My Job Loss

Dealing with Debt

I heard an ad on the radio yesterday that made me exceedingly uneasy.  The announcer was touting a program to get you out of debt in thirty days, by completely eliminating your debt, not consolidating it.  Isn't there an old adage about things that sound too good to be true?

One of the things that really saddened us during my husband's job search was the number of people out there who are waiting to prey on people who are at their most vulnerable.  This radio ad made me think of that.  Mind you, I have not researched the product that was being advertised on the radio and it may be completely legitimate, but my guess is that it is not.  So how do you know whether a credit counseling program is trustworthy?

The National Foundation for Credit Counselors is a trade organization for credit counselors.  You can click on the link to their website or call 1-800-388-2227 to find a non-profit credit counselor in your area.  In addition, the website offers a debt test, a budget makeover, and a budget and debt worksheet if you are interested in doing some number-crunching on your own.  I strongly urge you to contact a credit counselor through this website before you throw money out the window on what could be a scam.

Here are some other tips for managing debt after a job loss:

1)  Quit Spending.  Don't use credit cards, home equity loans or lines of credit to maintain the lifestyle that you enjoyed when you had a job.  Cut non-essential spending on things such as eating out, going to the movies, premium cable packages, club memberships and "retail therapy."

2)  Don't Ignore Your Debt.  If you find yourself unable to pay your mortgage or make your minimum credit card payments, contact your creditors to try to work something out.  Or, work with a non-profit credit counselor to work out a repayment plan.

3)  Make payments on time.  Making at least a minimum payment on time will help to protect your credit rating. 

Secure the Roof Over Your Head

You will like this about as much as a trip to the dentist.  But much like a root canal, it will be much more painful if you put this off.  I'm talking about getting a grasp on your personal finances. 

So let's dive in.  If you have already been tracking your expenses on paper or with a software program like Quicken, good for you.  If not, you will need to gather your check book register, bank statements, and credit card statements for the past six months to a year.  You will also need a pad of paper, or a software program like Quicken.  If you do not have Quicken, a free software option is Mint.   Be prepared to divide your spending into categories such as rent/mortgage,  health insurance, healthcare, food, clothing, household maintenance, household improvements, utilities, cable, cell phone, entertainment, liquor, car payments, gas, car repairs, gifts, loans, etc. 

The idea is for you to go through the last six month to one year, and track everything that you have spent, category by category.  Once you have a clear idea of where you spend your money, you can identify areas where you can reduce or eliminate spending.  Since you do not know how long you will be without work, be prepared to make significant cuts in your spending. 

Mary Hulbert, Director of Community Outreach at Consumer Credit Counseling Services, has an excellent article about the financial aspects of surviving a job loss.  Trent Hamm over at The Simple Dollar  writes a very practical blog about personal finance, as does J.D. Roth at Get Rich Slowly.    

First Things First

You've just lost you job - what are the first things that you should do to protect yourself and your family? 

Before you do anything else, file for unemployment.  There may be backlogs in this down economy and there is likely to be a deadline for filing, so this is the first thing that you should address.  Most states permit you to file online - do not delay.  About.com has a page with links to all state unemployment compensation offices, and a general list of information that you will need to have handy when you apply.  You can access this useful page by clicking here.

Next, secure health insurance for you and your family.  COBRA generally requires that group health plans of employers of twenty or more people in the year prior permit participants to continue their healthcare coverage after a job loss.  Usually, you are required to pay the entire premium, and this can be quite expensive.  If you or a family member have or have had significant health problems, however, this may be the best option for you.

It is also possible to purchase health insurance on the open market.  This may be a less expensive option for people who have no significant health history, especially if you are willing to have a higher deductible.  Two websites to help you to shop for private health insurance are www.eHealthInsurance.com and National Association of Health Underwriters. 

Once you've taken these steps, it is time to take a detailed look at your finances.  We'll  talk more about that in Monday's post.