https://www.moneymanagement.

org/blog/
how-do-i-manage-debt-when-i-am-
unemployed

How to Manage and

Pay Off Debt When
You're Unemployed
The following article is presented for informational purposes only.

Unemployment is stressful, especially when you’re dealing with debt. Whether you
recently lost your job or have been unemployed for a few months, it’s important to make
sure you can pay your bills each month—including your credit card bills and other
unsecured loans.

But there’s probably one big question on your mind: How do I manage my debt? 

There are several steps to take if you are dealing with debt and unemployment:

APPLY FOR UNEMPLOYMENT

BENEFITS
While you may earnestly want to keep up with your bills, if you don't have the necessary
income, it's almost impossible to keep making payments on your debts. When your
paychecks are paused, reduced, or cut off entirely, it’s important to consider your cash
flow and how you can keep at least some money coming in.
Chris Tuck, a CFP® and wealth advisor at SJK Wealth Management, explains,
“Claiming unemployment benefits is a great way to make sure that you are able to pay
your current bills.”

The rules for unemployment vary by state, but you’ll want to file for unemployment as
soon as possible. Even though the benefit amounts are based on a percentage of your
previous salary, every dollar counts when you’re dealing with debt payments and other
monthly expenses.

The first step is to file with your state and contact the State Unemployment Insurance
agency.

CREATE TEMPORARY INCOME

IF POSSIBLE
It may be difficult to immediately replace your primary source of income. While you work
on getting back into a fulltime position, you may want to consider temporary or part-time
positions to help create at least some income.

A good place to start would be flexible side hustles with low start-up costs. If you have a
car, you can sign up for a rideshare program or work part time as a delivery driver.
Whatever you can do to safely bring in income will help increase your options and make
managing your debts a little easier.

ASK ABOUT STUDENT LOAN

FORGIVENESS FOR THE
UNEMPLOYED
If you have student loans and you're temporarily out of work, you may have options.
Most federal student loans are eligible for some period of forbearance or deferment. 

As soon as you know that your income will be reduced, connect with your loan servicer
to discuss available options and begin the application process. While deferment may
add additional interest costs and both options will increase the length of time spent
repaying your loans, both options will provide immediate financial relief and prevent
your loans from falling into delinquency.

ASK ABOUT CREDIT CARD

HARDSHIP OR DEFERMENT
PROGRAMS
The more you can do to pause your debts during unemployment, the better. While the
overall goal is to eventually pay everything off, once you start missing payments and
becoming delinquent, paying off a debt gets harder and harder. 

That's why you should reach out to your creditors before you start missing payments.
They may be able to place you on a hardship program or a temporary deferment. They
also may not be able to help at all. You won't know until you reach out for help, though,
so check in with your creditors as soon as possible.

UNDERSTAND WHAT YOU CAN

AFFORD
Whether or not you can continue to make payments on your debts will depend largely
on what your budget says. If you have adequate savings and at least some amount of
income thanks to either unemployment benefits or a temporary position, you may be
able to safely continue making your payments. 

It's important that you set your priorities and spend accordingly. If you have no income
and minimal savings, for instance, you probably can't afford to spend money on
anything other than the essentials. Remember that the safety and wellbeing of you and
your family comes first. That means shelter, food, and good health come well before
credit card payments. 

If you need help understanding what you can afford, consider speaking with a certified
credit counselor. Counseling is free and designed to help you understand the best ways
to reach your financial goals. If you're feeling overwhelmed, a confidential, judgment-
free session with a credit counselor is a great first step. 

EXPLORE ALL OF YOUR

OPTIONS
The ideal option is usually to keep making payments in full every month until your debts
are all gone. Unfortunately, when your income is compromised this option may be
impossible. Depending on how long you're unemployed, you may find that a debt
management plan or debt settlement make sense for your situation. Or it might be
that bankruptcy makes sense for you. 

“It’s not often that we advise bankruptcy, but the laws exist for a reason," says Tuck. It
can be a difficult process to navigate and it will likely damage your credit deeply, but
that doesn't mean it isn't right for you. "Sometimes it is the only viable option,” says
Tuck.

DON’T LOSE HOPE

Debt and unemployment can be a difficult combination, especially when you’re
confused about what steps to take. As you navigate the nuances of debt and
unemployment, don’t lose hope. Even if it doesn’t feel like it in the moment, you’ll make
it through.