When you lose your job, your work, mental, and financial life changes significantly. You used to pay your bills every month, but now your income is much lower than it used to be.

So, while looking for ways to get back into the job, you must also change your daily life to fit your new financial situation.

Even though the number of unemployed people has decreased since the coronavirus outbreak began, many people are losing their jobs or having their hours cut. As of July 2023, the Bureau of Labor Statistics says that 3.5% of people are jobless.

If you are one of these people who have been laid off, it can be hard to plan for the future and figure out which short-term financial goals are most important. You have choices if you owe money to creditors, which makes it harder to manage your money and keep your credit score high.

The consequences of being unemployed

Unemployed people are likely to face several problems. The longer someone is out of work, the worse these problems get. People usually have the following difficulties while experiencing unemployment:

Getting less earnings

Because they don't have a job, unemployed people have less money coming in. Because having a job gives a person money, not having a job takes away that money, leaving the person with less money.

People who are jobless and have no other way to make money often have to use their savings or borrow money to pay for things like food and rent. People who are unemployed and the main breadwinner in their family have it even harder because they have to find money for their own wants and those of their family members.

High debt-to-income ratio

When you don't have a job, your income decreases, but your bills remain intact. As a result, your DTI ratio or Debt-to-income ratio goes up. If your DTI is high, more of your money is already going toward paying off your debt. If your DTI ratio is low, you have more money to spend. If your debt-to-income ratio is low, lenders will see that you have a good mix between your debt and income.

Credit card bills not paid on time

If you don't make your minimum payments on time, you may have to pay late fees, and your credit card company may charge you a penalty APR, in which the interest rate on your unpaid amount goes up. Once you get a penalty APR, it's likely to last at least six months, even if you pay your bills on time after that. But don't think the worst if you miss one payment. Contact your credit card company that issued the credit card. Explain that you missed a payment, and check if they are willing to waive the late fees. Some credit card companies don't charge a late fee for the first time you miss a payment because they know everyone makes mistakes.

If you can't pay your credit card bills in full, try to at least make the minimum payment on time every month. Try to pay off your credit card debt within 30 days of the due date. If you don't pay on time, your credit score could decrease, and you might get calls from debt collectors. Your credit card issuers might block your accounts if you keep missing payments. Plus, the missing credit card payments will stay on your credit report for up to seven years, putting a bad mark on your credit history.

Missed loan payments

Most personal loans are uninsured, which means you don't need anything as security to get the money. Even though this means the lender can't take anything from you, it doesn't mean you won't have to deal with anything.

Usually, unemployed people who don't pay their monthly payments may face this pattern:

• After 30 days, your lender will warn you and charge late fees. Your score may start to go down.

• After 60 days, your lender will probably contact you more, you may have to pay more fees, and your credit score may continue to drop.

• After 90 days, the damage to your credit will be enormous and take a long time to fix.

• After 120–180 days, your lender may write off your debt, which will hurt your credit score for a long time. Sometimes, the loan may sue you in court to get the money back.

If your loan is backed by collateral, like your home, and you don't pay the mortgage payments, the mortgage lenders could take your collateral to recover the loan. The same outcome might happen regarding a home equity loan.

Facing difficulties in getting a new job

According to a survey by Indeed, telling a company you are unemployed might not help your chances of getting hired. People looking for work said having a job makes it easier to find a new one.

About 83% of the companies surveyed agreed, and there were many reasons for this. For example, someone who has been out of work for a while is likelier to want a job than someone who already has one. Employers usually prefer people who take their time to apply for jobs over those who try to get hired quickly so they can start working.

Try sending a creative job application to get the attention of the hiring boss and make yourself stand out from the crowd.

Lesser chances to negotiate with the new employer

Someone who needs a job may have less room to negotiate than someone who wants a job to grow or make more money. A job seeker who already has a job can talk to a boss about what they wish to do regarding pay and benefits. The job hunter might even counter the employer's offer and talk about the experience they'd bring to the company.

But someone who hasn't had a job for a while probably doesn't have as much power to get a better deal. They might feel like they have to take the first offer from the company, even if it doesn't quite meet their needs.

Gaps between jobs can create a bad impression

Employment gaps are something that many companies look for when reviewing resumes to find the best person to hire. When companies see a gap on a resume, it can sometimes send the wrong message. For example, a one-year gap between jobs might make a hiring manager wonder about an applicant's drive and work skills. The job applicant would then have to try to explain the gap in an excellent way to the company.

Bad effects on the family

Unemployment can also hurt the people who live with those out of work. Society for the Psychological Study of Social Issues says that jobless people are less happy with their families and marriages and have more problems with their families than those with jobs.

