How to manage debt when you’re unemployed

Termination of Employment on an office desk.

If you’ve ever been unemployed, you know how undesirable and stressful it is. It feels like the rate at which money leaves your account is rapidly accelerating. And before the blink of an eye, you’re broke! If care is not taken, you get deeper into debt as each day passes. Fortunately, your story doesn’t have to turn out that way. In this post, we’ll explore ways to manage your debt while you’re unemployed to evade financial ruins.

Contact Your Creditors

When you realize you might not be able to make minimum payments, your knee-jerk reaction might be to ignore the situation and hide from creditors. Unfortunately, this approach will severely hurt your credit score. The right approach is to ask your credit card issuers for help promptly.

Many issuers offer hardship programs to help borrowers experiencing short-term financial challenges either because of a family emergency, family disaster, or layoff. But the best time to ask for help is before you start missing payments.

Help can come in the form of reduced interest rates, lowered monthly payments, or even a temporary break from payments. Even if you’ve fallen behind on payments, some creditors can be kind enough to waive the accrued late payment fees. However, note that the extent of assistance you can get from creditors is dependent on several factors, like your previous history of on-time payments with them.

If your credit card company is unwilling to help you out, you should ask other lenders for assistance. For instance, you might qualify for a modification program to your mortgage or student loan that allows you to free up some money to cover monthly credit card payments.

Do Not Add More Debt

Most unemployed folks will resort to their credit cards to cover expenses even though this approach is unsustainable. Eventually, their credit limit will be reached, and they’ll end up deeper in debt. Do not be like most people.

If you’ve been following sound financial advice before losing your job, you should have an emergency fund that’s able to sustain you for the next three to six months. This is the right time to live on your reserved cash. During this period of unemployment, it’s unlikely you’re able to pay more than the minimum monthly payments on your credit cards. Minimizing the use of your credit cards will prevent adding to high-interest credit card debt.

Furthermore, resist the urge to dip into your retirement account. As the name suggests, it is for your retirement. By taking from it, you’re taking away part of your capital, and you’ll lose out on investment gains.

But if you don’t have an emergency fund, it can be practically impossible to cover your essential needs. In that case, taking out a personal loan might be the next best option. A personal loan is better than a credit card because it typically carries a lower interest rate. As a rule of thumb, borrow the least possible amount that wouldn’t add too much financial burden later on.

Create a Monthly(or Weekly) Budget

At the start of each month or week, create a budget that will help you spend the barest minimum while meeting your monthly obligations.

List out all your expenses, including utility, housing, groceries, and more. Determine expenses that can be temporarily suspended. For instance, you might stop eating in restaurants while you do more cooking at home. You might also have to suspend certain subscription services.

Once you get back on your feet and you start receiving regular paychecks, do not desert budgeting. Budgeting is a good financial habit that can help you quickly attain your financial goals.

Do Not Miss Monthly Payments

You’re probably thinking, “How on earth will I keep up with my monthly payments when I’m not receiving steady income?”. Irrespective of how you feel, the sad truth is that failure to keep up with your payments will only hurt your credit score. Asides from the accumulation of late payment fees, it will also hurt your ability to secure loans with favorable terms in the future.

You might be able to stay afloat through assistance from your spouse, family members, or friend. But if those options are not available to you, here are other means through which you can raise money.

  • Find out if you qualify for aid.

Check if you’re eligible for your state’s unemployment benefits. According to the Center on Budget and Policy Priorities, the US’s average unemployment benefit is $387 per week as of February 2020, but this figure widely varies by state.

  • Pick up a side hustle.

Pending the time you secure a well-paying job, you should pick up a side gig. This may include freelancing or working as a waiter in a restaurant. The extra income you’re able to raise will go a long way in helping you manage your debt.

Seek Help from a Credit Counselor

If all fails, you should seek help from a reputable nonprofit credit counselor. A credit counselor can help you draft a strict budget that will help you manage your expenses and debt on a tight income. Furthermore, some credit counseling agencies offer debt management plans, where they negotiate with your creditors on your behalf for more favorable terms.

As a note of caution, please stay away from debt settlement (not to be confused with debt management) as it can further hurt your credit score since you have to stop making monthly payments for it to work probably. It’s too risky, and it should be avoided.


Unemployment is just a temporary phase. However, how you handle your debt during this period may affect your finances long after you get a job. That’s why managing your debt well while unemployed is important.

Contact us here today.

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