Dealing with credit card debt after being laid off
Will a debt consolidation program help? Maybe not
To Her Credit
Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006). She writes "To Her Credit," a weekly reader Q&A column about issues involving women, credit and debt, for CreditCards.com, and also writes regularly for MSN Money, Interest.com and Bankrate.com, and has guested on Martha Steward Radio and other programs. See her website SallyHerigstad.com
for more personal finance tips and free budgeting worksheets.
Ask Sally a question
, or read her previous answers in the To Her Credit archive
Dear To Her Credit,
I am a single mom and was just unexpectedly laid off from my
job. I have a lot of credit card debt and am afraid I soon won't be able to pay even the
minimum amount. I don't want to ruin my credit for fear of not being hired someplace
else. I also have a son in college, so most of my unemployment benefits will go
to his tuition.
I have seen a lot of credit consolidation company
advertisements, but I have also heard a lot of them charge a fee and then do
not follow through with making payments to the creditors. Could you tell me
what my options are? Thank you. -- Beth
Don't make any drastic decisions just yet.
One problem with turning to credit consolidation the moment
you get laid off is that yes, it will hurt your credit. That's if they do their
job -- some "consolidation" companies, as you have heard, take the
fee and do nothing.
The biggest problem with credit consolidation is that it
doesn't solve your problems. It only takes a whack at one of the symptoms --
credit card debt. You need to look at your bigger financial picture.
Tracy Piercy, certified financial planner professional, founder
and CEO of MoneyMinding.com, advises you, "Stop. Don't panic. Breathe."
Piercy recommends that you make a list of your monetary
assets first. This includes cash on hand, retirement savings and even available
credit. Then make a list of how much money you need and when on a weekly basis.
Resist the urge to create a big lump-sum amount of money you
need. Piercy says, "That is a recipe for complete despair and certainly
not helpful for making decisions about small steps."
Instead, create something accountants call a "cash flow
forecast" to show how much money you will receive each week and how much
money you will need to spend each week with a surplus or deficit. Go to your
state's employment division website and determine how much you will receive in
benefits. With this information, you'll know exactly how much money you need
Armed with this information, you can start finding ways to
make up the difference. Don't expect to fix it with one solution. You'll
probably need to use at least a few of these options:
- Your son may be able to find a work study program, if he's
not in one already. A person can only study so many hours in a day and every
hour he works will help.
- Ask the college about payment plans, hardship rules and
so on. The school's financial department can have a wealth of information you
wouldn't otherwise know about.
- If feasible, ask your son's father or even his
grandparents for help.
- Sell something, either to raise cash or to get out from
- Concentrate on finding a job or self-employment income.
Even in a bad economy, some people are finding work. It may as well be you.
- Deal with debt. Piercy says, "See if there are any
items that can be put on hold or renegotiated in the short term."
Consolidation is only one of many strategies for debt. "I'm not sure I
would put it first though, nor would I immediately jump to a credit settlement
until all the other options have been evaluated!" she says. Other ways to
deal with debt during unemployment include asking your bank for a hardship plan
or negotiating the debt down on your own.
- Consider drastic measures only after determining they are
necessary. Drastic measures include moving in with relatives or renting out a
room, expanding your job search geographically, selling all vehicles or taking
a personal loan from your parents.
Piercy knows about financial crisis not only as a professional
who has helped many people, but from first-hand, recent experience. She says,
"The immediate panic and subsequent paralysis, depression, disappointment,
despair and other equally negative emotions will tempt her to want to do
anything to make the 'pain' go away.
It's OK to feel this way. It is
normal and it is common."
You shouldn't feel all alone with this burden. Talk about it
with your friends and family. That's why
it's so important that you stop and breathe before you jump into anything. Piercy
finds many people don't want to run the numbers because they think they already
know what they are. She says, "It must be in writing, and it must not be
lumped into a couple big numbers." You'll get through this by breaking the
problem into smaller time frames and smaller amounts of money, and then solving
any shortfalls -- one manageable chunk at a time.
See related: 9 things you must know about debt consolidation, Laid off: which bills HAVE to be paid?, Card issuers don't make hardship programs easy
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Published: December 7, 2012
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