The study also found that the worry of being unemployed can hurt the health of a person's partner. Some studies have also shown that the average income of the children of people who are not working is less than that of those working.

Problems with health

Unemployment can also damage an individual's physical health massively. Being out of work is very stressful and can trigger health problems like headaches, back pain, diabetes, high blood pressure, heart disease, and insomnia. Most of the time, these health issues can trigger more visits to the doctor and extended use of medications.

Unemployed people are more likely to have health problems because it may be hard for them to get medical care. Many people depend on their income to get good health insurance. So being unemployed, they may not be able to get the proper medical care. A person's health can also worsen if they are unemployed because they often skip doctor's visits to save money.

Unemployment can hurt a person's health if they can't afford to go to the doctor. A study from the University of Nevada found that working people are four times more likely to access health care than jobless people.

People who are out of work are also less likely to spend money on things like gym membership or healthy food. By ignoring such preventive steps, people may increase the risk for their health.

Mental health challenges

The Penn State and the University of Nevada studies found that unemployment affects mental health. The results from the University of Nevada are beneficial. Researchers found that people who have been out of work for over a year are much more likely to get depressed, stressed, or anxious. People who had been out of work for a long time were also more likely to be admitted to hospitals for mental health.

Studies have shown that unemployment makes people more likely to show signs of depression. Anxiety is another problem that jobless people often have with their mental health. Unemployed people often have worse mental health than those who are working. Unemployed people also tend to have worse mental health days than working people.

Another study found that unemployment is linked to all of the above mental health problems and psychosomatic symptoms, lower emotional well-being, and lower self-esteem. They found that unemployed people were twice as likely to have cognitive problems as working people.

Less overall happiness

Researchers in Germany studied data from men and women in their early 20s when the study began. The goal was to learn more about unemployment. Researchers found that people who were always jobless were less happy with their lives than people who had jobs. The study also found a link between unemployment and a higher chance of dying and having mental health problems.

So, if you just lost your job, keeping your finances in good shape might seem challenging, if not impossible. When you're out of work, it can be scary to think about everything you need to do to get back on your feet financially. With the proper steps and a careful approach to your spending, you can stay on top of your budget and get out of debt.

15 strategies to get out of debt when you are unemployed

Here are the key strategies:

1. Make a budget to survive

When you lose employment, you should first figure out how much money you have and make a budget to help you get by. You should have saved some money for emergencies. Add any other income sources, like unemployment payments, severance pay, and any part-time jobs you can get.

First, take care of your family, then your debtors. Get rid of any bills that aren't necessary. The goal is to cut as many costs as possible so you can pay for things you need, like food and a place to live.

For example, if you have an expensive cell phone and a landline, get rid of one while you're out of work. You may go one step further by reducing your cell phone plans.

Cut back on any services you can do without for a while, like premium cable TV channels, a lawn service, or a membership to a newspaper or magazine. Lessen how much you eat out and start saving coupons.

Brian Clark, Founder and CEO, United Medical Education added - "Consider selling items you no longer need or taking on freelance gigs, remote work, or temporary jobs to generate income during this period. While it may be challenging, maintaining a strict budget and exploring alternative income sources can help you gradually tackle your debt and improve your financial situation".

2. Look out for options to increase your income

There are many ways to make more money while looking for a new job. You should look into some immediately and others only if you are in a bind.

Personal Savings

If you have planned, you may have set up an emergency fund with enough money to cover three to six months of living costs. If you need extra money, you can take it from this fund. If you have this, it's a great way to make money. Many people don't realize how quickly a savings account can run out of money when used to pay daily expenses.

Severance payment

If you are fired, you might be able to get retirement pay. How much you get will depend on the rules set by your company. You can choose between getting a big sum or keeping your salary. If you take a lump-sum payment, you will have instant access to your money but may lose your employee benefits. If you take a continuation of pay, you may keep your benefits, but you'll have to trust the company that fired you to stay financially stable.

Part-time or short-term work

If your situation worsens, you might want to consider getting a short or part-time job to add to your income. Two things make this a possible good idea.

First, knowing that you have at least some regular cash will make you feel less stressed. Second, you might be able to turn a part-time or temporary employment into a full-time job or gain knowledge that may assist you in your job search. Third, it will be easy to set up interviews if you can choose where and when you want to work, which is the case with many casual jobs. Even if you take a job that you don't think will lead to a career, you'll feel better just getting out of the house and doing something.

