1. DEBT RELIEF

Debt Relief for the Unemployed

Debt Relief for the Unemployed
BY Peter Warden
Oct 31, 2024
 - Updated 
Nov 27, 2024
Key Takeaways:
  • Everyone has debt relief options, even if they’re not employed.
  • If you have no income, you might not qualify for a consolidation loan.
  • Help is at hand for someone unemployed and facing debt issues.

Anybody can find themselves temporarily out of work. And it can be tough if you have debts and little or no money in savings, but there are debt relief options that are suitable for someone who finds themself out of work. 

Being unemployed could help you address debt issues in some ways. Your creditors may be sympathetic and willing to work with you.  

Eligibility for Debt Relief as an Unemployed Person

Job loss could make you eligible for some debt relief options. Unemployment is generally considered a financial hardship, even when it’s temporary. Without income, creditors know that it may be hard or impossible to keep up with debt payments.

What are the eligibility criteria for debt relief as an unemployed individual?

Debt relief programs are designed to help people though a financial crisis, and job loss is definitely a financial crisis for many. 

Eligibility for certain programs depends on the type of debt you have. For instance, a debt settlement program could help you with credit card debt, but not tax debt. The IRS has its own programs for helping people deal with tax debt.

If you genuinely can’t afford to fully repay your debts, you might qualify for debt relief.

Can you get a debt consolidation loan with no income?

Possibly, but you’ll need a very high credit score. No-income loans are typically expensive and have short repayment periods. You might also qualify with no income if you opt for a secured loan (you borrow against something of value that the lender could take and sell if you fail to repay the loan). 

Most mainstream lenders want to see that you can afford to make the payments. If they don’t ask how you’ll repay the loan, that means they’re taking on additional risk. You’ll pay for that in the form of higher loan costs.

Key Debt Relief Options for the Unemployed

Other people have found themselves in your situation, and programs have been set up to help. If you’re  unemployed and you need debt relief, the first step is to narrow down the options that apply to your situation.

Debt forgiveness

Creditors may be willing to work with you if you can show that you’re struggling. In many cases, it’s better for all involved to come to an agreement rather than pursue you for a debt that you can’t afford to pay back. Suing you for a debt costs money.

A lender might do one or more of these things:

  • Lower your interest rate

  • Reduce your monthly payments

  • Waive late fees

  • Agree to accept less than the full amount you owe but consider it payment in full

If a lender agrees to settle the debt, that means they allow you to clear it for less than you owe. The rest is forgiven.

How to apply for debt forgiveness

Anyone can negotiate their own debts. You can call your creditors and explain the situation, and ask if they will accept a lower amount. You might need to be ready to pay that lower amount immediately if they accept your proposal. If you’re not comfortable negotiating, you could also work with a professional debt settlement company that can negotiate on your behalf.

Government debt relief

Depending on your situation, there may be a government debt relief program that’s appropriate. Here are three examples.

Offer in Compromise: This is an IRS program for helping you clear tax debt. You have to apply through the IRS and explain your situation. If you qualify, the government might let you clear your tax debt at a discount. Research Offer In Compromise on the IRS website.

Bankruptcy: This is a legal process for dealing with debt through the courts. As long as you include them in your bankruptcy filing, creditors must participate. Some people are eligible to walk away from their debts, but may be forced to give up some of their assets. Other people will be put on a payment plan lasting three to five years. The best way to get your questions answered is to schedule a consultation with a qualified attorney in the state where you live. Many offer this initial call for free.

Student loan forgiveness: The government may forgive the balance of your federal student loans if you qualify. For instance, if you’re on an income-driven repayment plan and you’ve made all of your scheduled payments for 20 to 25 years (depending on the plan), you might qualify to have your remaining debt forgiven. The StudentAid.gov website has the most accurate, up-to-date information about loan federal student loan forgiveness.

