If you've currently found yourself unemployed, don't get discouraged....you're in good company. The unemployment figures in the US are higher than they've been in decades. Now that the unplanned and unwanted event has arrived, if you have a savings account, regardless of how much you've put into it, and you have some available credit lines, you'll have two tools that will be a huge help to you to get through this time without damaging your credit. Let's look at some steps that you'll need to take.
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Time To Recalculate The Family Budget
Sit down with your family, including your children, and discuss the situation. You'll need to talk about temporarily reducing expenses to keep in line with your now reduced income. Do not be embarrassed to talk with your kids about this situation. Children need to be aware of issues that are now going to affect the family and they'll also learn an important lesson of how adults deal with difficult situations and work together to overcome them.
Get Help From Credit Counselors If Needed
If you're afraid you're just not going to be able to make ends meet during this difficult time, look for an "accredited" credit counselor early on. A legitimate, certified credit counselor may be just the help you need to begin resolving your financial concerns. A credit counseling agency serves as an objective third party to help you sort through your problems, give you some credit education, offer personalized budgeting advice, and design a customized plan to get you out of debt at no charge or a very nominal fee.
Severance Pay From Your Employer
If you're lucky enough to be getting severance pay from your employer but have not received it yet, talk to your HR department and ask them to increase your "withholding exemptions" up to the maximum allowed. This will reduce the amount of tax that is withheld from your income and give you a little more cash in your pocket. Be aware that you may have more taxes to pay because of this strategy, but with reduced earnings and job hunting expenses that you may be able to write-off, you may offset this amount somewhat.
Stay Away From Cash Advances
Whatever you do, do NOT use cash advances on your credit cards as a way of generating income. The cost of using money this way is much greater than using the credit card to pay for it. Cash advance almost always come with extra fees and usually have a much higher interest rate associated with repayment.
Looking At Credit From A Different Perspective
Prior to becoming unemployed, you used credit to spend your income in a different way than carrying around your paycheck in your pocket. You also used it for purchases that took you some time to pay off because they cost more than you could initially afford. When you're not working, you don't have that paycheck coming in, so you may need to use credit for basic living and job-hunting expenses only. Remember, this is NOT the correct way to use credit on a regular basis, but as an alternative to getting through this temporarily insolvent time in your life.
Save Your Cash Until Last
Your cash cannot be replaced once it's gone, so use your credit first and save your cash for last. Pay with credit for your necessities as much as possible. Make sure you follow your new budget so you keep these charges to a minimum which will make your credit last as long as possible.
Employers May Pull Your Credit
Prospective employers often pull your credit report as part their requirements in order to offer you a job, so to maximize your chances of getting a job, you'll want the best credit you can possibly have.
Preserving Your Credit While You're Unemployed
o Keep your balances at less than 30-50% of your high credit limit. This will help keep your credit score as high as it can be. The closer your balance gets to your available credit limit, the lower your credit score drops, even if you make your payments on time every month.
o Make all credit card payments on time. Making credit card payments by no later than the due date has a 35% affect on your credit score. If you start to get behind on your payments, this could attract the attention of other creditors who begin to get nervous that you're going to do the same to them, and they may freeze, suspend or even close your account. If this happens, you will have less credit available to use during this time and it will also impact your credit score for two reasons. The first is the late payment and the second is if the account is closed, you no longer have the high credit limit on that account and that will also affect your overall debt-to-limit ratio.
o Pay the car loan first. A car can be repossessed in as little as two weeks. If you lose your car, how will you get to job interviews and eventually get to work in order to keep a roof over your head by paying rent or a mortgage payment?
o Pay your rent or mortgage second. You don't ever want to get more than 60 days behind on your mortgage. If you do, the foreclosure process will begin and this is a very difficult process to stop once it's started. If you're having trouble paying this bill, contact your lender immediately (preferably before your even 30 days behind) and see what programs they have to offer to help you during this time.
What To Do When You Run Out Of Credit And Options
If you aren't able to make any payments on maxed-out credit cards or credit lines and you still have no job possibilities coming up, something will have to be done. You only have three avenues to work with....income, expenses and credit. If credit is not an option, then income and expenses are your only other alternatives that you can change.
You'll need to revamp the budget that you prepared when you first became unemployed. Take a look at each and every item and determine where you can make some drastic steps to reduce these amounts. Can you move to a smaller place? Can you move in with friends or family? Can you sell things around your house to bring in some additional income? Consider taking a side job in the interim to tide you over until you can find something in your field. If you need income, you may have to take what you can get for awhile.
This time can be very stressful, but try to keep in mind that you will come out stronger that you went in, given time and perseverance.
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