Unemployment insurance

When you lose your job, one of the first places you should look for money is the employment office in your state. But you can only get unemployment benefits if you meet specific requirements. Mostly, you have to be unemployed on purpose. This means you can't get unemployment benefits if you quit your job, but you should look into it if you were laid off or fired for no good reason.

Ben Lau, Founder, Featured SEO Company explained with example - "If someone receives $500 per week in unemployment benefits and has $5,000 in credit card debt with a high interest rate, they could allocate a portion of their benefits each week to pay off the debt. Let's say they allocate $200 every week towards debt repayment. In just 25 weeks, they would have paid off their entire credit card debt".

States have different rules and benefits, so it's hard to say how much you'll get. But if your application is accepted, you should start getting rewards quickly, usually within a week or two. See Unemployment Compensation if you want to learn more about this.

3. Spend less money

You could try some different ways to save money. Getting a roommate is an easy strategy to get out of debt when you don't have a job. You have to pay your mortgage or rent, so having a roommate can help with that.

Talk to your owner about it. You could also try to work something out with your owner. You could offer to take care of repairs or find renters for the rest of the building in exchange for a lower rent. You could also move to a less expensive place or move back with your family. If you own your home and are in debt, finding a roommate or renting out a room would be better. It's not ideal, but it will help pay the bills and keep the house from foreclosure.

If you work on lowering your utility costs, you can save a good amount each month. To save money on bills, you need to use less energy. Your monthly payment will go down. It doesn't mean you should stop heating or cooling at all, but you should use it less. You can also lower the temperature on your water heater's thermostat and take shorter showers. This will help reduce your power and water bills.

You might save a lot of money if you prepare all of your daily meals all by yourself. It was found that almost 40% of the money Americans spend on food goes to going out. This is a lot and can make it easier to get out of debt.

4. Prioritize your debt balances

If your survival budget still puts you in the red, you'll have to decide which of your bills to pay off first. This will probably mean having to make some hard decisions.

For example, to keep your house, you might have to give up your car. On the other hand, you might not be able to pay your debt for a few months. There aren't always easy choices.

Making minimum payments towards credit card balances is one way to save money. When you were working, you might have been ready to pay off the debt in full, but when you are out of work, you may have to roll over amounts and pay interest. The point is to use your cards as little as possible and keep your balance as low as possible.

So, keep focusing on paying off the interests, and do not incur further debt. This is the only option to stabilize the situation and get out of debt while jobless.

5. Negotiate with your creditors

You must talk to your creditors if you can't meet your financial responsibilities. Tell them about your job situation and try to negotiate a lower interest rate or a longer time to pay. Some companies may be willing to lower your payments if you work with them.

You might get some help from creditors such as your credit card issuer and banks to change terms. Jason Cheung, Operations Manager, Credit KO provided an example - "You can approach your credit card company and explain your job loss, requesting a temporary reduction in interest rates or a longer repayment period until you secure employment".

Talk to lenders who can lower your interest and capital payments or let you take a break from paying on the loan. That might let you pay only a small amount or nothing at all for a certain amount of time. Your auto loan lender may also agree with you on a plan called "forbearance."

With federal student loans, the U.S. federal government gives a lot of ways to pay it back, even if someone is jobless. Talk to the lending company for more information, or check with the U.S. Department of Education for rules.

If you still have enough money to manage debt payments through a single monthly payment, you may be able to join a debt management program. Talk to a credit counselor for free credit counseling sessions, and find out if you can enroll in a debt management program.

6. Reach out to your mortgage lender

If you have your own home, keeping up with your mortgage payments should be your main worry when you are unemployed. The worst thing that can happen if you don't pay your credit card bill is that they may file a lawsuit against you. But if you don't pay your mortgage, the lender may begin foreclosure, and you could lose your house.

The good news is that most mortgage lenders want to avoid the costs and possible losses they face when a borrower goes through foreclosure. So, they are usually ready to work with you to help you avoid default. This is especially true if you talk to them before falling behind on payments.

Forbearance is something that homeowners often get from their mortgage lenders. This means your regular payments will be reduced or stopped while you work to get back on track. This will keep you from worrying about losing your home and leave you one less bill to consider.

7. Call the other loan servicers to make preparations

You might be able to put off more than just your mortgage payment. You need to call every one of your loan servicers (lenders), tell them what's going on, and ask if they can help. Don't try to hide from the loan servicer and treat him/her like debt collectors. If you aren't making timely payments and they haven't heard anything from you, they will likely write you off as a loss. Then, you'll be threatened with collection and have your collateral taken away.

Do something about it and call your collectors to tell them what's happening. They won't instantly send you to collections if you say you're having trouble making money. The worst thing that could happen is that they tell you they can't help you and that you must keep making payments. But in many cases, you might be able to lower or stop making payments, freeing you from paying fees.

