How to Handle Credit Card Debt when Unemployed

Losing your job is already stressful. Trying to manage credit card debt while also working a full-time job can be downright terrifying. Fortunately, by following a few pointers, you can keep yourself busy until you find a new job. Begin by creating a budget and attempting to save as much money as possible. Also, if you need to suspend or reduce payments on your credit cards, contact the companies directly. If nothing else works and you continue to fall deeper into debt, you may want to consider credit counselling or even bankruptcy.

Part 1 Budgeting Properly

1. Determine the amount of your current credit card debt. Before you do anything else, you must first determine your total debt load. Take out your monthly statements and total your debts. Check your online account for the most recent balance.

Take a look at interest rates as well. Are you paying 20.99% interest on one card but only 10.99% on another? If this is the case, you may be able to transfer balances to a card with a lower interest rate.

2. Reduce your spending. You must stretch your savings until you can find a new job. As a result, go over your budget and identify any expenses that can be reduced. You can easily cut back on your spending on entertainment, restaurant meals, and travel.

It’s a good time to reconsider whether you actually use your gym membership or Netflix subscription. Cancel them and keep the money.

You may need to move in with relatives or friends depending on your financial situation.

Rent is many people’s largest monthly expense, and moving in with someone is the best way to save money.

3. Pay the bare minimum. You’ll need money for a variety of expenses, including your mortgage/rent, groceries, and utilities. Don’t spend your entire emergency fund or savings on credit card debt. Reduce your credit card payments to the bare minimum.

Paying the bare minimum will cost you more in the long run. When you’re unemployed, however, it’s critical to keep some cash on hand. If you run out of money, your only options are to go deeper into debt or to declare bankruptcy.

4. Spending should be prioritised. Prioritize necessities over debt and debt over luxuries. You must take care of yourself, which means that rent, medicine, and food must take precedence over debt payments.

5. If at all possible, avoid incurring new debt. To make ends meet, you may feel compelled to obtain a new credit card or a cash advance. You should refrain from doing so. You’ll only get deeper into debt and feel more stressed as a result.

Instead, seek a loan from friends or family. You may be embarrassed to admit that you are having financial difficulties. Explain your situation and the steps you’re taking to find a new job, however.

Check to see if you can get a balance transfer credit card as an exception to the “no new debt” rule. For a limited time, these cards have an introductory APR of 0%. Transfer your existing balance to the card to lower your monthly payments. However, because you are unemployed, you may have difficulty obtaining a balance transfer card.

6. To raise funds, sell items. You may not be able to find a new job right away. You can still raise funds by selling items you no longer use. Give your house a good spring cleaning and see if there’s anything you can sell.

You can sell large items on Craigslist, such as furniture. You would be surprised at how many people respond.

Smaller items, such as clothing and electronics, can be sold on eBay, which is ideal for items worth $5 to $10.

Everything else can be sold at a yard or garage sale.

7. Take on temporary positions. Every bit of money that comes in helps. You can do temp work to supplement your income while you wait for your dream job to become available. Consider doing freelance work as well. You could possibly write articles or design websites.

Part 2 Working with Your Creditors

1. Get your facts straight. Many credit card companies will work with you if you are unable to make the minimum payment due to circumstances beyond your control. However, before you pick up the phone, you must know exactly what to say to them.

Many credit card companies, for example, will be sympathetic if you’ve lost your job. They do, however, want to know what you’re doing to find a new job and when you expect to be successful. Make a plan and write it down so you can explain it to someone at the credit card company.

You should also be prepared to discuss your financial situation. The credit card company wishes to know how much you are willing to contribute to your debt.

2. Determine which cards require assistance. You may have balances on several credit cards. However, you are not required to seek a payment reduction with each and every card. Ideally, you’ll be granted forbearance on some but not all of your cards.

When a creditor learns that you are experiencing financial difficulties, they may reduce your credit limit to the balance or even close the account. There’s no reason to inform all of your creditors of this.

If you can make at least the minimum payment on a credit card, you should do so.

3. Request assistance from the company. Call the company using the phone number on the back of your credit card. Inquire about their forbearance programmes (also referred to as “hardship payment plans”). The person who answers the phone is unlikely to be able to assist you, so request to speak with the mitigation department or a credit manager. Your creditor may assist you by doing any of the following:

Lower your interest rate

Stop assessing late fees

Allow you to skip payments until you’re back on your feet

4. Take careful notes. Obtaining forbearance is not easy. You’ll almost certainly have to talk to a lot of people, some of whom will contradict each other. As a result, you should take careful notes during every conversation.

Take down the name and phone number of whoever you speak with. Also, summarise the main points of the conversation.

5. Negotiate. Your credit card company may not agree to assist you right away. This means you’ll have to bargain. Explain your financial situation completely and honestly. Don’t take the first “no” as a yes.

You have a lot of negotiating power with credit card companies. Your credit card companies will be completely wiped out if you declare bankruptcy. It is in their best interest to assist you.

Also, agree on how the account will be reported to credit reporting agencies. If the creditor insists on closing the account, have it marked as “closed by consumer.”

Of course, if you are still current on your accounts, your creditor may refuse to assist you. They may only agree to forbearance if you have missed payments.

6. Complete all payments. If you miss a payment, your credit card company will cancel any hardship payment plan. As a result, you must maintain your financial discipline and remember to make timely payments.

7. Take a job. Hardship repayment plans are usually only available for six months to a year.  As a result, this is a temporary solution to a cash crunch caused by unemployment. You’ll need to find work or another source of income as soon as possible.

While you are in forbearance, your credit will be frozen, so don’t plan on using your credit cards to pay bills.

If you are unable to find work, you should consider other options, such as bankruptcy or debt settlement. Debt will not go away on its own.

Part 3 Settling or Wiping Out Debt

1. Consult a credit counsellor. Credit counsellors can assess your financial situation and assist you in developing a credit card debt management plan. You can also enrol in a debt management plan with a credit counsellor if necessary. They will basically negotiate with your creditors to waive late fees or penalties. They might also persuade your creditor to lower your interest rate.

Look for non-profit credit counsellors. Credit counsellors can be found at credit unions, local housing authorities, and universities.

Never work with a credit counsellor who requires an upfront fee or financial information before discussing their services.

Debt management plans will appear on your credit report, and you will be unable to obtain new credit until you complete the plan. However, your credit score should not suffer.

2. Consider debt consolidation. Debt settlement is a more drastic solution than a debt management plan. You will cease making payments to your creditors. Instead, you’ll save enough money to make a one-time payment. If you are successful, your creditors should accept a portion of your debt (around 40-60% of the total) and waive the remaining balance.

Your credit score will suffer as a result of your failure to make payments. You could also be sued, which could result in the loss of property or the garnishment of future wages.

There is no guarantee that the credit card company will agree to settle a debt for less than the amount owed.

 As a result, you may end up destroying your credit with little benefit.

There are numerous debt settlement companies available. Before you sign up for any of them, do your homework. They should provide you with a list of required disclosures as well as a signed contract.

3. Consult with a bankruptcy attorney about your options. You may be concerned about bankruptcy, which is understandable. A Chapter 7 bankruptcy can remain on your credit report for ten years, making it difficult to obtain credit. Nonetheless, bankruptcy is sometimes the best option, and you should discuss your situation with a bankruptcy lawyer.

Chapter 7 and Chapter 13 are the two most common types of consumer bankruptcies. Both can be used to pay off credit card debt. They are, however, distinct, and you should investigate those distinctions.

If you have no assets (such as a home or car), a Chapter 7 bankruptcy is the best option. You can get rid of your credit card debt quickly.

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