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How to pay your bills if you’ve lost your job
Stay on top of your finances while you look for a new job.
If you’re proactive in managing your money and dealing with your debtors, it’s possible to get through this period unscathed — and if that’s not enough, there may be resources available to help you until you’re back on your feet.
9 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 9 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, 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.
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 appropriate 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.
9. Explore debt relief
Debt relief is often used as a last resort because the implications can have negative long term effects on your credit score. Forms of debt relief include bankruptcy, debt settlement, and debt management. The main goal of debt relief is to drastically reduce the amount you owe your creditors, or in some cases, such as filing for bankruptcy, wipe the slate completely.
If you’re interested in exploring debt relief options further, make sure to do your own research first before committing to something that may not be right for you.
Compare debt relief companies
Updated October 16th, 2019
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Before you sign up with a debt relief company
Debt relief companies typically charge a percentage of a customer’s debt or a monthly program fee for their services. And they aren’t always transparent about these costs or drawbacks that can negatively affect your credit score. You might pay other fees for third-party settlement services or setting up new accounts, which can leave you in a worse situation than when you signed up.
Consider alternatives before signing up with a debt relief company:
- Payment extensions. Companies you owe may be willing to extend your payment due date or put you on a longer payment plan if you ask.
- Nonprofit credit counseling. Look for free debt-management help from nonprofit organizations like the National Foundation for Credit Counseling.
- Debt settlement. If you can manage to pay a portion of the bill, offer the collection agency a one-time payment as a settlement. Collection agencies are often willing to accept a lower payment on your debt to close the account.
Do I qualify for unemployment?
Requirements for unemployment benefits can vary by state, but if you were transitioned for reasons outside of your control there is a high chance that you qualify for unemployment benefits. The first step in finding out if you meet this criteria is to apply. Unfortunately, many people never reach this step because of preconceived notions regarding their eligibility and feelings about taking money from the government.
How to apply for unemployment
- Get in touch your state’s unemployment insurance program either online or by phone.
- Follow the instructions you’re given to file a claim, and submit your application.
- Wait for the Department of Labor to evaluate your claim and approve it.
- Start receiving benefit payments.
Other options to consider
Consider the following options if you’ve lost your job and money’s tight:
- Debt consolidation. Consolidate your debts into one monthly payment. A debt consolidation loan or balance transfer credit card can save you money by giving you a lower interest rate. Some lenders accept unemployed applicants.
- Early access to your retirement plan. Many retirement plans will allow you to withdraw money early if you’re experiencing a financial hardship. If you’ve been paying into a 401(k) or IRA, look into what your options for withdrawing early are.
- Emergency help services. Charity and community organizations can provide emergency financial assistance if you spent all of your money paying your bills and don’t have enough for food or other essential costs. You may also be eligible for government assistance. Contact your local social or human services department.
- Short-term loan. If you need help paying for everyday expenses while you job hunt, some lenders offer short-term loans to people who are unemployed. Keep in mind that these loans are likely to have high interest rates and should be a last resort.
Debt consolidation loans vs debt relief: Which is right for you?
Should I use my credit card to pay bills when I’ve lost my job?
Avoid using your credit card to pay your bills. Creating new debt to pay an older debt is a slippery slope to financial ruin. Instead, work out a plan with your provider or contact a nonprofit financial adviser to discuss your situation and get specific advice on how to manage your financial commitments.
The exception to this rule is a balance transfer credit card. If you already have debt on several credit cards, a balance transfer card with a 0% introductory rate can help you avoid accruing interest on your current cards while you get back on your feet. This is only a good option if you feel confident that you’ll be able to repay the balance before the introductory period is up.
Bottom line
If you’ve recently lost your job, spend some time taking stock of your situation and planning your next moves so that you can stay in control of the situation. And if you’re having trouble staying on top of your debt while you’re looking for a job, consider enrolling in a debt relief plan to help.
Frequently asked questions
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