How to deal with debts after losing your job

How to deal with debts after losing your job
September 11, 2017 Stacey Corrin

deal with debts

Knowing how to manage your debts can be difficult at the best of times. Losing your job can mean that you could struggle to pay back what you owe. It is important to deal with debts at all times, even if you are unemployed.

CashLady takes a look at the steps you could take to take control of your debts after you have been dismissed from your job. 

Deal with debts: Budget

One of the first things you should do when losing your job is to review your weekly (or monthly) budget. 

A drop in income means that some non-essential outgoings may need to be cut.

If you don’t have a budget, now may be the time to draw one up. You can use a budget to ensure that you are not overspending and getting into more debt during the time you are unemployed.

For more information on how to budget, take a look at the CashLady website.

Put together a list of your debts

Write down every debt you have, including how much you owe. This could comprise of your mortgage, credit cards and bank loans. 

Also, include monthly outgoings such as what you owe utility suppliers and your council tax. 

Do you have any insurance?

Some people take out insurance that will help them repay their debts, should they lose their job. This could be, for example, PPI (payment protection insurance) or MPPI (mortgage payment protection insurance). 

If you have taken out this type of insurance, you could find that it covers some of your monthly debts for a fixed period of time while you are unemployed. 

Which debts need paying off first? 

The Money Advice Service splits debts into two categories: priority debts and non-priority debts.

Priority debts are things such as your rent or your mortgage. 

Arguably, it is more important to ensure that these are paid first, as otherwise, you could lose your home. 

Non-priority debts are seen as things like bank overdrafts or credit card bills.

These types of debts are not normally secured against your home, so the businesses who you owe money to should not usually be able to take your home if you do not pay. 

Prioritise debts over non-essentials

After you have drawn up a list of essentials in your budget, such as food and mortgage or rent payments, you could then allocate any extra money to pay off ‘non-priority’ debts. Normally, if you didn’t have any additional debts, this money would be what is known as ‘disposable income’ (income you could spend on entertainment, for example).

Losing your job may mean that your disposable income is very limited or non-existent until you find employment again.

deal with debts by talking to your lender

Talk to your lender

If you are still struggling to pay your debts, it can be helpful to talk to your lender to tell them that you are finding it difficult to meet your repayments.

Help from the government

You may be entitled to support from the government if you have lost your job. For example, the government could help you to pay your mortgage payments if you are unemployed.

You could also be entitled to help to pay your council tax or rent.

Seek other help 

If you are really struggling to deal with debts, there are various non-profit organisations out there who you could contact to seek advice and debt counselling.

Debt counsellors could help by, for example, putting you on a Debt Management Plan or talking to you about other debt solutions, such as a Debt Relief Order. 

They could also negotiate with your creditors on your behalf, to try and get them to freeze your interest.

Although you may be able to do many of these things yourself, the processes can sometimes be complicated. You could also find that these counsellors could be taken more seriously than you calling your creditors directly.  

  • Debt charity StepChange offers support to those who are struggling with debt after losing a job.
  • The National Debtline offers help over the telephone, online and via their web chat.
  • The Money Advice Service also offers free debt advice. 

If you being harassed by debt collection agencies, you could ask a debt counselling service to get your creditors to give you 30 days ‘breathing space’.

Conclusion

There is support out there to help you deal with debts. 

Losing a job can be an extremely stressful time, especially if you have debts that you need to pay. It’s important to realise that there is free help out there from non-profit organisations if you feel that you are unable to cope. There is no need to suffer alone.

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