Dealing with Debt When You’re Unemployed: Full Guide

How to Deal with Debt and Unemployment

Paying off debt can be difficult for anyone. Bills keep coming, interest keeps adding up, and it can feel like there is no end. The situation becomes even more difficult if you lose your job. Dealing with debt when you’re unemployed takes a stressful situation and makes it almost unbearable. However, there are things you can do to deal with debt if when you’re not working.

Here are some tips for handling debt when you’re unemployed.

Pay in Cash

It’s nearly impossible to pay off debt if you are continuing to add on new debt. The solution is to stop using credit cards whenever possible and live on cash. Plus, if you’re paying most of your day-to-day expenses in cash, you can’t overspend and accidentally increase your debt.

When you’re living on cash you can only spend money that you actually have in your bank account. This can be good for avoiding additional debt, but it also opens up the possibility of spending all your available money before you’ve paid all your expenses. Therefore, it’s crucial to track your spending and stick to your budget so this doesn’t happen.

Adjust your Budget and Your Plans

Speaking of your budget, you’ll likely want to adjust your budget and cut as many non-essential expenses as possible. This may be a time where you’ll want to consider stopping services such as cable, streaming services, gym memberships, and other monthly expenses. You can always get them back later when you’re in a stronger financial position.

You’ll also want to adjust your debt repayment schedule. If you had planned to pay off your debts in a certain time period, you may have to consider whether this plan still makes sense for you. Aggressive debt repayment is generally a good idea, but not if doing so comes at expense of the rest of your life. You need to make sure you have money to pay for the essentials (food, shelter, etc.).

However, you should still try to make at least the minimum payment on your debts. Otherwise, you could be charged significant penalties by your creditors and you could also do damage to your credit rating.

Prioritize your Payments

When it comes to paying your bills each month, you’ll need to make sure you pay the most important ones first. For many people, this means paying for housing, food, water, electricity, heating, etc. Once these expenses are taken care of, you’ll need to see how much you have left over and how you should best spend this money.

Once you’ve made all the minimum payments on your credit cards and other debts, you may want to focus on putting a little extra on the debt with the highest interest rate. This will save you money in the long run.

However, putting some money aside for emergencies is also important. It will be up to you to determine how to best prioritize your spending as each financial situation is unique.

Talk to your Creditors

Normally, when you have debt, the last thing you want to do is talk to your creditors. However, doing so can be beneficial in certain situations and unemployment is one of these situations. If you explain your situation to you creditors, you might be able to convince them to help you out.

Try to contact your creditors before you miss any payments. Missing payments not only hurts your credit rating, but it can also harm your relationship with a creditor, and you want to have them on your side at this point.

Explain your employment situation and tell them that you’re having trouble paying your bills and debts right now. The creditor may offer to lower your monthly payments for a period of time due to your unemployment. They may also be willing to reduce the interest rate you’re paying, which will lower how much you’ll be expected to pay each month.

Be honest, explain your situation clearly, and make sure you know how much you can afford before you call your creditors. If they are willing to change the terms of your loan, make sure to get the changes in writing.

Get Help

In some instances, people who are having debt troubles may need help from a qualified professional. For example, most Licensed Insolvency Trustees offer free consultations where they will review your financial situation and provide you with details on the available options. This information can be a big help if you’re struggling with debt and not sure what to do.