debt

Unemployed? Use credit card, save cash

Steve Bucciq_v2.gifDear Debt Adviser,
You know how the rich like to have a big tax write-off every year. Right now I am unemployed, and am in the process of finding a new job. But while I am looking, I do not want to get behind on my two credit card bills. Both credit cards together are under $10,000. Do you think someone would be willing to pay off my debt, and I could do some volunteer work for their favorite charity?

I hope this doesn't sound crazy, and I hope to get a response through e-mail.
-- Shirley

a_v2.gifDear Shirley,
Unemployment has recently risen to in excess of 7 percent. As anyone looking for a job will tell you, it feels like 70 percent. I’ve been in your shoes at least four times, and I know what you are going through. Your idea is creative but, alas, not practical in its present form. While your idea would work very well for you to get out from under your debt; unfortunately, it would not work so well for the rich person who might be after a tax break.

A monetary gift to an individual from another individual is not taxable as income for the recipient of the gift as long as the gift is $12,000 or less annually. However, the gift giver does not receive a tax deduction when gifting the money. Still, your creative idea brought a few thoughts to my mind that may prove helpful to you and others in a similar situation.

Two ideas concern nonprofit organizations which provide rich people with the opportunity for a tax deduction. My first suggestion is to consider volunteering. I contacted Janice Pathier Pac who runs the local Volunteer Center of Rhode Island, a group that coordinates volunteerism in the state. She told me that volunteering while job hunting can keep skills sharp, help in your networking and allow you to try out potential new areas of employment to see if you like them. She also suggested anyone needing assistance with bills while unemployed should contact a national referral line by dialing 211. Run by certified staffers, often United Way employees, they may be able to refer you to assistance programs for utilities, heating, budgeting and more that may help you keep those bills under control until you find a new position.

The other idea expressed in your letter regarding keeping your credit card bills paid on time, is not only a great one but essential for anyone looking for a job above entry level. Employers often request to review your credit as part of the application process. If your report shows late payments, defaults or charge-offs, you may be putting yourself at a disadvantage. Employers may wonder if out-of-control finances will be a distraction on the job. They also may wonder if you will keep your commitments or whether you are reliable. Unfortunately, they may never ask those questions. It’s much easier to go on to the next candidate who does not have a questionable credit report. So, with a limited or nonexistent income while unemployed, you may have to do a little sacrificing to accomplish your goal of keeping all your bills current.

Here are some suggestions:

Ways to stay afloat until you find a job
  • If cash is scarce, use the credit that you have available on your credit cards for essential living expenses. Save your cash to make minimum payments and for emergencies. This is the opposite advice that I would normally give, but unemployment is a completely different animal. Using your credit as cash flow makes sense for a reasonable amount of time until you are once again employed.
  • Stay away from cash advances on your credit cards. The fees and interest charged for cash advances is typically much higher than the rate for normal purchases. So, yes, purchase the essential $10 item with credit, for now.
  • Create a bare-bones budget. If you have a family, include everyone in this process. Seek help from a credit counseling professional if you are becoming overwhelmed. Looking for employment and worrying about making bill payments can get very stressful, and a budget can serve as a road map to help restore some peace of mind.
  • Keep your individual card balances at less than 50 percent of your available credit to avoid hurting your credit score and make the minimum payments on time.
  • Finally, when you get discouraged, remember that this will not last forever and your creativity and persistence will be rewarded.

Good luck!

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