debt

What to do when unemployment won't cover expenses

Steve BucciQuestionDear Debt Adviser,
I lost my job in early August to "workforce reduction," and I have not been able to obtain another job yet. I have now started looking at jobs that pay only about half what I was making. Along with unemployment, we have enough savings left to pay our bills for about three or possibly four months. I'm beginning to worry I may not have a job when our savings run out and unemployment does not begin to cover our monthly expenses. Is there anything I can do now to maybe ease the burden if and when our savings run out and we can no longer afford the mortgage and other monthly expenses?
-- Terry

AnswerDear Terry,
I know how miserable being out of work can be. It's happened to me more than once. This is one of the prime reasons I urge people to save up to a year of expenses in an emergency account. I am often told it is too hard and too much -- until it's needed and then it is a blessing. You had a nine-month cushion, and now you have four to go.

There is some good news for you. First, the unemployment rate finally dropped below 9 percent in November. Second, now that January is here, companies are in a new budget year and hiring is often stronger. I am going to operate under the positive assumption you will find work before your savings run out for the first part of my advice. You may not find a job at the salary you would like, but you will be employed and earning enough to pay your expenses until times get better. I also want you to have a good handle on how much you will need to earn to make ends meet. The reason is so you don't settle for a job that pays too little, or you may still have money problems going forward.

So, while you await an email from your next employer, I want you to conserve as much of your available cash as you can. Make only minimum payments on your credit cards (this particular situation is the only time you will hear this advice from me), and cut back on as many other expenses as possible. This is also one of the rare cases in which it's OK by me to use credit for living expenses like groceries. This will allow you to pay less each month and extend the cash you have. Yes, you'll have a bigger bill once this is over, but that is better than running out of cash.

Another thing you can do to extend your income is to get some more of it with outside dollars instead of using unemployment benefits or savings. If you can secure part-time employment, it can extend your unemployment benefits. For instance, if your unemployment benefits are $500 per week and you earned $200 per week working part time, you would only draw $300 of the $500 entitled benefits. You use the words "we" and "our" in your letter, so if you have a partner, you might consider having your partner seek extra employment as well.

If the worst happens and you wind up with your unemployment benefits as your sole source of income and no savings, you will need to prioritize your debts. It used to be mortgages always got paid first, but that's not always the case today if you have negative home equity. Decide which bills you can afford, and tell the rest they'll have to wait. You have to put your family first. If that means disappointing your creditors, then that's what you have to do. You won't be a bad person if you do.

Be sure to keep up on your car payment if you need your car for work. Repossessions can happen very quickly if you get behind.

Good luck!

Ask the adviser

To ask a question of the Debt Adviser, go to the "Ask the Experts" page and select "Debt" as the topic. Read more Debt Adviser columns and more stories about debt management.
 

Bankrate's content, including the guidance of its advice-and-expert columns and this website, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this website is governed by Bankrate's Terms of Use.

advertisement

Show Bankrate's community sharing policy
          Connect with us
advertisement
CREDIT CARDS WEEKLY NEWSLETTER
Credit cards on a table

Get advice for managing credit cards, building your credit history and improving your credit score. Delivered weekly.

Debt Adviser

File bankruptcy with no fee?

Dear Debt Adviser, I am in the worst kind of financial hardship. My wages are already being garnished, which makes it difficult to keep up with mortgage and utilities. I can't file bankruptcy because I don't have the money... Read more

advertisement
Partner Center
advertisement

Connect with us