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Here’s What to Do If You’ve Been Laid Off, and Owe Money on Loans and Credit Cards
Getting a pink slip is an unfortunate downside in life, leading the way to several potential personal financial headaches.
As of June, 2020, 42.6 million Americans have filed for unemployment, although the overall unemployment rate, at 11.1% in early July.
If you’ve been furloughed or laid off from a job, and owe money on household loans and credit cards, you’ll need to take some action steps to keep yourself above water, financially, and buy you some time paying back loans and credit cards until you land a new job.
These financial moves should be at the top of your list.
Take some time to assess the situation
Immediately after being furloughed or laid off, individuals should do three things, says Brian Halbert, founder of Brian Halbert & Associates, a financial advisory firm in Austin, Tx.
1. Pause. “After being laid off, take a quick pause and check where everything is,” Halbert says. “Then, make a clear and defined ‘new’ starting point.”
2. Understand your debt and monies owed. “Focus on current levels, current minimum
payments and interest rates,” Halbert notes.
3. Make a plan to start attacking debt. “Start with the lowest interest, and the lowest payments, if that’s all you can afford.” He adds. “Just be sure to make a plan.”
Then, be proactive
“There are a few things you can do right away, and it’s important to be proactive,” says Andrew Taylor, a financial and legal specialist with NetLawmen.com.au, in Victoria, Australia. “If you have some savings put aside and think you can manage for a month or two, that’s great – but don’t rest on your laurels. “Act like you’re on your last dollar right now and your will get things going for you.”
Contact your bank
You’ll also want to call your bank right away after the loss of a job. “Tell them about your situation,” Taylor says. “Some banks will be willing to offer some kind of assistance (like putting a freeze on any loan repayments during your layoff period. They don’t want you to eventually
file for bankruptcy, because they still want to get their money.”
Create an “avalanche” of credit card debt payoffs. The best thing you can do if you are laid off and are carrying substantial personal debt is pay off the debt with the highest interest, financial experts say.
“This technique is called the debt avalanche and is the best for wiping out debt, especially credit card debt,” says Drew Cheneler, founder of Simple Money Lyfe, a personal financial website. “Start with the highest interest card and work your way down.”
Cut your bills
When you owe money, every penny counts. Consequently, one of the easiest ways to save money is by simply lowering your existing bills.
“Apps like Trim and Billshark help you find cheaper prices for the same services,” says Sam Hawrylack, a personal finance expert and co-founder of How To FIRE, a personal financial blog. “They do the negotiating for you with your cable, internet, cell phone, and more. Plus, some apps charge you nothing unless you walk away with savings up to 25% per month.
Get a balance transfer credit card
To help get debt free faster, find a new credit card that will allow you to do a balance transfer from a high interest rate card on to a low interest rate card.
“Don’t forget about cards that have an interest free introductory period and make sure to read the fine print and see if there are any balance transfer fees,” says Galit Tsadik, the founder of FINancial Sharktress, a money management web site.
Above all, keep calm
A sudden change in your financial situation can be incredibly stressful but it’s important to remain calm and positive. “Recognize that your life will be different, at least for a while, says Marlene Schmidt, a money management coach at Insight Planning Spenders, in Queensland, Australia. “It’s important to focus on what you can control and what you can do rather than giving in to fear and panic.”
In these unprecedented times of global pandemic and a slowing economy, it’s even more important to hold on to whatever cash you have, Schmidt adds.
“The length of this disruption is unknown and is changing daily, so you need a cash cushion in order to feel comfortable over the coming months,” Schmidt says. Before you withdraw money from your savings, ask yourself, “Do I need to spend this money right now?”
“There are plenty of expenses that may seem important but they’re not worth risking your ability to weather the storm,” she says.
Brian O'Connell has been a finance writer at TheStreet, TheBalance, LendingTree, CBS, CNBC, WSJ, US News and others, where he shares his expertise in personal finance, credit and debt. A published author and former trader, his byline has appeared in dozens of top-tier national publications.