Truth be told, there is no such thing as a good time to be unemployed. Unfortunately, a layoff typically does not stop the influx of bills.
Generally speaking, people need to cover their monthly burn rates no matter what—even when unemployment numbers rose higher in a few months in 2020 than they did in two years of the Great Recession.
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 others that can potentially hurt credit, it’s worth taking a look at the choices on the table before making a move when you lose your job and can’t pay your bills.
First Things First: Tracking Expenses
Even the richest people on Earth might benefit from reexamining 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 cut down on food spending is to minimize or eliminate 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.
Coffee is nice, but it isn’t a necessity (and can always be home-brewed if it is). Getting ahead of debt is both nice and necessary.
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.
Grocery pickup and delivery services like Instacart are, of course, convenient, but the fees can add up, including local sales tax.
In addition to making a grocery list, another great rule to adopt would be to set a shopping limit. Stop buying things, from anywhere, on impulse. Now isn’t the time to buy a cool, expensive coat or get tangled in a payment plan on an entertainment center.
For groceries, maybe set a maximum total per trip—and 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 while surfing the internet, coupons will automatically be displayed when looking at potential purchases.
Saving More, Spending Less
This might sound obvious, but the way anybody avoids drowning is to stop sinking in the first place. Many would argue that credit cards can be dangerous because they help people buy things they might not be able to afford.
During the pandemic, perhaps surprisingly, unemployment numbers correlated with a decline in credit card debt, according to the Federal Reserve and other sources.
Losing a job is never a good thing, but it might be a catalyst for reducing nonessential credit card spending and becoming more goal oriented in general.
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 cash management account can help 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. How a job was lost 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.
This tool can help seekers get started on finding relevant links, information, and resources state by state about unemployment benefits.
Further unemployment resources broken down state by state can be found in this article.
With that in the pipeline, it’s time to grit down, pick up the phone, and call the lender. Many lenders have forbearance and deferment programs in place for their customers; most depend on the customer reaching out and asking for help.
SoFi offers an unemployment program for members who have SoFi private student loans or personal loans. Loans in good standing are eligible for forbearance for a set period of time—during which career coaches can help with the job search.
Forbearance is an option offered in many lending agreements. The terms vary, but it can open the door to another agreement related to the original one 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 being 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.
And 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 to consider eliminating altogether.
Payday loans are a popular “break in case of emergency” option, because they are 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 with them: 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.
While it might be tempting to use credit cards as a loan on bigger debts, or attempting to charge 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 unemployment protection, a fixed interest rate, and no fees.
Note that the unemployment protection offered in that loan, and others like it, is not for people who are self-employed.
The main thing to remember for anyone who is out of work and still responsible for loans is: You are not alone.
Working with a professional may help both calm and steel borrowers for rebuilding stability. It might seem difficult, even impossible, but it is doable—and even the longest journeys begin with taking the first steps.
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