How to Cope and Consolidate Your Credit Card Debt When Unemployed
- UpdatedOct 31, 2024
- Debt consolidation can help you streamline your monthly payments.
- A debt consolidation service may require proof of income to qualify.
- Debt negotiation is one alternative you might consider if unemployed.
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Being out of work can be stressful since you still have bills to pay. If you're unemployed, credit card debt could feel particularly burdensome.
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 services usually require 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 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 can help you figure out an action plan for managing it while you're out of work.
Here's how to take stock of your credit card debt:
Make a list of your credit cards, including the creditor 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 can 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.
Four 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 Benefits (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 cut, 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.
Five ways to manage your credit card debt while unemployed
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.
If you need… | Consider… | How to get credit card relief | You should know |
---|---|---|---|
Short-term relief | Forbearance (temporary break from payments) | Contact your credit card issuer | Interest may still accrue |
Help with budgeting | Credit counselor | Search on NFCC.com | Won’t reduce what you owe |
Streamlined payments | Debt consolidation loan | Compare online and get rate quotes | You may need a cosigner if you’re unemployed |
A lower interest rate or more time to pay | 0% balance transfer | Compare online | Requires good credit |
Lower your debts | Debt relief | Talk to a certified debt consultant | Credit score might drop |
Fresh start | Chapter 7 bankruptcy | Talk to an attorney | You might have to give up assets |
Debt Relief Options for the Unemployed
If you’re unemployed and finding it impossible to keep up with credit card payments, debt settlement could be an option. Debt settlement means negotiating to pay a reduced portion of what you owe. Here's a closer look at how it works and how unemployment can affect eligibility:
Debt Settlement: How It Works
You can try to settle debts by yourself. Or, a professional debt settlement firm could try to settle your debts for you. Here are the phases of debt settlement:
Negotiation Process. This starts with looking at your income and assets to decide how much you can pay towards your debt. Then either you or your debt settlement firm 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 may should regularly set aside some money. This can go towards 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 towards 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, your credit standing is likely 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 anyway 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.
Benefits of debt settlement
Settling your debts may involve some sacrifices. You may have to put some of your limited resources toward a settlement offer. Your credit score may suffer if you miss payments during the negotiation process.
In return, debt settlement can offer a quicker path out of your debt problems. Once you clear a debt by settling it, it’s done. Collection efforts stop. Putting debts behind you could also allow you to start rebuilding your credit.
Other Debt Relief Options
Debt settlement is just one option for dealing with debt that you can’t afford to repay. Debt consolidation or credit counseling are other options that might provide some relief. However, these alternatives often require a steady income. That could be a barrier during unemployment.
Debt relief stats and trends
We looked at a sample of data from Freedom Debt Relief of people seeking debt relief during September 2024. The data uncovers various trends and statistics about people seeking debt help.
FICO scores and enrolled debt
Curious about the credit scores of those in debt relief? In September 2024, the average FICO score for people enrolling in a debt settlement program was 581, with an average enrolled debt of $24,531. For different age groups, the FICO scores varied. For instance, those aged 51-65 had an average FICO score of 585 and an enrolled debt of $27,303. The 18-25 age group had an average FICO score of 549 and an enrolled debt of $14,301. No matter your age or debt level, it's reassuring to know you're not alone. Taking the step to seek help can lead you towards a brighter financial future.
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 September 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 loan | Avg personal loan balance | Average personal loan original amount | Avg personal loan monthly payment |
---|---|---|---|---|
Massachusetts | 42% | $14,653 | $21,431 | $474 |
Connecticut | 44% | $13,546 | $21,163 | $475 |
New York | 37% | $13,499 | $20,464 | $447 |
New Hampshire | 49% | $13,206 | $18,625 | $410 |
Minnesota | 44% | $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.
Support for a Brighter Future
No matter your age, FICO score, or debt level, seeking debt relief can provide the support you need. Take control of your financial future by taking the first step today.
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Can you stop credit card payments if you're unemployed?
If you're unemployed, you can stop making credit card payments, but that could trigger late fees and lead to your account being sent to collections. A better solution is to reach out to your credit card issuer to find out if any hardship or forbearance programs are available that might give you a temporary break from having to make payments.
Can unemployment be garnished for credit card debt?
Unemployment benefits can't be garnished for credit card debt. You may, however, be subject to unemployment garnishment if you owe federal or state taxes, court-ordered child support, or federal student loan debt.
Is there a credit card debt forgiveness program?
Credit card debt can't be forgiven through a federal program the way student loans can, but it's possible to seek credit card debt relief. For example, you may be able to get relief by negotiating your credit card debts. That'd allow you to pay back less than what's owed and have the remaining balance due canceled.
How does credit card debt impact unemployment benefits?
It's more difficult to make regular debt payments while unemployed. On the other hand, unemployment might help convince a creditor to accept less than you owe. There's also a question of whether unemployment benefits can be garnished to pay credit card debt. This varies from state to state.