How to Pay Down Debt While Unemployed

Take-out dining increases your expenses and should be cut when reorganizing finances.

Losing a job or becoming seasonally unemployed increases stress, especially if you have outstanding debts. Creating a source of income is crucial to managing debt while unemployed and staying abreast of your finances when you regain a reliable source of income. The types of debt you owe can affect your future financial security and working to develop an agreement with your creditors can make the difference between a positive and disastrous outcome. You should take several steps that require communication, commitment and patience to survive temporary unemployment.

Instructions

Create Cash Flow and Reduce Expenses

1. Complete an application for unemployment by contacting your state's office of unemployment. If you receive unemployment compensation, you can utilize those funds to meet your monthly obligations.

2. Submit your application to at least five to 10 viable job opportunities five to seven days per week. Follow-up with each potential employer and don't wait for the perfect position. The goal is to secure reliable income, no matter how small, for the foreseeable future.

3. Apply for assistance at your social services department to increase cash flow or decrease monthly expenses. For example, the Department of Health's food program provides monthly benefits for families and individuals who qualify. This type of assistance will decrease the amount you spend monthly on basic necessities.

4. Create cash flow from a hobby, specific talent or basic skill. For example, if you are skilled at lawn care, cleaning or working with animals, work to find a niche in your area to create work for yourself.

5. Cancel and cut back on unnecessary expenses such as cable television, take-out dining and extracurricular activities. Items that are not required for survival or basic needs should be eliminated. Prior to making these decisions, consult with your family to come to an agreement or compromise.

6. Contact your utility providers to request a "budget" plan. Many cooperatives and utility companies offer a "budget" plan that ensures your utility payments are the same each month. At the end of the year, you pay any difference, or overage, and begin the cycle again. This can establish some certainty with your monthly bill payments.

Contact Your Creditors

1. Prioritize your creditors by weighing the disadvantages of further late payments. For example, if you owe the Internal Revenue Service, federal student loans or child support or are subject to a judgment, resolving these debts first helps reduce future hardship such as incarceration or seizure of your assets. Furthermore, working to successfully pay down smaller debts helps you achieve a sense of accomplishment and closes a delinquent account.

2. Write a letter to each creditor expressing your interest in resolving your debt. Insert a realistic amount that you can comfortably afford on an ongoing monthly basis. For example, if you earn $400 per month doing side work, offer to pay an amount that will not compromise your immediate needs, such as food, shelter and utilities.

3. Enclose a money order or check with each letter. Send the letters to each creditor and keep copies of the money order and correspondence.

4. Make payments in a timely fashion and contact creditors should you fall behind.

Tips & Warnings

• Establish and stick to a detailed budget that incorporates monthly income you can depend on.

References

• Bay County Michigan: When You're Unemployed