debts are most important for you to keep up to date on. If you want to remain in your home, it’s vital that you make your mortgage payment. If you need your car to drive to job interviews, you don’t want to miss your car payment.
Even though credit card issuers can be among the most persistent in trying to collect from you, the truth is that credit card debt is usually unsecured. So, even though you can be sued for what you owe, and your credit score will be impacted, if you have to let something slide, missing your credit card payment is usually making the best of a bad situation.
Contact Your Creditors
Let your creditors know about your current situation. In some cases, you might be able to make certain arrangements to delay payments, or create a new payment plan.
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If you have student loans, call and ask about your hardship options. You can usually get a deferment, allowing you to put off making payments for a set period of time. It’s also possible to make use of the income-based repayment options for federal student loans.
In some cases, if you really can’t make your mortgage payments, you might be able to negotiate forbearance with your lender. This means you make a partial payment, or even no payment, for a set period of time. At the end of your forbearance, you start making larger catch-up payments, or your payments are tacked on to the end of your loan, lengthening the term.
You can also work out alternative payment plans with credit card issuers and auto lenders if it becomes necessary. Be up front, and express your desire to meet your obligation, and you might be able to finagle a modified payment plan during your unemployment.
Do What You Can to Get Back On Top
Now is not the time to sit idle. You need a plan to get back on top of your financial situation. One of the first things you should do is apply for unemployment benefits. It won’t be as much as you’re used to, but it’s better than nothing. Other steps you can take include:
- Cut back on the items that you don’t need. It’s time to tighten the belt.
- Ask family and friends for help, whether it’s financial, or non-financial, such as watching your kids while you look for a job.
- Use your emergency funds sparingly if possible.
- Consider starting a side gig while you look for employment. You might be able to make a little money on the side as a freelancer, doing odd jobs, or with some other self-employment option.
- Try to avoid pulling out the credit cards. Piling up more debt at this time isn’t likely to help your situation. Turn to additional debt only as a last resort.
You will need to re-tool your resume, refresh your network contacts, and hit the bricks as quickly as possible. Be sure to check out our Career Tips resource center! The shorter your period of unemployment, the smaller the impact on your credit score – and the faster you can get back on track with your debt reduction plan.
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