Handling Debt When You Lose a Job

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Handling Debt When You Lose a Job
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Losing a job is devastating, especially if it’s unexpected. When you aren’t earning a regular salary, it’s easy to become mired in frustration and anxiety as you watch your debt grow. In this situation it’s important not to get overwhelmed looking at the downsides – you’ve got to take action, and quickly.

According to Bruce McClary, vice president of public relations with the National Foundation for Credit Counseling (NFCC). “The more proactive you are, the better off you’ll be in the long term.” Here, McClary shared a few steps you can take when handling debt after a job loss.


1. Stop Using Your Credit Card

“The first thing to do is to put in place measures that prevent you from running up further charges on your credit card,” McClary said. “This is a time when you really need to shift to what you have in emergency savings — and hopefully you have emergency savings.” As the Consumer Financial Protection Bureau points out, setting up an emergency fund is a good idea if you don’t have money for expenses that come one to four times per year, such as birthdays, or can’t afford to cover living expenses while you’re unemployed.

Remember, carrying too much credit card debt can damage your credit score. If the level of your debt is bumping up against your total available credit — that is, the total credit extended to you — lenders are more likely to view you as a risk. This could make things tough in the future when you go to apply for a job, rent an apartment or take out a mortgage. So it’s wise to keep your debt levels low as you begin to look for employment.


2. Move Your Credit Card Balances

“See if you can move balances from high-interest cards to low-interest cards to try to limit the amount of interest that’s going to accrue on combined balances that you owe,” McClary advised. One way to do that is by applying for a balance transfer credit card, which typically offers low introductory financing for a limited time.

Once you’ve been approved for a balance transfer card, you can move the balance from the old cards to the new one. Your card may charge a fee for the transaction, but in the end it may be worth it to keep your balance from accruing interest. “You don’t want to have any balances associated with a high-interest account if there’s the possibility of moving them to an account with lower interest,” McClary said.


3. Talk to Your Creditors

If you’re trying to get out of debt, things can be tough. You may find yourself struggling to make ends meet or falling behind on monthly bills like car payments, which can put your credit in jeopardy and lead to repossession.

Be open with creditors about your job loss, said McClary. “This can be a significant help toward avoiding any kind of collection activity or other actions they might take if you are in a situation where you might miss a payment and they are left without knowing what your situation really is.”

Get in touch with the appropriate creditor and explain what’s going on. “Not only will it help in terms of avoiding any possible collection activity,” McClary said, you may also “be presented with some choices that help ease the pain if you’re trying to keep those accounts in good standing while knowing that you’re not able to make a full payment.” For example, a creditor may be willing to put you on a deferred interest, reduced payment or other temporary hardship plan, which you may not have known about.

“If you start the discussion, they can respond by telling you what your options are,” McClary said.


4. Speak With a Financial Professional

Another thing you can do is “talk to a financial professional to see how you can deal with the situation that is already at a critical point and might even get worse if action isn’t taken quickly,” McClary said.

A reputable nonprofit credit counseling agency, for instance, may be able to offer some guidance after reviewing your situation and create a road map based on the resources you have at your disposal. Also, some consumer attorneys offer free consultations if you run into deeper issues.

“As soon as you know you’re going to be out of work, start taking these steps,” McClary said. “It’s always better to move ahead quickly as soon as you know when your situation is going to change.”

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