It's a frightening thought and position to be in when you find yourself unemployed. It's a place we hope we never find ourselves in, but we can all suddenly find ourselves in this predicament at any point in our lives. Regardless of our unemployment length, it can cause great damage to our finances and our mental health. We've outlined some steps you can take to limit the damage and impact of unemployment. These steps can also help you in the long run with your credit.
File for Unemployment
For some great in-depth tips on unemployment and filing for these benefits, you can take a look at this blog. The US government offers a safety net to eligible candidates so that you can have some cash coming your way while you are in job search mode. When you are working, you put part of your earnings into these programs so there should be no shame in taking advantage a program to help protect yourself when you're vulnerable.
Alert your Student Loan Provider
A second safety net can be deferment of your student loans.
"If you are experiencing financial hardship, go back to school, are unemployed, or are on active duty military service, postponing payments with deferment may be right for you. Subsidized Stafford loans and subsidized consolidation loans will not accrue additional interest" - source
Your student loan provider would rather you defer your loan to later than for you to default on your payments. They are willing to work with you, if you reach out to explain the situation. When your loans are in deferment you avoid late fees, penalties, and missed payments so you can protect your credit score. Protecting your credit score keeps you in good shape to be able to take out loans in the future after you've landed your next position.
Apply for Marketplace Insurance
Losing your job and losing your health insurance go hand in hand but that doesn't have to be the case.
"Since losing your job is considered a life event, you will be eligible to get insurance through the marketplace once you’re unemployed. Not only will this protect you if you have a health emergency while you’re unemployed (and allow you to get coverage for your existing needs), but it will also be much more affordable than other options, like COBRA." - Source
Begin your Job Hunt
To remain on unemployment you must apply to a minimum of three jobs a week, and provide proof. This helps you stay on top of your job search and provides you a guaranteed benefit check.
The best place to begin a job search is with people in your network! According to Payscale, "some estimate that upwards of 85 percent of open positions are filled through networking. If you’re looking for work, it might be better to put your time into building your professional network rather than pouring through all those listings online."
Reaching out to friends, family, and former colleagues can be the first step to your new job. They may not be able to land you a new opportunity, but they may be able to point you in the right direction.
Turn to your Emergency Savings
An emergency like this calls for use of your emergency savings. Hopefully you have been able to stash away some of your income for a moment like this. If you are still employed and have not, make sure to begin saving now! Your savings were meant for a moment like this. Your savings should be spend on housing, food, and bills to keep a roof over your head and your belly full.
Ask for Help
You may be unemployed for longer than expected with a family to feed and watch after. In times like this it is okay to find some extra help from family or ask close friends to borrow money to pay back. Family and friends can offer borrowed money for less interest than banks so this can be helpful when you're tight on money. Remember to only borrow what you need and to create a repayment plan with deadlines and have it documented for both parties to agree on. Be honest about when you can repay and if you are having trouble repaying, make sure to communicate as this is important to not causing any problems in the relationship.
Don’t Borrow from your Retirement
If it'there's one thing you take away from this article, it's this: Dipping into your 401(k) plan is generally a bad idea.
Maggie Germano from The Ladder says "I will yell this from the rooftops for the rest of my life. Never borrow from your retirement! You will be much worse off later if you do this. -- If you borrow from your retirement account before the aged of 59.5, you’ll be penalized. You will have to pay taxes and fees for withdrawing early. This means that you will lose a lot of that money you’ve diligently saved for your retirement years.
Don’t Rely on your Credit Cards
Credit cards are a slippery slope so avoiding credit card use as much as possible during your unemployment. This will help you avoid a hole of debt that you may not be able to climb out of even after landing you new job.
If you do decide to turn to your credit cards, you do have a few options to limit your debt and avoiding some interest. Call your creditors and let them know about your situation. Creditors want to be paid back and if you can't pay, that hurts them so they are willing to work things out with you. You may be able to ask for a lower interest rate while you’re unemployed, so your interest charges don’t take over and make it impossible to repay.
Some credit cards have payment protection insurance for times like this. This insurance suspends your interest rates and you can pay your minimum payment for a short specified amount of months. This prevents you losing control of your debt and credit while you deal with finding your new job. This might be something to research if you are still employed and you think you might need it someday.