Thursday, October 9, 2003

When You Can't Pay Your Bills Due to Loss of Employment

One of the scariest moments in life is after being told a job is no longer there. Whether it's a termination, layoff or resignation because of an intolerable job, realizing the regular paycheck is gone lets fear set in. Financial security is over and the mortgage is due, car payment is coming up, and there are bills to pay. There are solutions for that period when loss of employment means bills can't be paid.

Unemployment Insurance

    Apply immediately for unemployment insurance. Most states accept applications online. There is usually a one-week waiting period, so immediate application means payments start sooner. Each state has different insurance compensation rates. It's highly likely that the highest amount payable is far less than previous earnings.

Taking Stock

    List all sources of liquid assets including savings, 401K or IRA, certificates of deposit and cash value from insurance policies. Total the remaining credit on each general purpose credit card. List all monthly expenses and payments. After listing the obvious expenses covering housing, utilities, telecommunications, insurance, medical, transportation and food, remember the miscellaneous expenditures like the cup of coffee in the morning, clothes to the laundry, dining out, home maintenance and children's allowances or activity costs. Mark each expenditure as "mandatory" or "discretionary." Total all expenses. Divide liquid assets by expenses to determine the number of months money will last.

Preparing to Stretch Assets

    On a tablet or spreadsheet with four columns list all the creditors in the first column, the phone number in the second column, monthly payment in the third and balance due in the fourth. This prepares you to negotiate temporary payment arrangements based on available liquid assets.

Dealing with Creditors

    Call each creditor, explain the situation and estimate how long unemployment might last. Whatever length is anticipated, double it if the local economy is not strong. Creditors understand and have various plans to help. If payments have been made on time, some creditors will waive one to two months' payments. With single store credit cards, such as department stores, consider asking to settle for a specific amount. The account will be closed, but some stores will discount the balance by as much as 50 percent for a cash settlement.


    Have a proposal in hand when calling a creditor to negotiate a payment. Some creditors will take as little as $5 to $20 per month during unemployment as good faith payments against a balance. Others will temporarily lower interest rates to make payments manageable. Honest communications are crucial during this period. Always keep creditors posted. Be prepared to share the monthly budget with a creditor. No creditor wants to see bankruptcy declarations.


    Contact utilities to determine if there are ways of reducing monthly costs. Consider dropping phone features, cutting back on mobile phone minutes, texting or data plans, or eliminating premium television channels from cable or satellite providers. Some utilities have special programs assisting with payments. Be prepared to share financial information so the utility company can find an effective program to help.


    Avoid ignoring creditor phone calls. With caller ID, creditor numbers are easily recognized. There is an inherent wish to avoid these calls, but it's better to take the call and provide an honest status report than it is to avoid the call and leave the creditor wondering whether serious collection action is necessary. Maintaining communications will protect credit ratings. Most creditors will see an honored payment arrangement as good credit management and won't send an adverse report to a credit bureau. More important, most will keep the debt in-house and not assign it to a collection agency.


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