Lost job? Budget, don't stop card payments


To Her Credit
To Her Credit, Sally Herigstad
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, and also wrote for MSN Money, and, and has guested on Martha Stewart Radio and other programs. See her website for more personal finance tips and free budgeting worksheets.
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Question Dear Sally,
My husband, who is the major money maker of our family, just lost his job this week. We have several high balance credit cards that we know we can't continue to pay. We will be doing good to make our mortgage, car and utility bills. Any advice you can send our way will be greatly appreciated. -- Sheila


Dear Sheila,
Losing a job is a major shock in a person's life. Everything changes -- financial security, job friends, sense of importance. During any time of grief or shock is not a good time to make fast decisions. Giving up on making credit card payments less than one month after losing your major source of income, in my opinion, would be a decision you may soon regret.

As soon as you miss the first credit card payments, you start to rack up late fees. You may be hit with alarmingly high interest rates once you are in default. The high interest rates and more late fees build on each other, and your credit card balances can double or triple before you know it. Your phone starts to ring with collectors calling, and you dread going to the mailbox and seeing late notices. Your credit score tanks. Bankruptcy may start to look like the best way out. I hate to see you go down this road if you can avoid it.

You are smart to plan for longer term unemployment as a worst-case scenario. However, your husband may not be unemployed for as long as you think. In the best case scenario, he could find a better job or other opportunity soon. Rather than giving up on making credit card payments, here are the steps I would take in the meantime:

  1. Contact your state unemployment office and find out how much your husband's unemployment benefits will be. You may be able to estimate his benefits online.
  2. Make a baseline budget. Use your income, including your paycheck and your husband's unemployment benefits. For expenses, list your mortgage, car payments, insurance, utilities, minimum credit card payments and other fixed expenses. Include minimum expenses for categories such as food and gas. Your baseline budget tells you how close (or far) you are from getting by when your husband is unemployed.
  3. Look for ways to increase your income. You may be able to find extra work or a second job. If your husband finds even a temporary, lower-paying job, it probably pays better than unemployment. You can also look at things to sell, such as a boat, motorcycle or miscellaneous household items.
  4. Cut expenses. Cancel the cable bill, and find the cheapest phone and Internet plans you can. Stop eating out, especially fast food. Sell your car if you're making payments, and find one you can afford to buy with cash. You may even be able to get by with one car temporarily. Stay away from the malls and take shopping sites off your Internet favorites list. It's amazing how much less most of us can spend for a limited time if we're motivated enough.
  5. Revisit your budget. With potential new sources of income and slashed expenses, see if you can balance the budget. If you can, great! If you still have more expenses than income, go to the next step.
  6. If you cannot make the minimum payments on your cards, contact the banks and ask for temporary hardship relief while your husband is unemployed. It's far better for you to contact them, than to start missing payments and have them contact you.

I have found that the end of one job usually leads to something better. Make plans to cope with possible longer term unemployment, but hope for the best. Good luck to your husband on his job search!

See related: Chronic late credit card payments: How bad can things get?

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Published: February 5, 2016

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