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Surviving Unemployment

Worrying about money is just one of the many stresses involved in losing a job – but it is a major one.

You’ll want to halt all unnecessary spending. Go into ‘crisis mode’ and get real conservative with your spending. Finding new employment may take longer than you expect, and you’ll need to deal with debt obligations you assumed before your income was lost.

Time passes quickly as you are looking for a new job, and you cannot ignore your creditors. You should notify them if you are having difficulty paying your bills and tell them why – before they contact you because of nonpayment.

If you do not, there will be serious consequences: late charges being added, accounts becoming delinquent and affecting your credit report, vital services such as gas, electric, water and telephone being shut off. Interest charges will continue to increase your debt. Your accounts may be turned over to a collection agency – more aggressive and persistent than the original creditor.

Rest assured your creditors have heard from many people like yourself during these uncertain times of plant shutdowns, company cutbacks and corporate restructuring. You are not alone. You are not at fault.

Money is limited, however. You will want to work out arrangements with your creditors to pay at least a little each month on a regular basis. You can only do so much with reduced funds.

Now is the time to find out where your household budget stands and how it is affected by this income loss. Prioritize your debts. Make necessary life-style changes so that debts do not increase significantly during this vulnerable time.

With job security so elusive these days, the habits you establish now will serve you well even later when you do find employment.

Expense Chart

Use the following expense chart to see where your money is going. Knowing this, you will be able to make the necessary lifestyle changes to get through this time.

Major Expenses     OTHER  
HOUSING     Child Care  
Mortgage/Rent     Support Payment  
Electric     Wage Tax  
Heat     TOTAL  
Water/Sewage        
Phone     Monthly Payments to Creditors  
Cable     Home Equity Loan  
TOTAL     Car Loan  
      School Loan  
FOOD     Personal Loan  
Groceries     Credit Card  
Lunches     Credit Card  
TOTAL     Credit Card  
      Other loan/payment  
TRANSPORTATION     Other loan/payment  
Gas and Oil     TOTAL  
Repairs        
Car Insurance     Adjustable Miscellaneous Expenses  
Bus Fare     Allowances  
Parking     Beverages  
TOTAL     Books/Newspapers/Magazines  
      Cell Phone  
PROTECTION     Cigarettes  
Life Insurance     Dining Out  
Home Insurance     Gifts  
Health Insurance     Hair Care  
TOTAL     Internet  
      Pets  
MEDICAL     Recreation  
Doctor     Religious/Other Contributions  
Dentist     Savings  
Eyeglasses     Other  
Prescriptions     Other  
TOTAL     Other  
      TOTAL  
CLOTHING        
Purchases        
Dry Cleaning/Laundry     GRAND TOTAL  
TOTAL     Sum of all individual totals  

 

Cost-Cutting Tips

The following suggestions will help you make the necessary lifestyle changes to cut back on spending – and avoid accruing more debts – as much as possible during this difficult time.

The Number One tip is to STOP carrying credit cards. Pay cash or don’t buy!

Shopping:

  • When buying groceries, prepare a list, shop less often, and avoid convenience stores. Convenience is very expensive. Comparison shop and buy store brands. Before you get to the checkout put back 10 percent of the things in your basket, especially junk foods and prepared foods.
  • Avoid shopping malls. Do not browse for entertainment or an escape. It is too easy to spend money. Shopping should be a serious form of family business.
  • Shop garage sales and re-sale shops for children’s clothes, toys, adult everyday clothes and home items. Remember, even if an item is on sale it is not a savings if you don’t need it.

Economize At Home:

  • Turn off lights and TV when not in use, run the dishwasher and washing machine only with full loads. Set the thermostat at 68 degrees in the winter and use fans, not air-conditioning in the summer. Write letters instead of calling long- distance. Re-cycle useful items for your own use.
  • Contact utility companies for information about energy assistance programs.
  • Entertainment adds up quickly: movies, video rentals, cable TV, CD’s, hobbies, sports, toys, clubs and reading materials. Put a clamp on as much as possible during this time and look for free activities at the library, outdoors or with family and friends.
  • Stay away from restaurants, fast food, snack bars and vending machines. Eat at home or bring a lunch.
  • Eliminate low-value insurance (accidental death, collision on an old car).
  • Ask your doctor about generic equivalents for your prescriptions. Comparison shop among pharmacies.
  • Cut down on expensive gift giving. Substitute offers to perform a service instead.

Unemployment Pitfalls

As time passes, you may be tempted to succumb to the following pitfalls of unemployment. Be aware of them and exercise caution:

  • Using credit to supplement income can be a real temptation. Credit does not income. Borrowing for expenses or payments can be dangerous. You can dig yourself a deeper hole that will take years to climb out of.
  • There is a tendency to want to protect children from the pain of doing without to shield them from your unemployment situation. This is a mistake. Let them get involved. It’s a family problem, requiring family cooperation and family solutions. Teen-agers can obtain part-time jobs. Younger members can afford to hear the word NO to their requests. The shared experience will be an excellent way to teach children coping skills and will strengthen family ties.
  • You may think this is a perfect time for home decorating or repairs you never had time for when you were working. Think again. Remember, only your labor is free, and costs add up quickly. If the project is important enough, plan for the costs by raising additional funds through a garage sale.
  • While your extra time off might allow for more entertaining and visiting, keep in mind these activities will cost you money.
  • Don’t cash in pension, IRA or 401K funds to meet expenses. There may be a 10% federal tax penalty for early withdrawal (under age 59 1/2). The total amount also is taxable in the year in which it is withdrawn. Using the funds now will take a substantial bite out of your future security.

Debt Reduction Tips

Consider the following debt management tips when looking to reduce debt and gain control of your finances:

  • Pay high interest rate credit cards first. Organize your credit cards from highest interest rate to lowest interest rate. While continuing to pay all of your creditors, put as much extra money on the one with the highest interest rate. Once you pay off the card, add that payment amount as an extra payment toward the card with the second highest interest rate. Repeat as necessary.
  • Consolidate. A consolidation loan at a lower interest rate may help you get out of debt faster and manage your debts. Remember to cut up the credit cards so you aren’t tempted to run up the balances again.
  • Negotiate with your creditors. Contact your creditors and ask for lower interest rates on your credit cards. If they value you as a customer, they may lower your interest rates to keep you as a customer.
  • Transfer higher interest rate credit cards to one with a lower rate. Make sure the lower interest rate applies to balance transfers, and watch for fees.
  • Set a budget and stick to it. Create a spending plan that allows you to reduce your debts.
  • Review your expenses and identify overspending. See where you can cut back and eliminate unnecessary expenditures.
  • Only charge what you can afford to pay off each month. Limit credit use to 15-20% of your monthly net income.
  • Use your savings and other assets to pay down debts. Withdrawing savings from low interest accounts to settle high rate loans usually makes sense. Don’t completely deplete your savings account. Seek professional advice before liquidating assets.
  • Seek help! Advantage Credit Counseling has debt counseling services to help families develop workable monthly budgets. If appropriate, we will suggest our Debt Management Program. Under this plan, creditors offer special incentives to clients who make a commitment to get out of debt. Incentives include waiving late fees and over-the-limit fees and lowering interest rates.
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