How do you handle debt when you lose your job?
By Anna Davies
Reviewed by Keith Osmun
Jul 09, 2023
Read time: 5 min
One of the first things to do when you lose your job is plan how you will cover immediate expenses, including required debt payments.
Many credit card issuers offer a hardship program to temporarily lower your payment or give you more time to pay.
Depending on your situation, you might be able to resolve your debt for less than the full amount you owe.
Losing your job can be a tough and stressful experience, especially when you have outstanding debts to pay off. It’s natural to worry about how you'll meet your financial obligations without a steady income. Setbacks are a natural part of life, and the important thing to focus on is taking the next step to deal with your debt.
Recovering from a job loss may not be easy, but with a proactive and optimistic approach, you can improve your financial situation. Every small step you take to manage your debts can help you eventually come out stronger on the other side of this bump in the road.
Here’s what to know about getting rid of debt after you lose your job.
Job loss and your finances
Even if you’ve suddenly lost your main source of income, you might have more financial flexibility than you think.
Talk with your human resources department about your separation agreement, and make sure you get any questions answered. There are also local, state and national agencies that may be able to help you during this time. Use the U.S. government’s Benefit Finder to identify programs you might be eligible for.
Financial steps to take after you lose your job
One of the first things you’ll need to do after you lose your job is to make a budget. If you already have a budget, try to make it tighter and leaner. Find cuts you can make. Even if you’re receiving severance pay, conserve it as long as possible. There’s no way for you to know how long it'll take before you’re back up to normal, steady earnings.
Until you get your next position, keep close tabs on all of your spending, and do without as often as you can. Cobbling together a leaner lifestyle and temporary work might allow you to cover your bills until you find another job.
Here are a few immediate steps you can take to maximize the amount of cash you have for debt payments:
1. Apply for government benefits
Find out if you qualify for unemployment or disability. Do this right away because in some states there’s a waiting period after you file. You’ll want to get that started because you can’t get financial benefits until after it passes.
2. Take stock of your income
Assess how much money is coming in from every possible source. Do you have severance pay that could tide you over for a few weeks? Do you have a partner who has an income? Do you have an emergency fund? Are there any side hustles you can quickly ramp up?
3. Fill your time with income activities
Losing your job probably left you with extra time on your hands, so fill it with income-producing activities. Consider a part-time job, gig work, or informal arrangements like babysitting or online tutoring. Sign up with ridesharing apps and pick up a paying customer every time you need to leave the house to do your own errands. Even if you’re accustomed to making a lot more, bringing in at least some money could make or break your ability to keep the lights on.
4. Talk to friends and family
It can be awkward to let people know you might be facing financial struggles, but don’t keep your job loss a secret. The people in your circle might offer resources, suggestions, or leads on a new job.
What should I do about my credit card bills if I lose my job?
A break in income is stressful, no doubt. Remember to breathe.
Contact your creditors. Keep up with your minimum payments if you can because your financial situation could get worse if your accounts go into collections. If you can’t, call your creditors before you miss a payment. They may be able to offer a hardship program. It can be harder to work out an agreement after your account is in hot water.
Your credit card issuer might temporarily accept less than the minimum payment, waive payments altogether for a month or two, or reduce interest rates. It’s worth asking.
Avoid new debt if you can. It may be tempting to use a credit card for everyday expenses when you don’t have money coming in, but try not to. Adding to your debt won’t improve your financial situation.
Talk with a professional debt consultant.
If it’s taking a long time for you to get a new job, or if there’s some reason you won’t be able to work for a while, talk to an expert. List your debts and minimum payments and consider what might happen if you are unable to stay current. A professional debt consultant can help you understand the options that might make sense in your situation and what the next step would be.
How to look for solutions for getting rid of debt
The right solution to your debt problems depends on a few factors. How long do you expect to be with less income? How severe is your financial hardship? How much debt do you have? Here are a few options you could consider:
A deferment or forbearance can provide short-term relief. These are programs that let you pause your payments for a short time. Usually, a forbearance means you don’t have to make payments, but interest is still accruing. You’d want to make interest payments or you’ll have more debt after the payment pause. In a deferment, interest is paused along with your payments.
Federal student loans can be in deferment or forbearance for up to three years. Private lenders sometimes offer a one or two-month forbearance. Check with each lender separately to find out what options are available on your loans.
Debt resolution is for someone who can afford a payment but needs some of their debt forgiven.
Sometimes, creditors are willing to forgive a portion of your debt. You'd call your creditors and explain your situation. They may lower your balance, which can lead to a faster payoff.
You don’t need to resolve debts yourself if you’re uncomfortable with the idea or you’re not sure what to do. You can work with a professional who has experience helping people resolve their debts.
Unsecured debts like credit cards and medical bills are good candidates for debt resolution.
Bankruptcy is an option if you can’t afford to make payments and you want to apply to have all of your debts forgiven. This would be Chapter 7, the “clean slate” bankruptcy. Not everyone qualifies, but if you’re unemployed you have a good chance of being under the income limit. Unsecured debts can be forgiven in bankruptcy. If you want a secured loan forgiven (like a car loan), you'd have to give up the asset that’s tied to the loan (the car).
In a Chapter 7 bankruptcy, you may have to give up some of the things you own. Your property will be sold and the money given to your creditors. You don’t have to give up everything, though. Things you’re allowed to keep are called bankruptcy exemptions. For instance, your clothing, the tools you need for your job, and a modest car. Bankruptcy exemptions vary state-by-state.
Anna is a contributing writer for Achieve. She has specialized in writing personal finance content for over a decade, including writing for Fortune 500 finance clients as well as writing personal finance content for magazines and outlets including Forbes, Refinery29, Nasdaq, Yahoo Finance and others.
Keith is an editor and fact-checker for Achieve. He makes sure the content is accessible by ensuring that each piece has impeccable grammar, an approachable tone, and accurate details.
Frequently asked questions
Will my credit be affected if I can't pay my credit card bills on time?
Yes. Paying bills late can negatively affect your credit. Call your creditors if you know you can’t pay your bills on time. Many have hardship programs available. They may be able to lower your monthly payments or even let you skip a month. It’s a good idea to call before you miss a payment.
What government aid programs are available for people who have lost their jobs?
If you’ve lost your job, you may be eligible for unemployment benefits. You also may be eligible for SNAP (food stamps) and other income-based programs.
Can I negotiate with my creditors to lower my monthly payments?
You can negotiate with your creditors and they may be willing to work with you temporarily. If negotiating makes you uncomfortable or you’re not sure what to do, you can also consider working with a professional debt resolution company that can negotiate for you.