How to Cope and Consolidate Your Credit Card Debt When Unemployed

Being out of work can be stressful since you still have bills to pay. If you're unemployed, credit card debt relief could ‌feel particularly elusive.

You might be wondering whether debt consolidation for unemployed people is an option. Consolidating credit card debt could help you lower your monthly payment or your interest rate, or both. 

Qualifying for debt consolidation when unemployed can be challenging, since debt consolidation lenders usually want you to have a steady income. However, it's not an option you should count out entirely if you're unemployed with credit card debt. 

How to Get a Debt Consolidation Loan While Unemployed

Debt consolidation is a way to bring multiple debts into one payment. Ideally, your consolidation loan is at a lower interest rate compared to the debts you want to consolidate. A lower rate could lower your monthly payments or save you money in the long run. 

You don't need to have regular employment to get a debt consolidation loan. However, you do need to have some sort of income. How much income, and what your loan options are, will depend on whether you also have:

• Assets or other collateral

• Good credit scores

For example, if you have income from a side hustle or rental property and good credit, you may qualify for a balance transfer credit card or personal loan with a decent rate.

Similarly, if you own your home and have some source of income, you may qualify for a home equity line of credit (HELOC). These types of loans are secured by your home, so they can be easier to get. If you don’t repay the debt, you could lose your home. 

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How to Negotiate Your Credit Card Debt

How to Consolidate Your Credit Card Debt With Bad Credit

Loans and credit cards are probably off the table if you have bad credit and no assets, even if you have a secondary source of income. You're not out of options, though.

Negotiate with your creditors for debt settlement

Debt settlement isn't consolidation, but it could help you deal with unsecured debt. In debt settlement, your creditors agree to accept less than you owe and forgive the rest.

You can negotiate with your creditors on your own or hire a professional debt settlement firm to attempt to settle your debts for you. Here's how debt settlement works:

• Negotiation process. This starts with looking at your income and assets to decide how much you can pay toward your debt. Then either you or your debt settlement company would negotiate with your creditors. The goal is to convince them to accept less than the full amount you owe. The key to this is demonstrating that you couldn’t reasonably afford to pay any more than what you’re proposing. 

• Monthly deposits. During the negotiation process, you should regularly set aside some money. This can go toward making a settlement offer more attractive to your creditors. The amount of income you have available for monthly deposits may be very limited during unemployment. In that case, you may have to consider putting savings or other assets toward debt settlement. 

• Impact on credit. You may not be able to make debt payments during the negotiation period while you’re saving money for settlement offers. If you stop paying your debts, expect your credit to suffer. Your creditors may pursue you for collection, including by filing lawsuits. Even if you don’t pursue debt settlement, your credit score could suffer if you're struggling to make payments or have fallen behind. 

Debt settlement is one strategy for putting your debts behind you. Once your finances are stable, you’ll be in a better position to rebuild your credit standing. 

Eligibility for debt settlement while unemployed

Debt settlement companies generally ask you to put aside some of your income for a settlement offer. This might be difficult if you’re unemployed. In that case, some debt settlement companies may make allowances for this situation:

• Flexible solutions. Some debt settlement companies may tailor an approach to fit your resources. If you’re unemployed, this may involve considering alternatives to using a portion of your regular income. 

• Options for the unemployed. Alternatives to regular income may include savings, severance pay, or unemployment benefits. You may also have other assets to tap into. Look for a debt settlement company that will understand your situation. That way, they can help you explore whatever options are available.  

If you have no income and no money, bankruptcy might be an option to consider.

Get a debt management plan (DMP) from a credit counselor

If you have enough secondary income to make debt payments, you could try credit counseling from a nonprofit credit counseling agency. Credit counselors go over your finances with you, answer questions, and help you create a budget. 

A credit counselor may also help you establish a debt management plan if you qualify. Under a DMP, the counselor will contact your creditors to try to negotiate a lower interest rate on your debts and perhaps get some fees waived. 

They’ll establish a repayment plan that consists of one monthly payment you make to the credit counseling agency. The agency will then pay your creditors on your behalf. This consolidates all of your enrolled credit card debts into one payment that may be easier to manage.

How to Take Stock of Your Credit Card Debt When You Lose Your Job

Losing a job isn't pleasant, especially when it's unexpected. If you have credit card debt, reviewing what you owe is the first step when you need to figure out an action plan.

Here's how to take stock of your credit card debt:

• Make a list of your credit cards, including the creditor’s name and the current balance.

• Note the minimum payment for each one and the monthly payment you've been making up to this point. 

• Review your monthly due dates.

• Look at any automatic or recurring charges that are linked to your card. 

If you can cancel any automatic or recurring charges, that should help keep your balances from increasing. For example, if you normally charge streaming subscriptions to your card, you might want to cut those expenses out of your budget temporarily. 

The goal here is to get a better idea of what you owe and where credit card debt payments fit into your budget. You can also consider downloading a free budgeting app that lets you see all of your accounts in one place.

4 Steps to Take When You're Unemployed and Struggling to Pay Your Bills

Paying at least the minimum due on your credit cards while unemployed can keep you from falling behind. However, if you've run the numbers and you don't think you'll be able to manage your credit card payments or other bills while unemployed, there are a few things you can do to cope.

1. Contact your creditors

When credit cards go unpaid, you can eventually land in default. That can lead to your account being sent to collections and in a worst-case scenario, your creditor might sue you for the balance.

Credit card issuers don't want that and you don't either, since a creditor lawsuit can hurt your credit and‌ result in wage or bank account garnishments. If you're worried about making your payments on time, it's smart to reach out to the credit card issuer as soon as possible.

Your credit card issuer might have a hardship program for people who are unemployed. Benefits might include:

• Fee waivers

• Interest rate reductions

• Payment forbearance

Every credit card issuer has different policies for hardship. The best way to find out what your card issuer offers is to call the customer service number on the back of your card. 

2. Apply for government aid

There's no federal credit card debt relief program, but you might qualify for other types of aid that can help you pay the bills. 

For example, you might be able to get:

• Unemployment benefits

• Help with utility bills through the LIHEAP program

• Supplemental Nutrition Assistance Program (food stamps)

• Temporary Assistance for Needy Families (TANF)

• Federal student loan forbearance

You can start by applying for unemployment benefits with your local unemployment agency. Unemployment could help to cover your basic household bills until you can get back to work. 

If you're not sure what else you might qualify for, you can check with your local social services office. Someone there should be able to tell you what type of federal or state government aid programs you may be eligible for. 

3. Watch your budget

Fine-tuning your budget while you're unemployed can help you cut out any unnecessary spending. Some of the things you might try to reduce or cut include:

• Streaming services

• Gym memberships

• Eating out

• New clothes

• Hobbies or recreation that cost money

• Entertainment (i.e., going to the movies, buying concert tickets, etc.)

• Travel

What you cut can depend on your budget categories and how much income you have to work with. The more you can trim, the further your money can go. 

4. Try avoiding running up more debt

Being unemployed with credit card debt can be a catch-22—because you might need to use your cards to cover basic expenses.

That's completely understandable if you haven't been able to get unemployment benefits yet or you don't have a lot of money in emergency savings to pay the bills. But it's a good idea to avoid using your cards if you can. 

The less you have to rely on credit cards (or loans) to get by until you're able to find a new job, the less debt you're adding to the pile. 

Compare Debt Management Strategies

If you're trying to stay on top of your credit cards while unemployed, you've got some options. Comparing each one can help you decide which path makes the most sense for your situation. 

Here are some of the different ways to approach credit card debt when unemployed.