If your job's uncertain, avoid new debt
Sure, celebrate your new job, but don't invite debt to the party
By Gary Foreman
Dear New Frugal You,
I've been "downsized" three times in the past 15
years, the first time after Sept. 11 and now twice in the current recession and
aftermath. While I'm unemployed, we tend to run up our charge cards. I just
started a new job. It'll probably take at least a year to pay off the credit
cards. I'm tired of going around in circles. How do I get off this ride? -- Jonah
Dear Jonah,
Congratulations on your new job! In an uncertain job market
it's always nice to find employment. But, as your story shows, there's no
guarantee for tomorrow. So you're wise to take steps now to prevent problems
later.
Let's look at your situation from two different views.
First, what can you do to keep your job. Then what can you do to protect
yourself financially if you do lose your job.
Keeping your job is not easy right now. The Bureau of Labor
Statistics has the unemployment rate at 8.2 percent, or 12.7 million people. An additional 7.7 million
are working part-time because of the economy and 2.4 million more would like
work but have given up looking. That's just under 23
million people who want to find work. What does all that mean? That many of us are
justified to be concerned about our jobs.
In the short term, you'll want to make yourself valuable to
your new employer. That means learning as much as you can about your job and
those around you. Be willing to take on new responsibilities. Demonstrate good
work habits.
It might seem like you're kissing up to your employer, but
keeping the people who control your paycheck happy might be a good idea.
Especially when a lot of people would be happy to take your job if it were
open.
Over the longer term, you'll want to know how secure your
profession is. If you've been downsized three times already, you would be crazy
to think that it couldn't happen again. The natural question is: What are you
going to do about it?
One thing that could prove useful is to evaluate the
prospects for your industry and profession. Spend some time in online job
sites. Are there many openings for what you do? Or are there very few jobs
posted?
A more scientific way to check out career prospects is to
look to your state government or university. The state of Washington, for
example, has a workforce training board that lists which careers are in
demand in the state. A search could show something similar for your area.
You might not like what you find. Many people are finding
that the jobs that they've held for years are gradually disappearing, never to
return again. If that's the case, you'll want to begin thinking of a new career.
We won't get into how to select a career path. But recognize that it's easier
to begin the search and pick up any necessary education/training while you're
still employed and have your current paycheck.
Now that you have a better income again, it's time to get
your financial house in order. Pay down any debts that you accumulated while
you were unemployed.
Make it a priority to become debt free. Gone are the days
when it was safe to make payments against your balance each month. Carrying a
debt load is especially tough if you lose your job.
It will be tempting to reward yourself for starting to work
again. While a small celebration is in order, don't invite new debt to the
party. Avoid any commitments that you couldn't keep if you lost this job.
That's especially true of any new payments (such as auto loans).
It's a good idea to consider how you'd honor your financial
commitments if you had to survive on unemployment for a while. As of April
2012, the average length of unemployment is just under 40 weeks. That suggests that you
need a plan that will work for at least 10 months.
I know that it's hard to save money for an emergency fund.
But as soon as you pay down debts, you'll want to make it a priority. Don't get
discouraged if your goal is large and appears unreachable. Any progress you
make will help if you become unemployed again.
Normally, I'd advise against credit insurance, but it would
make your credit card payments if you lost your job. This could be the right
time to consider it, especially if your job appears to be in jeopardy.
Should you fall behind, contact your creditors immediately.
Most will try to work with you as long as you're honest with them and continue
to make regular payments.
Is there any way to be absolutely sure that you
won't ever have to look for a job again or go into debt if you do lose one? No.
For the vast majority of us that's not possible. But the stronger you are
financially, the easier it is to survive a time with limited income. So do
whatever you can now to prepare for an uncertain future.
See related: Tips for facing a layoff, Are credit card protection plans worth the cost?
For more than 35 years, Gary Foreman has worked to help people get the most for their money. Prior to founding The Dollar Stretcher.com, he was a financial planner and purchasing manager. Gary began The Dollar Stretcher website and newsletters in April 1996. Today the website features more than 6,000 articles on different ways to live better for less. Gary has been interviewed by The Wall Street Journal, The Nightly Business Report, USA Today, Reader's Digest and other newspapers and magazines. Gary answers a question about a budgeting or saving issue from a CreditCards.com reader each week.
Send your question to The New Frugal You.
Published: April 26, 2012
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