It’s not always easy to know what to do when you get laid off. Losing a job can be very stressful and result in constant worry about money and paying the bills. The last thing anyone wants when cash flow suddenly becomes tight is to incur additional debt in order to pay the bills. However, it is also important to recognize that when a job loss or layoff hits, there is opportunity in the crisis.
The key to enduring a layoff without incurring debt is to implement appropriate budgetary and spending measures in response while being proactive about taking advantage of all available benefits and searching for a new position. Indeed, a layoff can be very stressful, especially if it was unexpected. Here are tips on how to survive a layoff financially without incurring debt.
How to Get Through a Layoff Without Incurring Debt
In order to get through a layoff without incurring debt, it is essential to act quickly and not procrastinate. Although it is natural to feel a sense of despondency after losing a job, it is important to quickly cut through any emotional gridlock and move in the direction of you and your family pulling together and coming up with a financial plan appropriate to the situation. Recognize that the situation, however unpleasant, is temporary – and that the quicker you respond with a plan, the quicker it can come to an end.
Therefore, step number one in what to do when you get laid off is to come up with an amended budget for your household that minimizes spending so as to avoid using credit cards to make up for any cash flow shortfalls. You must eliminate all unnecessary expenses including trips to the coffee shop, dining out, the overpriced cable bill, extra subscriptions (look for free streaming services that include commercials)…anything that you don’t really need until you’ve secured a new job.
Just as urgently, you need to file for unemployment benefits if you qualify. Go to dol.gov and click the appropriate links to investigate unemployment benefits for the state in which you reside. Make sure you understand how much money you can expect to receive and for how long, and what you can potentially do to extend unemployment benefits if the need arises later. In general, you shouldn’t be shy about seeking help from government and community agencies. You should also find out if you are eligible for severance pay benefits from your employer, how you can access money accumulated in a company retirement plan, and whether you can access funds related to unused sick days and/or vacation days.
Additionally, make sure to stay insured. Health insurance is always important, and if you were covered by your company plan, you should look into maintaining coverage through COBRA, or the Affordable Care Act and healthcare.gov during the period of open enrollment. You can also ask your previous supervisor for a reference letter and find out if your former company aids in job placement and/or resume preparation. Either way, once you’ve tied up your loose ends with your former employer, it’s time to aggressively get down to the business of finding a new job while creating a plan for paying your bills.
How to Survive a Layoff
The next important step in how to survive a layoff is to create a plan for paying your bills. If you believe that you may have trouble making payments, pursue help quickly to avoid falling further into debt. Contact all of your creditors (starting with your high-interest rate credit card issuers) and politely explain your situation and ask for a reduction in interest rates and/or temporary reduction in the size of your monthly payments – you can even start by asking for temporary forbearance.
Many creditors (including utility providers) have become more understanding of job loss stress and financial difficulties this year in the wake of COVID-19 and are allowing for a temporary moratorium on bill-paying as a result. Even a three month forbearance can ease your stress level while keeping you focused on the task of finding a replacement source of income. In the interim, with monthly cash flow at a premium, you should also consider downsizing and debt consolidation. Let’s take a closer look at both.
Downsizing your home or car might sound unappealing and even ring of “failure,” but since people typically tend to live up to (or above) the standard that they can afford, it can become the case that a previously affordable large house or luxury car turns into a source of more stress than enjoyment.
And let’s face it – when a monthly mortgage payment or car loan payment becomes unrealistically expensive, it’s no longer fun to live at that higher standard. Therefore, downsizing can actually enhance your quality of life. Obviously, choosing to sell a house prior than initially planned (like after the kids have moved on to college) is no small decision that can be entered into lightly, but the alternative of possibly defaulting on the mortgage is worse. Switching cars can be an easier and faster money-saving move – as can be pursuing the process of debt consolidation.
Debt consolidation involves combining multiple debts into one single loan, typically resulting in a lower blended interest rate and aggregate monthly payment – making it easier to survive a layoff financially. A debt consolidation loan (DCL) provides the dual benefits of streamlining the repayment process while simultaneously lowering interest expense and the total amount repaid over the life of your various pre-existing debts.
With a DCL, you borrow sufficient funds to pay off a variety of unsecured debts (credit cards, personal installment loans, medical debt, some student loans) while simplifying multiple monthly payments into one single monthly payment. However, taking out a DCL does mean taking out additional debt – and so it becomes an absolute must that funds from a debt consolidation loan be entirely allocated toward paying off more expensive pre-existing debt, thereby serving the purpose of easing your monthly cash flow burden until you have successfully secured a new position following a layoff.
About the Author: Steven Brachman
Steven Brachman is the lead content provider for UnitedSettlement.com. A graduate of the University of Michigan with a B.A. in Economics, Steven spent several years as a registered representative in the securities industry before moving on to equity research and trading. He is also an experienced test-prep professional and admissions consultant to aspiring graduate business school students. In his spare time, Steven enjoys writing, reading, travel, music and fantasy sports.
Gabriel Gorelik paves the way for customer service and operations at United Settlement. He is passionate about numbers and holds a strong belief in helping anyone with their debt. Before United Settlement, Gabriel received his BS in Finance & Economics from Brooklyn College. After graduation, Gabriel went on to build his first financial services company where he managed thousands of accounts for business and consumer clients. He understands the importance of client satisfaction, professionalism, and exceeding expectations.