Unemployed? Here’s How to Keep Managing Your Credit Card Debt
- If you lose your job, you may not be able to afford credit card payments.
- Pay the minimum until you find a new job if you can afford to.
- Contact your creditors or consider debt relief options if you can't cover your bills.
Table of Contents
- How to Manage Credit Card Debt If You’re Unemployed
- 1. Assess your savings and survival budget
- 2. Determine if you can afford minimum payments
- 3. Ask credit card companies to work with you
- 4. Talk to a credit counselor
- 5. Consider a consolidation loan with a co-applicant
- 6. Look into a debt relief program
- 7. Consider bankruptcy
- 8. Give yourself a break
- Consult an expert
Although unemployment went down slightly last month — 13% in May compared to the record-high of 14.4% in April — it’s still at the highest levels since the Great Depression. Experts can only guess at how quickly the economy may recover; some expect it to bounce back once the coronavirus threat has passed, while others speculate that we could be in for a long, slow recovery similar to the Depression.
Regardless of how the economy overall is doing, what really matters is your employment situation. If you’re one of the more than 40 million Americans who filed unemployment claims since March, you may be concerned about your finances, and especially how to manage credit card debt when you don’t have income coming in like you used to.
Here are steps you can take to figure out what to do about your debt while you’re unemployed:
Assess your savings and survival budget
Determine if you can afford minimum payments
Ask credit card companies to work with you
Talk to a credit counselor
Consider a consolidation loan with a co-applicant
Look into a debt relief program
Give yourself a break
How to Manage Credit Card Debt If You’re Unemployed
Credit card debt was a $438.8 billion problem for Americans, even before the current recession. And while things may feel uncertain now, you are not powerless. Here are things you can do to help manage your credit card debt:
1. Assess your savings and survival budget
Add up all your necessary expenses (not including debt payments), and you’ll see how much money you need each month to get by. Now take the amount you have in savings and divide it by the amount you need each month for those essentials. The result will tell you how many months you can survive on your savings.
2. Determine if you can afford minimum payments
Repeat the calculation from step 1, but this time add in the minimum payments on your debts to the essential costs, which will give you a higher amount you need each month. How does this affect the number of months you can survive on savings?
Do you think you’ll be able to get another job before your savings runs out if you keep making payments on your debt? If yes, you could choose to make minimum payments until you get a job again, and pay extra once you’re employed to get back on track paying down the debt.
If you have to choose between spending your savings (or limited income from a side gig) on essential needs or credit cards, use it for essential needs. If you miss a credit card payment it will damage your credit score, but that’s better than not being able to eat or having a roof over your head. If in doubt, hold onto your cash until you have a reliable income source.
3. Ask credit card companies to work with you
If you contact your lenders and explain your circumstances, they may be able to help by lowering or deferring your monthly payment, reducing your interest rate temporarily, or waiving late fees. Keep in mind that interest may still build up, and you may need to agree to a payment plan once you have income again. If you have multiple creditors, you’ll need to go through this process with each one.
If the creditor agrees not to report you delinquent to the credit bureau, this approach can possibly protect your credit score and prevent collection calls. But if missed payments and compounding interest makes the credit card debt unsustainable, you may need to consider one of the other options below.
4. Talk to a credit counselor
If you still have some income, or your spouse still has income, a credit counseling program might help you get a lower interest rate on your debts and consolidate everything into one payment. However, your principal balance won’t be reduced and you’ll have to pay some interest, plus a fee, so this option may not work if you don’t have enough for the monthly payments.
5. Consider a consolidation loan with a co-applicant
It’s unlikely lenders will give you a debt consolidation loan if you’re unemployed, because you need to show you can make the monthly payments. So, a consolidation loan may only work if you have a qualified co-applicant who can willing sign the loan with you.
6. Look into a debt relief program
In a debt relief program, professional negotiators work on your behalf to negotiate down your debt so you don’t have to pay the full amount you owe.
As with credit counseling and consolidation loans, you need to be able to make monthly contributions toward paying down your debt, so if you don’t have income, then this is probably not the right option while you’re unemployed. It could be best to enroll after you have a job again and this program could be especially helpful if your debt balloons out of control while you’re unemployed.
7. Consider bankruptcy
While bankruptcy is usually considered a last resort, in some cases it may be the best way for you to handle the burden of high credit card debt, personal loans, and/or medical debt. Each state has their own rules about how to qualify and file for bankruptcy, so it’s best to consult a bankruptcy attorney licensed in your state. You can set up an initial consultation with an attorney to discuss your specific situation before you commit to this course of action.
8. Give yourself a break
Throughout this process, be compassionate with yourself. If you’ve fallen on hard times financially, there’s no need to feel shame or self-judgement. If your credit score goes down because you can’t balance credit card debt and unemployment, that’s not a moral failing. Cherish what you have besides material wealth and tap into your support network of friends and family, even if you need to do so from a distance.
Consult an expert
Looking for work is a full-time job by itself, so one way to save yourself some time is to talk to an expert on resolving debt. Long before the coronavirus hit, our Certified Debt Consultants have been helping Americans understand their options for resolving their debt after falling on hard times financially. If you’re ready, contact us now so we can help you find a solution customized to your situation that can put you on the path to a better financial future.
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