8. Temporarily relocate or downsize

Temporarily moving to a more affordable area or downsizing living arrangements can free up funds to pay off debts. By cutting down monthly expenses, individuals can allocate more towards debt repayment. For example, moving to a smaller apartment, living with family, or subletting a room can significantly reduce housing costs.

According to Yoana Wong, Co-Founder, Secret Florists - "Choosing a less expensive location can lower utility bills and other living expenses. This approach requires careful planning and consideration of the associated costs and potential impact on personal relationships or job prospects in the new location".

9. Check out additional means to earn money

If you have other ways to make money, you might want to use them, but only if you have to. Taking money out of a retirement account like an IRA or 401(k) is not a good idea because there are fines and tax consequences, but you may need to use the money temporarily. You could also take money from the cash value of a life insurance policy.

Usually borrowers need proof of income to get debt consolidation loans to pay off debts. This can be hard to do if you don't have a job, as you can't even afford to pay interest charges. But you may cover expenses with the money from unemployment benefits, child support, and other sources.

If things get tough, like if you lose your job for longer than you thought and run out of money or have a medical problem, you might want to ask for financial assistance from the government.

Several Hardship programs/public assistance programs are offered. They include:

• Church and charity groups providing all sort of assistance

• The federal government provided benefits programs (more than 1000)

• SNAP (Supplemental Nutrition Assistance Program, formerly known as food stamps), helps struggling households regarding meals.

• The U.S. Department of Health and Human Services (HHS), offered 300 plus grant programs to assists against unpaid hospital bills and medical debts

• The Low Income Home Energy Assistance Program (LIHEAP), providing assistance on heating and utility expenses.

10. Additional options during financial hardships

Debt can be too much, even when things are going well. When you don't have a job, things are even worse. A professional debt settlement program is one choice. In this plan, a reputable company talks to your creditors on your behalf to get rid of some of your outstanding debt. You can close accounts for less than you owe if you agree to pay a part of what you owe.

11. Enroll in a hardship program

There are sometimes credit card hardship programs that can help. Some companies are ready to lower the monthly minimum payment, even if talking to your creditor about it is hard. This usually happens when you are close to not paying. In this case, interest will still add up and likely continue to hurt your credit score.

There are also often programs for mortgage lenders and car loan lenders who are having a hard time. For student loans, you'll need to talk to the loan officer to find out if they'll let you stop making payments.

12. Use federal student loan deferment and CNC tax status

People who suddenly can't pay their government-issued debts often have built-in ways to do so. They offer ways to stop or avoid collection efforts for federal student loans and back taxes owed to the IRS. This will help you deal with these kinds of debt as little as possible.

Federal student loan deferment

With deferment, you can stop making monthly payments on government student loans for a short time without being penalized. This will keep your loans from being late while you look for a new job. If you have student loans that aren't being paid for by the government, interest will keep adding up while your payments are put on hold. When you start making payments again, your amount will be higher. But if you have a loan supported by the government, the government will pay the interest for you.

Currently not collectible (CNC) status

If you are unemployed and owe back taxes to the IRS, you can file for a position called "Currently Not Collectible" (CNC). This situation tells the IRS that you don't have any money to pay back your tax debt. It stops the IRS from trying to get you to pay back your debt until you have the money to do so. The IRS will still charge you fees and interest on your balance, but things like bank levies and liens will stop.

13. Consider debt consolidation

Debt consolidation is an effective strategy to consider when trying to get out of debt without a job. People might have a query in their mind about how they may get approved for a personal loan while being unemployed. To qualify for unemployed loans, you will need to prove any form of income source and a decent credit score.

As per Samantha Hawrylack, Founder, How To FIRE - "If you can pay off your debts within this period, you will save a lot of money on interest payments. However, once the grace period expires, you will be charged conventional debt interest rates". It can be difficult to get approved for these offers if you are unemployed. However, you may have existing credit provider offers that you are unaware of.

14. Get a home equity loan to pay off your bills

A low-interest home equity loan or HELOC can be a great way to get your needed money. Just watch out that you don't end up going bankrupt. If you go in that way, you could endanger your home. You should know that you will need good credit to get the best interest rates.

15. Think about declaring bankruptcy

If you can't find a job and can't pay your bills, you might be able to file for bankruptcy. This is a big choice because it will significantly hurt your credit score. Even so, whether you file for Chapter 7 or Chapter 13, you will have safety from your debts. It will help you financially immediately, but you shouldn't do it unless you have too many bills.

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