Losing a job is not fun for anyone, but when you’re in debt, it’s even worse.
Your debt-busting goals are thwarted, or worse, you’re not even sure how you’ll make your minimum payments. Then there’s the stress and anxiety that comes with not knowing how the bills will get paid. There are a few things you can do to make the situation less dire. When you’re desperate, it’s easy to get stuck in a debt trap. Unfortunately, many people do, and they find themselves trapped in a paycheck-to-paycheck cycle for years.
There are several steps you should take if you’ve lost your job, lost hours or were temporarily laid off during the coronavirus outbreak. These include:
- Talk to your creditors. Many companies are accepting late payments, waiving fees and even allowing you to go into forbearance on debt. But you need to reach out to take advantage of these options.
- File for unemployment. Some states like Washington have expanded unemployment benefits. You could qualify for unemployment even if you’re still working part time or were temporarily laid off.
- Ask about employer assistance. Companies like Postmates offer financial assistance to cover costs like medical bills during the coronavirus.
- Get a new credit card. Many credit cards come with a 0% interest promotional period that can last between six and 18 months. This can help cover groceries, some medical expenses and other essentials — freeing up cash for bills.
- Consider a line of credit. Personal lines of credit offer access to cash to cover bills that you can’t pay with a card, like utilities and rent. These tend to have lower rates and higher credit limits than credit cards.
- Look into grants. Some states, local government and nonprofits have started offering individual grants to assist with the COVID-19 outbreak. For example, the Book Industry Charitable Foundation is offering grants to booksellers affected by the coronavirus.
8 steps to meeting your financial obligations
If you’ve recently lost your job, it’s important to get in control of your financial situation before things start to go downhill. Follow these 8 steps to help keep yourself on stable footing while you hunt for your next job:
1. Apply for unemployment
If you qualify for unemployment, you should take it. Unemployment can help spare you the financial hardship of being terminated by a company should you qualify for it. You’ve dedicated time to this company and done your job, and it’s why they pay for unemployment insurance in the first place.
2. Calculate your savings
If you have savings, now is a good time to rely on your savings accounts and potentially trade in any stocks. Think about the outgoing costs you have and how long your savings will be able to support you so that you can focus on the most important tasks first.
3. Find out if you’re waiting on any outstanding payments
If you have any overdue invoices from past clients, insurance checks that haven’t shown up from a car accident or flood last year or even friends who owe you money, now’s the time to collect. You should also take stock of income-generating assets such as rental properties and figure out what you expect to receive each month.
Also factor in any benefits you can expect to receive in the future. For example, if you’re covered by income protection insurance (and if not, highly consider it), you can expect to receive a monthly payment until you’re employed again. Credit card payment insurance will pay up to a percentage of your outstanding balance each month if you lose your job.
4. Prioritize your expenses for the next two months
Start by looking at your regular and essential costs, such as groceries and utilities, before considering your ongoing debts. When it comes to debt repayments, you can divide them into unsecured and secured loans.
For example, credit cards and personal loans are types of unsecured debt, while a mortgage or car loan is secured debt. Prioritize paying secured debts first, as creditors can reclaim assets secured to a debt if you don’t make your monthly payments. But if it’s possible, you should always aim to pay at least the minimum required on all of your debts.
5. Work out your budget
Work out a budget so you know how long you’ll be able to live on your savings, outstanding payments and any income support payments you receive. Remember, this is your safety net and there’s a chance that you could find employment sooner than expected. A budget can also help you cut unnecessary spending by showing you where the majority of your money goes.
6. Limit your spending
Using your budget, identify which expenses are your “needs” and “wants.” The expenses in your “wants” list can be cut to free up extra cash while you’re looking for more work. Gym memberships and subscription services like Netflix are examples of “wants” and can be canceled or suspended while you’re looking for work. If necessary, you can pay your bills with a credit card to help float your finances.
7. Contact your providers
Reach out to your creditors and service providers and let them know that your employment circumstances have changed. They will most likely offer you a range of options based on your individual situation, such as a payment extension, an extension of the loan term so you have smaller repayments, or a temporary hold on your repayments. You’re much more likely to get a positive response if you’re proactive and ask for help before the debt goes into default.
8. Continue seeking employment
This could include contacting colleagues and friends to see if they know of any opportunities you could apply for, updating your resume and connecting with people on services such as LinkedIn. There are also employment agencies and placement services that could help you find secure or temporary employment.
You may also want to get the money coming in again by picking up odd jobs — whatever you have to do to avoid paying bills late and damaging your credit file. Online work is more accessible than ever, and freelance work platforms such as Upwork, Freelancer.com and TaskRabbit are handy when you’re looking to make a couple of extra dollars.
It would be wise to explore debt relief options further.
