Laid off: Which bills HAVE to be paid?
You saved for a rainy day and it's raining
To Her Credit
Dear To Her Credit,
I got laid off a few months ago, and my unemployment is not enough to cover my bills. I'm having to dip into savings every month. It's driving me crazy because I've always believed in having an emergency fund and now it's going down. Should I pay as little as possible on my bills, even letting some of them slide, to make my emergency fund last longer? -- Sarah Kate
Dear Sarah Kate,
Don't let your bills slide to save your emergency fund. It won't save money; in fact, it could cost you plenty. And that could make the rest of your emergency fund disappear even faster.
Let's say you have a credit card balance of $500, for example. Your credit limit is $1,000. Credit card companies have very little power over you in the short term if you stop making your payments, so it's tempting to put them off. The first month you miss, you'll have a late fee -- probably for more money than the minimum payment you missed. Your interest rate may go up. Miss the second payment, and you'll get another late fee, and possibly another rate hike. Your balance starts to snowball. The bank notices your payment behavior change and lowers your balance, trying to stop its losses. If you still miss payments, you'll go over the limit and incur more fees. Take it from some of my readers: Your balance can double, triple or more in no time. Ignore the bill long enough, and you'll be sued.
Utility bills are another thing you never want to let go. If you put them off too long, the lights go out. A few days of camping at home, and electricity will probably go back on the "must have" list. So you go down to the local power company with the money and discover there's a hefty fee for reconnecting service. By the time you can turn on the lights and check your bank balance, it's gone down again. You get the idea.
You're right to be concerned about your dwindling emergency fund, however. Here's how to use it to your best advantage and keep it from disappearing:
Your No. 1 priority is to find a new job. (That's another reason not to let your bills slide. Prospective employers could check your credit report, and the results may determine whether they hire you!) Devote most of your time and energy to looking for work. Allocate enough money to going to job fairs, updating your skills, having someone help you with your resume and anything else that can help you get back to work.
If you are afraid you'll be unemployed for long -- for instance, if you live in an area of high unemployment and you cannot move -- consider making drastic changes. Cancel memberships, turn off the cable and Internet (you can use the library), use a cell phone or landline but not both. Sell things -- start with a garage sale, extra furniture on Craigslist. Even your car and house are negotiable. You probably don't want to move in with relatives or share living space, but it's better to know what your options are before you get desperate.
When you've sent every resume and checked every job website, look for temporary work. Don't just look for a job -- consider offering services directly to people or businesses. Every dollar you make will help make that emergency fund last a little bit longer.
You saved your money for a rainy day, and it's raining. Thank goodness you had the discipline and foresight to save when you could. I hope you find the right job or business soon, and that you can build up your emergency fund up again and reach all your financial goals.
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Published: January 21, 2011
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