Layoffs are happening at big name companies like IBM, JPMorgan Chase, La-Z-Boy, and Sony, as well as family-owned businesses. You’re not alone if you’ve been blind-sided by a layoff. Or you may have some advance notice. Either way, losing your job can trigger feelings of unworthiness, powerlessness and lack. (Three of the big six core beliefs I talk about in my Dissolving Core Beliefs work.) One key to overcoming these feelings is how you take charge of your credit card debt during this time.
The average length of unemployment is more than 8 months. No matter how much money you currently have saved, how much you receive from your layoff, or how much your unemployment benefits may be, most people don’t have enough savings to carry them through.
Experts say “have six months of living expenses in savings.” But that isn’t much help if you’re unemployed longer. What’s more, much “expert” advice around credit cards is geared toward helping you “keep your good credit.” Following that advice may actually be the WORST things you can do.
In my work helping people communicate and mediate with their creditors, the saddest calls I get are the ones from folks who have used up all their savings before calling me.
If you have advance notice of a possible layoff, take time now to put the following strategies into place. If not, then take action immediately (after you have a few hours to process your feelings).
- Make a complete list of all your monthly expenses, to the dollar (or to the penny) so you know what you have to work with. Look carefully through the list and eliminate ANYTHING that isn’t essential. You don’t really NEED cable tv. The less you spend each month, the less you’re likely to charge on your credit cards. The sooner you make these changes, the more money you’ll have available to pay your daily living expenses during your unemployment.
- Stop as many automatic deductions from your paycheck as you can, including retirement contributions. The more money you take home, the more money you’ll have in your pocket if you get laid off. Stick the extra money from your paycheck into savings.
- Stop any and all automatic charges to your credit cards. The biggest key to maximizing your resources is to stop adding any new debt! (So don’t borrow from anyone either!)
- If you’re currently paying more than the minimums on your credit cards, drop back to paying just the minimums. Again.. put the extra amount in your savings.
- If you reach a point where you would have to pay your credit card bills out of your savings (or you have no savings), stop paying your credit card bills. I know this seems counter-productive, when employers in some states can review your credit reports. But you can minimize the impact when you’re interviewing for jobs as I’ll explain in a future article.
- When creditors call, they can legally only call once a week if they’ve already talked to you. Stop the endless stream of creditor calls simply by picking up the phone, calmly telling them you’re being laid off (or have been) and that you’re reassessing your finances and unable to pay at this time. Once you’ve said that, you don’t have to stay on the phone or answer their questions. Politely tell them you have to go and hang up.
- If phone calls are even too much for you, send them a request in writing, via certified mail, asking them to contact you by mail only. That way you can assess any offers they make.
- Don’t be intimidated by creditors saying “your account is going to charge off.” The only way most creditors will work with you to create a workable payment plan or settle with you for a percentage of the balance owed is if they actually charge off the account first. Once the account is charged off, late fees, penalties, interest and over limit fees can no longer be added. Keeping credit card accounts active only benefits the creditor, not you.
- If the creditor makes a decent settlement and you’re comfortable, use some of your savings to pay off the debt, or see if someone is willing to lend you that amount until you’re employed again. Get the offer from the creditor in writing (it may say paid in full, settled for less than the full value), pay the creditor and get out from under the debt for good.
- When you do start working again, do NOT tell your creditors. Simply start socking away money in savings, let them know you’ve come into a little money and want to settle your account with them, and negotiate the best offer you can get.
- Recognize that a short term hit on your credit score is far better than pushing yourself and your family into poverty, where you could wind up homeless, having a car repossessed, being uninsured or neglecting your family’s basic needs.
- Take time to rethink how you use credit from now on. Instead of paying interest to creditors, use this as a clean slate to start building true wealth without lining the pockets of the creditors!
The way you think about money and your relationship to money greatly impacts not only how you spend money, but how you earn it as well. Making these changes now could result in a higher income next time around!
Paula Langguth Ryan has been a consumer financial advocate for 20 years. She is the author of Bounce Back From Bankruptcy, Giving Thanks: The Art of Tithing and the forthcoming Break the Debt Cycle – For Good! She is a mediator and a debt negotiation specialist who acts as a go-between between consumers and creditors to reduce interest rates and payment amounts, re-age accounts and negotiate settlements that are satisfactory for both parties. She also provides strategic financial counseling to help people create clarity around their best financial moves given their current situation. And she helps people heal the core beliefs that are causing them to underearn or feel undeserving. You can subscribe to Paula’s Inner Transformation newsletter at www.PaulaLangguthRyan.com or follow her on Facebook.