Debt management plans

A debt management plan (DMP) is a repayment plan set up by a nonprofit credit counseling agency. It’s for people who can afford to fully repay their debts but need some professional help. A credit counselor could help you:

  • Create and follow a budget

  • Establish good payment habits

  • Learn to reduce unnecessary spending

Your creditors may agree to reduce your interest rate and/or waive some fees. But you will need to keep up on your payments or your creditors could rescind their agreement to help you get through your DMP. 

A DMP requires income, so it may not be the best option for an unemployed person.

Managing debt without income

Most unemployed people get new jobs quickly, and we hope you will, too. 

Being unemployed may not lead to zero income if you’re eligible for unemployment benefits. But those benefits generally won’t replace your full income. You’ll probably want to economize, unless you have a large emergency fund and are pretty sure you’ll get another job soon.

If you don’t have money set aside, this is a great time to draw up a household budget. When you have to make less money go farther, it’s important to know where every dollar goes. Tjhat’s how you can prioritize essential spending. 

Quick money-saving ideas for when you’re in a financial pinch

Here are some things you can do that could help you get through a time of lower income.

  1. Call your creditors and ask them for help. They could offer to lower your interest rate, lower your monthly payment, or waive some fees.

  2. Trawl through your bank and card statements for purchases you can live without for now. Cancel subscriptions.

  3. Shop generics.

  4. Switch your mindset to financial survival mode. Ask yourself whether any purchase is necessary before you part with each cent.

This may sound grim, and living on a tight budget is certainly not fun. Getting through a financial crisis is never easy, but you can do it.

Debt relief success stories

It’s entirely possible to get relief from your debt, and to find stories shared by others who have as well. 

  • Kim shared that her debt relief program took a huge weight off her shoulders when she lost her job. Trustpilot, Sept 2024

A Reddit user qualified for $0 monthly payments on their federal student loans. It’s not clear whether this user is working or unemployed, but it shows that with low income, it’s possible to manage federal student loans

We looked at a sample of data from Freedom Debt Relief of people seeking debt relief during October 2024. The data uncovers various trends and statistics about people seeking debt help.

Credit utilization and debt relief

How are people using their credit before seeking help? Credit utilization measures how much of a credit line is being used. For example, if you have a credit line of $10,000 and your balance is $3,000, that is a credit utilization of 30%. High credit utilization often signals financial stress. We have looked at people who are seeking debt relief and their credit utilization. (Low credit utilization is 30% or less, medium is between 31% and 50%, high is between 51% and 75%, very high is between 76% to 100%, and over-utilized over 100%). In October 2024, people seeking debt relief had an average of 81% credit utilization.

Here are some interesting numbers:

Credit utilization bucketPercent of debt relief seekers
Over utilized30%
Very high32%
High19%
Medium10%
Low9%

The statistics refer to people who had a credit card balance greater than $0.

You don't have to have high credit utilization to look for a debt relief solution. There are a number of solutions for people, whether they have maxed out their credit cards or still have a significant part available.

Personal loan balances – average debt by selected states

Personal loans are one type of installment loans. Generally you borrow at a fixed rate with a fixed monthly payment.

In October 2024, 44% of the debt relief seekers had a personal loan. The average personal loan was $10,718, and the average monthly payment was $362.

Here's a quick look at the top five states by average personal loan balance.

State% with personal loanAvg personal loan balanceAverage personal loan original amountAvg personal loan monthly payment
Massachusetts42%$14,653$21,431$474
Connecticut44%$13,546$21,163$475
New York37%$13,499$20,464$447
New Hampshire49%$13,206$18,625$410
Minnesota44%$12,944$18,836$470

Personal loans are an important financial tool. You can use them for debt consolidation. You can also use them to make large purchases, do home improvements, or for other purposes.

Tackle Financial Challenges

Don’t let debt overwhelm you. Learn more about debt relief options. They can help you tackle your financial challenges. This is true whether you have high credit card balances or many tradelines. Start your path to recovery with the first step.

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