8 bank moves to make as soon as you’re unemployed

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The fallout from COVID-19 has forced many people to confront big questions: how they should try to stay healthy, whether they should send their kids back to school and what to do if they lose their jobs. That last question is at the top of priority lists for a staggering number of Americans. As of early October, the Bureau of Labor Statistics reported that there are 12.6 million unemployed people in the U.S. – an increase of nearly six million people from February. If you have recently lost your job, here are the most essential steps to take.

1. File for unemployment

As soon as you lose your job, you should file an unemployment claim with your state government. Start the process by looking at the U.S. Department of Labor, Employment and Training Administration’s CareerOneStop portal, which includes a state-by-state look at whether you need to apply in-person, online or over the phone.

2. Find out if other support is available

The federal government is trying to sort out another stimulus bill – which could include more assistance for individuals – but Greg McBride, CFA, Bankrate chief financial analyst, also recommends inquiring about eligibility for other state and local programs, Medicaid and food assistance programs. In the midst of the fallout from the pandemic, it is easier to apply for the government’s Supplemental Nutrition Assistance Program (SNAP) program and qualify for food stamps. The Center on Budget and Policy Priorities has a full guide of state applications.

Be sure to pay attention to the headlines, too. Political negotiations can be challenging – particularly in the weeks leading up to a national election – but Treasury Secretary Steven Mnuchin has indicated that any new bills are likely to include payments directly to individuals.

3. Call your bank

After you’ve contacted the government, your next communication should be with the financial institutions where you have accounts. If you own your home, your first discussion point should be your mortgage payments. The Coronavirus, Aid, Relief and Economic Security (CARES) Act included up to 360 days of payment forbearance for all homeowners with a federally backed mortgage. And even if your mortgage is a conventional mortgage backed by a lender, it’s highly likely that your financial institution will work with you to help you pause your payments without worries of foreclosure.

“Lenders are working with borrowers on a scale never seen before,” McBride says. “Typically, these measures are used in response to a natural disaster that is impacting one geographic area. It’s now universally applicable.”

4. Ask for more than your bank offers

McBride says that the current climate is a reminder of the importance of the adage of “nothing ventured, nothing gained.”

“Some banks are willing to be even more flexible and offer additional help if you raise your hand and ask,” McBride says. “Someone who has seen income disappear should think about asking to get that one-off overdraft fee refunded or a monthly service fee waived.”

The monthly service fee is especially important. McBride says that many bank accounts require direct deposits in order to avoid a monthly fee. If those steady paychecks — and those deposits — are gone, it’s important to take steps to eliminate an additional monthly charge.

“Don’t just accept the fee every month,” McBride says. “There may be a solution available.”

5. Consider making your payments manual

It may be wise to remove automatic payments and call those providers about your bill. Some states and utility companies are offering deferred payment programs and assistance to anyone experiencing financial difficulties.

6. Identify every area to decrease your expenses immediately

If the money coming in is gone, it’s time to review the money going out. Your cable bill, your subscription services for entertainment, your gym membership – all of these are examples of regular costs that are adding to your financial weight.

“Take a long hard look at expenses,” McBride says, “and identify the items you can cut back or eliminate.”

7. Prepare for the long haul

In addition to thinking about what you can do right now, McBride highlights the importance of knowing what you might need to do next.

“Think about the items you can cut back if conditions go from bad to worse,” he says, “such as a two-income household moving to a one-income household and then becoming a no-income household.”

Be sure to know what to do when your unemployment benefits run out, too.

8. Investigate your early withdrawal options

That game plan may require considering a last resort: dipping into your retirement funds. While you would normally pay a 10 percent penalty for withdrawing that money early, the CARES Act includes a provision to forgive that penalty if you withdraw prior to the end of 2020. It’s important to note, however, that the money is considered taxable income, and you will need to pay taxes on it over the next three years.

“If you have exhausted your resources and are considering using credit cards to provide for basic necessities, withdrawing funds from retirement accounts could provide needed relief at a fraction of the cost – your marginal tax rate versus the interest rate on your credit card,” says Katie Horton, CFP, founder of Texas-based Financial Cairn. “And if you have the discipline to repay the funds in the next three years, you don’t owe any tax, so the only cost is the opportunity cost of having your funds not invested for that period of time.”

Bottom line

Even if you have been responsible enough to amass that worst-case scenario stash of cash, it’s important to note that such a cushion will eventually wear out. As the number of coronavirus cases rises across the country and economists warn of a sluggish recovery, focus on being frugal.

“We don’t know how long this is going to last,” McBride says. “A big part of the strategy for anyone who loses their job is about stretching the dollars as far as possible.”

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Written by
David McMillin
Contributing writer
David McMillin writes about credit cards, mortgages, banking, taxes and travel. David's goal is to help readers figure out how to save more and stress less.