Five Steps For Being Laid Off And In Debt

Post by Sharat on April 6, 2009 · Under Featured Articles, Hints and Tips, Personal Finance, Self Help, banking, credit cards, interest rates, loans, personal loans · Comment 

One of the most stressful things an individual can go through is losing a job, add credit card debt to that mix and it can be a recipe for hair loss. Individuals need to have a plan if they want to avoid late payments soaring interest rates and unnecessary fees. Here are five steps to take for individuals who have been laid off and are in debt.

1) Gather records, a calculator and crunch the numbers

Before being able to plan a strategy, individuals first need to know where they stand. The most basic mistake that individuals make is they have no clue where all their money is going every month. So the first thing that someone should do when they lose their jobs is gather all their financial records, bank statements and the like, make a list of expenses and then look to see what can be cut. Obviously the easiest thing that can be done is consolidating credit card debt on to balance transfer cards which carry introductory offers of zero per cent for the first year.

2) Prioritize the basics but not luxuries over debt.

Individuals need perspective, in the sense that they should pay their mortgage and utility bills, buy food and medicine before they consider their credit scores.

3) Make finding a new job the job.

It goes without saying that finding a new job and source of income should be the priority. Individuals should not rely on government handouts

4) Avoid racking up more debt whilst still unemployed.

There will be a temptation for those individuals who do not have savings to live on to live off their credit cards. That kind of behaviour pushes individuals deeper in debt and creditors start becoming nervous when the people they lend money to exceed their credit limits.

Instead of racking up more debt, individuals should look at selling assets, the second car or jewellery, or if they have a whole life insurance policy, they could look to borrow from it. Many people hold whole life insurance policies that are legacies from their parents. If there is any cash value in the policy individuals should look at tapping that instead of borrowing more money.

5) Pay the minimum, or negotiate and seek help.

If individuals cannot make minimum payments, there are several options:

  • A credit card company’s in-house forbearance program

This works best if individuals hold only one credit card and wish to negotiate the interest rate and fees. It is in the card issuers interest for the debtor to be able to pay their bills, so they prefer to work with the card holder and it is worth talking to them and negotiating a deal instead of assuming they will remain rigid on interest rates and fees. Forbearance is at best a temporary measure and programs usually on last between three to six months.

  • A debt management program

Debt management or credit counselling would make sense for those people that are really struggling, and cannot come to terms with their financial situation. Certified counselors can help with working out new budgets and negotiating with creditors, helping to lower interest rates have fees waived and consolidate payments into a single monthly payment to the agency that then pays all the creditors.

  • Consolidate

Some suggest that there is no value in consolidating multiple credit card debts into a single loan if the individual is unemployed. However credit unions differ from banks because individuals are members rather than customers, and the union tends to know its members better than banks know their customers which may result in them being more willing to extend a loan with lower rates of interest than the combined debt carried on multiple credit cards.

  • Debt settlement

Individuals who are faced with serious problems trying to make their payments or have fallen into arrears can finally pull the trigger on debt settlement, where individuals negotiate with their creditors to try and settle their debt for less than the actual amount owed. However individuals should remember that such a solution will remain on their credit report.

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