Having to go on unemployment can be stressful enough, but that stress is made even worse while in debt. Even the most careful spenders can accumulate some form of debt. Many workers still have student loans to pay off, while others are working on home loans or paying off credit cards. It gets even scarier when high interest loans are factored in. Many make the mistake of draining their savings to try and keep up with these loans. In the short term this might seem like a good idea, but it can have devastating long term effects. Naturally, everyone’s financial situation is going to be different, but there are a couple of general tips that will apply to most people struggling with the weight of their debt while unemployed.
Hold onto Savings
As previously mentioned, many people panic when they’re unemployed and still have a lot of debt to pay off. It’s a common knee jerk reaction to start dipping into savings and using the majority of unemployment money to try and get debt settled before it starts to accumulate too much interest. This is especially common amongst people who had their financial plans laid out, but are now struggling to adjust for losing their job. Nobody likes being in debt, but it can do far more harm than good to try and get it paid off right away.
1.) Focus on Priorities. There is nothing irresponsible about focusing on day to day expenses, such as food and rent while on unemployment. After all, what’s the point of someone draining their savings to pay off their debt, if they end up losing their home?
2.) Don’t Ignore Debts. That doesn’t mean debt can just be ignored. There should be a minimum amount that can be paid each month. This is the safest choice while on unemployment. It might not feel good having to ruin a carefully laid out plan to pay off debt, but it’s worth waiting a couple of months to pay something off in order to handle day to day expenses. Applicants need to be able to take care of themselves if they’re going to get new work.
It’s hard to think of lenders as sympathetic figures when they’re always taking money, but the truth is many lenders are willing to be flexible, as long as they’re kept in the loop. Creditors can lower minimum payments, move payment dates around, and in some cases they might even be willing to temporarily suspend payments.
The most important thing to remember when talking to creditors is to be honest. In order for them to help, they need to be fully aware of the situation, otherwise they might offer solutions that ultimately don’t change anything. Creditors care about getting paid. They’re not going to punish summon for going on unemployment because that doesn’t help them get paid faster. Creditors are used to having to wait, that’s the whole entire point of a loan after all. Many creditors are especially willing to be more lenient towards people who have a proven history of paying on time.
Worst Case Scenarios: When You Can’t Pay Even the Minimum
3.) There are Options. Depending on the debt, sometimes even making minimum payments won’t be enough, and sometimes there just isn’t enough that creditors can do to make things easier. This is especially true when dealing with multiple sources. Even in these difficult situations, there are still some options.
- One option is to try and enroll in a debt settlement program. These programs vary on a case by case basis. The basic idea is that an agreement will be reached with the creditor where they’re getting some alternate method of payment, such as an immediate lump sum payment to settle a loan, even if that payment wasn’t how much was originally owed.
- A last resort option is to declare bankruptcy. Depending on the type of bankruptcy, debts are either eliminated entirely, or the payment plans are changed and become court sanctioned. Bankruptcy is a very difficult procedure and will require legal counsel. It also has a long lasting effect on credit rating, which can take years to recover from.