1. Dip into Savings
If there are loan or credit balances that need to be paid off, use your savings. If you have enough savings, holding onto your cash and only paying the minimum or not paying at all will cost you in terms of higher finance charges and a bad credit score. It is better to pay off debt initially and take on more debt as and when required.
2. Manage Expenditures
The most important aspect of managing debt while being unemployed is controlling the addition of new debt from current expenses. This requires the control of all forms of spending. Try to strike a balance between spending cuts and maintaining your lifestyle. Luxuries are best kept to an absolute minimum during this time. At the same time potential cost savings on essential expenditure should not be ignored. Yield to lower priced alternatives and opt to buy goods in bulk to save costs.
Creating a budget is a good way of going about managing your expenses while out of a job. It will help in identifying the areas where cuts can be made. Transportation and Entertainment is usually the single biggest expense that can be controlled without adversely affecting your lifestyle. Try to develop other means of recreation. Monthly rentals are another big drain on your finances, try switching to lower cost packages or lower cost service providers.
Chances are that even after being laid off you will still have access to credit, through credit cards or loans. Money management at this point is crucial in avoiding a bankruptcy filing. It is discipline during this period which will allow you to manage until you are employed again.
3. Seek Alternative Means of Financing
Most credit cards charge an insurance fee to every card by default. If you have been paying the premium and have not cancelled it, it is possible to approach the insurance to cover the minimum monthly payments. This will significantly ease the financial pressure of managing debt during this phase.
In many cases, consumers can negotiate with their creditors resulting in a number of viable choices that can help. You can negotiate directly with the creditor seeking debt settlement at a discount, government grants in cases of extreme distress or the option to consolidate debt.
4. Collateralize and Restructure Debt
Another option that helps when you are unemployed is restructuring debt. Credit card debt is a form of revolving debt, which means that it does not have to be paid in full every month. However, it is also the most expensive form of debt. So if you are faced with a mounting credit card bill, it might be feasible to approach a loan specialist and restructure your debt to a more reasonable form. This will decrease the debt expense incurred every month as a result of only paying the minimum.
Another option in cases where you have significant financial or non financial assets is to take a collateralized loan. A collateralized loan is where the bank or an institution lends you money against an asset as a guarantee; in the event of nonpayment the asset is seized. These are available more readily and have lower interest payments as compared to unsecured loans. It is a reasonable short term solution because it provides an inflow of cash without having to sell off any asset.
5. Emotional Management
Managing your debt while being unemployed can be emotionally taxing. However, you need to remain positive and make sensible decisions that will ensure your survival in these tough times. It is a good idea to discuss any major problems with your close friends and family. It is also a good idea to continue working on any odd job you might be able to find, apart from being financially sound this will keep you motivated and active.
It is good to remember that even though the economy is bad today and managing debt while being unemployed seems impossible, it will pickup in the near future. By being disciplined in your spending, smart in your debt management and patient you will be able to put this rough patch behind you without any long lasting damage.