4 Ways to Manage Credit Card Debt When You’re Unemployed
Unemployment — whether you’ve been laid off, are having difficulty transitioning to a new career, or aren’t able to work due to another hardship — can make money management seem overwhelming.
This is especially true if you already have credit card debt on top of other bills, as even a short stint without income can be enough to miss payments and fall deeper into debt.
According to November 2018 data from the Bureau of Labor Statistics, around 35% of those who are unemployed find a new job in less than five weeks. However, 35% also remain unemployed for 15 weeks or more.
The good news is that there are ways to manage your credit card debt when you’re unemployed. Here are four strategies to consider.
4 strategies to tackling credit card debt on no income
If you’re looking to tackle your credit card debt while unemployed, you first need to understand your finances. From there, you can seek out assistance from creditors, counselors and community organizations.
1. Work on your budget
Ellen Billie, programs director at AAA Fair Credit Foundation, a nonprofit credit counseling agency, says the first step when you become unemployed is to figure out how much you’re spending, what you’re spending on and where you can adjust your budget.
“A lot of people don’t know where their money goes,” Billie said. “So sitting down and looking at your statements, your receipts, however you keep track of it — or maybe you don’t. Really look at it and see where you can cut back and where the needs versus wants are.”
Budgeting can be difficult, but there are a number of methods to fit different needs.
Billie adds that if possible, you should try to direct some of your cash toward an emergency savings account, especially if you don’t already have such funds. A recent LendingTree survey found that less than half of Americans can cover a $1,000 emergency — like job loss.
“Emergency savings are so, so important especially when you don’t know how long you’re going to be unemployed,” she said.
2. Call your creditors
Billie recommends calling your creditors if it looks like you’ll have trouble paying your bills. Some credit card companies and even local banks may allow you to skip a payment or two, or pay the minimum while you’re unemployed, which can provide some relief.
Your creditors may also offer formal credit card hardship programs, which provide relief to those who have experienced job loss or other financial difficulties. These programs come with lower interest rates and fee waivers to allow you to keep up with a realistic payment amount and schedule. You can expect a hardship program to last six months to a year.
It’s unlikely your credit card company advertises this option, so it’s best to call and ask for the hardship department or customer assistance to discuss options. Don’t reveal too much about your financial situation upfront, as your creditor can use this information change your credit limit or account access.
Keep in mind that hardship programs do come with caveats. Your creditor may close your account, which could impact your credit score. And if you miss a payment, you’ll be dropped from the program.
Not all creditors will offer this type of flexibility, but you won’t know if you don’t ask.
3. Seek help from government agencies and nonprofits
You don’t have to go through job loss and debt alone.
If you don’t know where to start or just want a second opinion on dealing with your debt, seek out a nonprofit credit counseling agency. Credit counselors can look at your financial situation, provide you with money management information and tools, and help you get on a debt management plan. They can also connect you with resources and services in your community.
For example, while financial help centers and counselors can help you rethink your budget, you may also be eligible for services from the Supplemental Nutrition Assistance Program (SNAP), Temporary Assistance for Needy Families (TANF) and other programs through your state’s Department of Workforce Services.
Billie recommends those who are unemployed seek help from DWS employment programs and counselors who can direct you to specific resources, which may include unemployment benefits and other local or state assistance grants. For example, Utah’s HEAT program provides funds to cover utility bills for eligible households in the winter.
Unemployment benefits, also called unemployment insurance payments, are a form of financial aid for workers who lose their jobs. These benefits provide the cash to cover your bills, especially your basic living expenses, such as your rent, utilities and groceries.
Unemployment benefits are a percentage of your earnings over the last year. In most states, you can collect unemployment for up to 26 weeks.
Each state runs its own unemployment insurance program, so you’ll have to file a claim with your state’s unemployment agency. To stay eligible, you’ll also have to submit information about income earned and job offers received.
Even if unemployment benefits aren’t enough to make a dent in credit card debt, they can help keep you afloat so you don’t rack up more.
4. Consolidate your debt
If you have multiple credit cards in the red with different monthly payments and due dates, consolidating your debt can help you better manage your bills so you don’t fall further behind. Some debt consolidation methods may even save you some money in interest and fees.
Debt consolidation loan
With a debt consolidation loan, you can pay off some or all of your individual credit cards and make one monthly payment to a single lender.
Personal loans come with fixed rates and predictable monthly payments, and you can qualify with a credit score as low as 560. In some cases, you may get a better interest rate on your loan than you have on your credit cards, but the best interest rates are reserved for borrowers with higher scores.
LendingTree’s personal loan tool can help you find and compare loan offers from lenders, although there’s no guarantee that you’ll receive an offer or your desired interest rate.
Home equity loans and retirement accounts may also serve as consolidation options to pay off credit card debt. However, these come with certain risks, especially if you don’t have an income, so you should consider other alternatives first.
Balance transfer credit card
Like a personal loan, a balance transfer card allows you to pay off your original creditors and consolidate your debt onto a single credit card. Look for a balance transfer card that has a lower interest rate than your existing accounts or a promotional 0% APR typically for 12 to 21 months.
The benefit of a balance transfer credit card — on top of streamlining payments — is the potential to cut the interest you owe. However, some cards have fees, and if you can’t pay off your balance before your promotional period ends, you’ll get hit with a higher APR and possibly deferred interest.
Debt management program
If you are struggling to qualify for a debt consolidation loan or balance transfer card, a nonprofit credit counseling agency may be able to put you on a debt management plan.
If you do enter a debt management program, your credit counselor will negotiate with lenders you owe to reduce fees and interest rates, and arrange more manageable terms. You’ll make a single monthly payment, which the agency then distributes to your creditors.
Debt management isn’t exactly like other consolidation options because your debt remains with the original creditors. However, it can help you streamline your payments so you don’t continue to dig a deeper hole. You must be able to make consistent monthly payments, which may be challenging if you don’t have income — there are also program enrollment and monthly fees to consider.
The bottom line: Debt consolidation isn’t right for everyone. Some options come with transfer or origination fees attached, which can be a burden if you’re already strapped for cash. Plus, debt consolidation doesn’t erase what you owe, nor does it prevent you from spending more than you can afford. If you can’t make minimum monthly payments on your consolidated debt, it likely isn’t the best option for you.
It is possible to keep up with your credit card debt when you’re unemployed, but these bills shouldn’t come at the expense of basic needs like housing and food.
“Food and shelter, obviously, are pretty important, because it can be even more difficult to work on getting a job and getting your life back together if you’re homeless,” Billie said. “So definitely think about mortgage payments, rent payments, that kind of thing.”
If you do become unemployed, don’t hesitate to seek help to determine the best steps to take.