What to Do About Loans When You've Lost Your Job

November 22, 2022 · 6 minute read

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What to Do About Loans When You've Lost Your Job

Truth be told, there’s no such thing as a good time to lose your job. Unfortunately, a layoff typically does not stop the influx of bills. Generally speaking, people need to cover their monthly burn rates no matter what.

Luckily, individuals who find themselves in such a tough position have options. Before resorting to pulling out the big guns, like forbearance — a pause in monthly payments toward a loan — or other options that can potentially hurt your credit, it’s worth taking a look at all of the choices on the table. That way, you’ll fully understand your options and their implications before making a move when you’ve lost your job and can’t pay your bills.

First Thing’s First: Tracking Expenses

Even the richest people on Earth might benefit from re-examining their expenses and looking for ways to cut monthly costs. Although debt and a precarious employment situation can make the path back to stability feel out of grasp, getting one’s expenses in order is an important first step toward regaining control.

A clear-cut way to save money on food is to minimize or eliminate getting takeout from restaurants. That drive-through latte might feel like a part of the daily routine to preserve sanity and get a much-needed caffeine boost. But in the long run, these small expenses can add up to hundreds or even thousands of dollars in savings when curbed.

When it comes to groceries, it helps to make a list before shopping. Start a Google Doc for the household and add to it as needs arise. Shift away from living to eat and try to adapt to eating to live. It’s easier that way to eat healthier, and, like coffee, snacks can wallop the bottom line.

In addition to making a grocery list, another great rule to adopt is setting a shopping limit. Stop buying things, from anywhere, on impulse. For groceries, maybe set a maximum total per trip.

Also try to get in the habit of keeping eyes peeled for coupons and promo codes, or installing coupon apps like Honey or Rakuten. Many of those types of apps have browser-extension versions, meaning that while you’re surfing the internet, coupons will automatically be displayed when looking at potential purchases.

Also keep in mind that while grocery pickup and delivery services like Instacart are convenient, the fees can add up, including local sales tax. Even if it feels like a hassle, DIY-ing your grocery shopping is another way you can save.

Saving More, Spending Less

Losing a job is obviously never a good thing, but it might be a catalyst for reducing non-essential credit card spending and becoming more goal-oriented in general. Many would argue that credit cards can be dangerous because they help people buy things they might not be able to afford.

Articles about budgeting (including emergency funds, which would apply to the situation explored in this piece) are worth a read and can inform a broader strategy of saving over spending. But understand that saving with many outstanding debts is less about amassing wealth and more about getting tactical with repayment. A checking and savings account can help you to track daily, weekly, or monthly spending to identify where cutbacks might be possible.

Reaching for Lifelines

Even with modified spending habits and a new budget, a loan due is a loan due — or at least a situation that won’t go away without dealing with it. The reason you lost your job will form a fork in the road of sorts about how to proceed.

If you voluntarily quit without good cause, then unemployment benefits probably will not be available. But usually the first part of a survival plan for unemployment — loans or not — is to get into the system for unemployment, if possible. To get started, this unemployment benefits finder can help, as can exploring unemployment resources by state.

With that in the pipeline, it’s time to grit down, pick up the phone, and call your lender. Many lenders have forbearance and deferment programs in place for their customers, but it’s generally up to the customer to reach out and ask for help.

Forbearance is an option offered in many lending agreements. The terms vary, but it can open the door to a revised agreement that may allow for decreased or delayed payments for a specific period of time, often up to 12 months. Some lenders may offer to reduce the interest rate charged on the debt, but there are no federal guidelines requiring specific terms for forbearance agreements across all industries (with the exception of federal student loans).

On the surface, this sounds wholly positive, but be forewarned that these options can significantly affect credit history and credit scores. The effects on credit depend on the type of loan and the lender. Also realize that interest will usually accrue and be added to your principal balance at the end of a forbearance period.

Looking Out for Debt Traps

Debt can lead to an even more desperate situation after a hasty decision. It’s worth highlighting a couple potential debt traps to consider eliminating altogether as you navigate dealing with your loans after a job loss:

•   Turning to payday loans: Payday loans are a popular “break in case of emergency” option because they’re small, short-term, unsecured loans. People often turn to them when they struggle to get through to the next payday, which is also when the loan balance and interest will become due.

   But even at a glance, it’s clear to see the trouble ahead: The large fees and hefty interest rates common to payday loans can leave borrowers with less to spend each month, even though payday loans can help with getting out of an immediate bind. But it’s a bit like wriggling loose from one bind and taking shelter in another.

•   Leaning on credit cards: While it might be tempting to use credit cards to cover what’s owed on an existing loan, it can be a slippery slope. Compounding interest can mean replacing one trap with another. It’s a well-intentioned approach that seems sound, but a better alternative might be a personal loan with a fixed interest rate and no fees.

Moving Forward

The main thing to remember for anyone who is out of work and still responsible for loans is: You are not alone. It might seem difficult, even impossible, but it is doable — and even the longest journeys begin with taking the first steps. After you’ve started tracking your expenses, cutting back on costs, and reaching for lifelines through unemployment benefits and your lender, the next step in dealing with loan payments after a job loss is to explore your options.

Rather than turning to potential debt traps like payday loans and credit cards, you might consider a personal loan. SoFi, for instance, offers unsecured personal loans fixed interest rates and no fee options. Learn more and consider applying for a personal loan today.

Find your rate on a SoFi unsecured personal loan.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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