Sometimes I get questions that I just have to share with you. My answers will benefit others because so many people face the same situation. I was asked how a mom who is unemployed can manage her finances. Here are my answers in interview style format.
1. If you lose your job abruptly, what’s the first thing you should do in regard to your finances and debts?
Review your expenses and cut/reduce costs beyond the basic necessities. Next, contact your creditors and tell them the situation and request a modification or reduction in payments. If it was a layoff, go file for unemployment immediately.
2. If you have good credit and want to keep that score high, how can you manage to pay the bills on time if you don’t have any money coming in?
Contact the creditor and make arrangements to reduce the payments, delay the payments for a couple of months, or stop using the cards until you are back on your feet. [Editor’s Note: You can keep an eye on your credit by viewing your two free credit scores each month on Credit.com.]
3. What type of help can a personal banker offer someone who is unemployed and needs to reduce their monthly expenses?
They can request help with creating a budget from the banker. They can also request a reduction in their personal loan interest rates or that their payment be processed at the end of any potential grace period thereby giving them a buffer for a few months.
4. If you have a retirement account, is it wise to dip into it at this time? If so, what’s the best way to go about it?
Getting money out of your retirement account is not conventionally recommended unless it is in case of an emergency. If you must take money out you can take out a portion and roll the rest over into an IRA account. All the money doesn’t have to be used unless the situation is dire but, if at all possible, leave 10-20% of it in an IRA account.
5. What’s the best thing to do in a scenario in which you’ve been unemployed for awhile, lived off your savings, and now those savings are dwindling?
Find a part-time position ASAP, sell what you can, and/or start a service business like cleaning, virtual assistance, painting, etc.
6. Are there any tactics people can use, such as negotiating with credit cards, the IRS (if they still owe taxes) and their mortgage company in times of unemployment? Is there such a thing as deferring payment on certain bills until you get back on your feet?
The best tactic is to be honest and direct about the situation. The reality is everyone, even the IRS, knows someone who has been affected by unemployment. Tell the truth and tell them you are willing to work out a plan during this phase of your life. Payment deferment will vary depending on the company. The reality is most companies just want to get paid so something is better than nothing.
7. What is the best way to reduce monthly expenses?
Reduce monthly expenses by eliminating non-critical expenses. This may include cable, subscription services, daily coffee runs, shopping sprees, etc. Stop using the credit cards you have and contact the creditor to amend the payment plan. Do your own hair instead of visiting the beauty salon/barber, make holiday gifts and cards, create and stick with a shopping list. Buy value items instead of brand name. Compare prices. Make it a game and know the situation is temporary.
Managing finances when you are unemployed can feel scary, frustrating, and impossible, but when you take a step back to assess the situation you can find workable solutions. The main thing to keep in mind is you have options and the situation is likely temporary. Stay on top of your finances, stay positive and pretty soon another job will be right around the corner.
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