A job loss can devastate your budget, especially if you have a mortgage, a car loan, credit card debt — or all of the above. So, it’s important to use some debt management tactics to manage your budget until you’re earning a regular salary again.
Losing your job can devastate your budget, especially if you have a mortgage, a car loan, credit card debt — or all of the above. Missing payments may force your credit score to take a nosedive, so what’s the best way to stay on top of bills when you don’t have a paycheck coming in?
First off, don’t panic. A job loss is survivable. You just need to identify and employ the right tactics to get you through until you’re earning a regular salary again. Start by applying for unemployment benefits and other programs you could be eligible for. Then use these debt management and budget planning tips to stay on track.
Contact Creditors About Your Debt
Financial blogger Samantha Gregory says one of the first things to do after the loss of a job is to reach out to all creditors.
“Make arrangements to reduce your payments or delay the payments for a couple of months,” she says. “The best tactic is to be honest and direct about the situation. The reality is everyone — even the IRS — knows someone who has been affected by unemployment. Tell the truth, and tell them you are willing to work out a plan.”
Meet With a Personal Banker to Discuss Your Debt
A personal banker can assist in budget planning and help you create a debt management plan to guide you through this time. If you have a personal loan, you can request a reduction in your interest rate, ask how to prevent late fee penalties, and request that a few months of payments be suspended for a period of time — giving you a buffer until you get back on your feet.
Request a Mortgage Loan Modification
Many lenders offer options for people experiencing financial hardships, and there are also government programs specifically for unemployed homeowners. For example, you may qualify for the Home Affordable Unemployment Program (UP), which allows for a reduction in mortgage payments to 31 percent of your income or suspension of payments altogether for 12 months or more. Another option is an FHA Special Forbearance, which offers eligible borrowers reduced or suspended mortgage payments for up to 12 months.
Consider a Distribution from a Retirement Account Only as Last Resort
While you may be able to withdraw money from your retirement account, it is likely to have hefty consequences at tax time. Withdrawals from IRAs and 401(k)s may result in a 10 percent withdrawal penalty if you are withdrawing before age 59 1/2.
However, the IRS may waive penalties for hardship withdrawals to cover costs related to unforeseen expenses, such as medical expenses or preventing foreclosure on a primary residence. Due to the potential tax implications, Gregory advises against this option unless your situation is dire.
Losing your job doesn’t mean your debt has to pile up. These tactics may help ease the blow and keep you on a positive track until you find new employment.
Learn more about earning supplemental income after a job loss.
