Losing your job can be the trigger for a range of problems, one of which is debt. All too often unemployment and debt go together hand in hand. One leads to the other and it can be a vicious cycle once you get into it.
While the economy is improving and jobs are being created, not everyone is feeling the benefit. One in six families struggle to make ends meet, new research from Which? shows, and for many of these it’s because mum or dad has lost their job and is struggling to find a new one. According to the charity StepChange, almost a quarter of people contacting it cited unemployment as a reason.
When you are without a job the critical thing is to adjust to your new reality. Bills you paid on time each month can become a struggle. You can’t just head down the pub when you feel like it. Those Friday night takeaways will have to wait until the salary starts rolling in again. The point is that you must be proactive and make changes to stop debt being an issue.
Remember, if debts mount you will start to feel stressed and pressured, which can take the focus away from the key task of finding a new job.
If you carry on spending as before you could quickly end up in debt, but there are ways to avoid unemployment becoming the cause of major debt problems.
While you look for a new jobs you must rein in your spending to avoid tipping over the edge. This means creating a budget and assessing how much is going to be coming in. Hopefully you’ve put some money aside for this sort of thing. Work out how much income you will have – say a partner’s salary plus your Jobseekers’ Allowance and any insurance you may have taken out to cover prolonged periods of unemployment.
Now you must trim your outgoings as best you can. Eliminate all unnecessary bills and cut down on all treats and extras. You may think about reducing certain subscriptions services, such as expensive cable or satellite TV packages. Gym membership may need to be cut out – try free exercise like running instead.
If you have existing debts, prioritise these in order of importance. For example, if you’re paying back a family member you may think about negotiating with them to stop payments while you service your credit card debt. If you have a mortgage, talk to your lender and ask if they will consider a payment holiday for a couple of months to get you on your feet again.
Don’t add to your debts
If you already have serious debts and you are made unemployed, it’s critical that you don’t add to these. It may be tempting to use your credit card for the groceries but this can only lead to trouble if you were already stretched to breaking point before you lost your job. Don’t take out any more loans, stop using your credit cards and don’t increase your overdraft.