Managing Credit Card Debt While Unemployed

Contact your credit card companies

This is perhaps the most important step you can take. Many people avoid calling their creditors out of embarrassment or fear, but credit card companies would rather work with you than risk you defaulting entirely.

When you call, be prepared to:

• Explain your situation honestly and briefly
• Provide details about your unemployment and expected duration
• Request specific assistance (hardship programs, payment deferrals, reduced payments)
• Ask about any available hardship programs
• Get any agreements in writing

Most major credit card companies offer hardship programs that can include:

• Temporary payment reductions
• Interest rate reductions
• Waived fees
• Payment deferrals
• Modified payment plans

Apply for unemployment benefits immediately

Don’t wait to file for unemployment benefits. Even if you think you might not be eligible, apply anyway. The process can take several weeks, and you want to start receiving benefits as soon as possible. Unemployment benefits will provide crucial income to help cover your minimum payments and essential expenses.

Stop using your credit cards

This might seem obvious, but it’s crucial to stop adding to your debt. Remove credit cards from your wallet, delete them from online accounts, and resist the temptation to use them for any purchases. Every dollar you add to your balance makes your situation more difficult.

Strategic debt management approaches

Once you’ve taken the immediate steps, you need a longer-term strategy for managing your debt during unemployment.

The minimum payment strategy

When resources are extremely limited, focusing on minimum payments across all accounts is often the most practical approach. This strategy helps you:

• Avoid late fees and penalty interest rates
• Prevent accounts from going into default
• Maintain your credit score as much as possible
• Buy time while you search for new employment

However, understand that making only minimum payments means you’ll pay significantly more in interest over time and it will take much longer to pay off your balances.

The modified Avalanche Method

If you have any extra money beyond minimum payments, consider a modified version of the debt avalanche method:

1. Make minimum payments on all accounts
2. Put any extra money toward the card with the highest interest rate
3. Once that card is paid off, move to the next highest rate

During unemployment, you might not have much extra money for this approach, but even an additional $10-20 per month can make a difference over time.

Debt consolidation options

Consolidating your credit card debt might help reduce your monthly payments and simplify your finances. However, your options may be limited while unemployed:

• Personal loans: Most lenders require proof of income, making this option difficult while unemployed. However, if you have excellent credit and some savings, you might still qualify.
• Balance transfer cards: These typically require good credit and stable income. If you were recently employed and have good credit, you might still qualify for a 0% APR balance transfer card, which could provide significant savings.
• Home equity loan or HELOC: If you own a home with equity, this could provide funds to pay off credit cards at a lower interest rate. However, you’re putting your home at risk, so this should be carefully considered.

Debt management plans

Non-profit credit counseling agencies can help you set up a debt management plan (DMP). These plans typically:

• Reduce interest rates and waive fees
• Consolidate multiple payments into one monthly payment
• Provide a structured path to pay off debt in 3-5 years

While enrolled in a DMP, you typically can’t use your credit cards, but this can actually be helpful during unemployment by removing temptation.

Maximizing income during unemployment

While managing your debt is crucial, increasing your income is equally important for long-term success.

Optimize your job search

Treat job searching like a full-time job:

• Spend 6-8 hours daily on job search activities
• Customize your resume and cover letter for each application
• Network actively through LinkedIn and professional associations
• Consider working with recruiters in your field
• Don’t be too selective initially; any income is better than none

Explore temporary and gig work

While searching for permanent employment, consider temporary income sources:

• Freelance work in your field
• Gig economy jobs (Uber, DoorDash, TaskRabbit)
• Temporary staffing agencies
• Part-time retail or service positions
• Online work (writing, virtual assistance, tutoring)

Even modest additional income can help you make more than minimum payments and prevent your debt situation from worsening.

Sell unnecessary assets

Look around your home for items you can sell:

• Electronics you no longer use
• Furniture you don’t need
• Collectibles or hobby items
• Unused gift cards
• Clothes and accessories

Use proceeds to make extra debt payments or build a small emergency fund.

Government and community resources

Don’t overlook available assistance programs that can help free up money for debt payments.

Federal and state programs

• SNAP (Food Stamps): Reduces grocery costs, freeing up money for other expenses
• Medicaid: Provides healthcare coverage if you lose employer-provided insurance
• LIHEAP: Helps with heating and cooling costs
• Local housing assistance: May help with rent or mortgage payments
• WIC: If you have young children, this can help with food costs

Community resources

• Food banks and pantries
• Local churches and community organizations
• Utility assistance programs
• Free or low-cost healthcare clinics
• Employment assistance programs

Protecting your credit score

Your credit score is a valuable financial asset that you want to protect even during difficult times.

Payment priority

If you can’t pay all your bills, prioritize them in this order:

1. Secured debts (mortgage, car loans)
2. Credit card minimum payments
3. Unsecured loans
4. Other debts

Credit utilization

Try to keep your credit card balances below 30% of your credit limits. If possible, aim for under 10%. High utilization ratios can significantly damage your credit score.

Don’t close accounts

Keep your credit cards open even if you’re not using them. Closing accounts reduces your available credit and can hurt your credit score. The exception is if you’re paying annual fees you can’t afford.

Monitor your credit report

You’re entitled to one free credit report annually from each bureau through annualcreditreport.com. Review these reports for errors and dispute any inaccuracies you find.

Debt settlement

Sometimes, despite your best efforts, the debt burden becomes unmanageable. Recognize when it might be time to consider more serious options, such as settlement. This involves negotiating with creditors to accept less than the full amount owed. While this can reduce your debt burden, it also:

• Damages your credit score
• May result in tax liability on forgiven debt
• Doesn’t guarantee creditors will agree to settle
• Often requires you to stop making payments, accumulating fees and interest

Consider debt settlement only as a last resort when bankruptcy seems like the only alternative.

Bankruptcy

Chapter 7 or Chapter 13 bankruptcy can provide relief from overwhelming debt, but the consequences are severe:

• Remains on your credit report for 7-10 years
• Makes it difficult to get credit, housing, or employment
• You may lose certain assets
• Not all debts are dischargeable

Consult with a bankruptcy attorney to understand if this is appropriate for your situation.

Maintaining your mental health

The stress of unemployment and debt can take a significant toll on your mental health. It’s important to address this aspect of your situation as well.

Stress management techniques

• Practice regular exercise, even if it’s just walking
• Maintain a daily routine to provide structure
• Stay connected with friends and family for emotional support
• Consider free or low-cost counseling services
• Practice mindfulness or meditation

Avoid isolation

Financial stress can lead to social isolation, which makes the situation worse. Stay connected with your support network and don’t be afraid to ask for help when you need it.

Focus on what you can control

You can’t control the job market or economic conditions, but you can control your response to your situation. Focus your energy on actionable steps like job searching, managing your budget, and communicating with creditors.

The bottom line

Managing credit card debt while unemployed requires a combination of immediate action, strategic planning, and emotional resilience. While the situation is challenging, it’s not hopeless. By taking proactive steps to communicate with creditors, minimize expenses, maximize available resources, and maintain focus on both short-term stability and long-term recovery, you can navigate this difficult period.

Remember that unemployment is typically temporary, but the financial habits and knowledge you develop during this time can benefit you for years to come. Stay focused on your goals, be persistent in your job search, and don’t hesitate to seek help when you need it. With time and effort, you can overcome this challenge and build a stronger financial foundation for the future.

There’s always JG Wentworth…

Do you have $10,000 or more in unsecured debt? If so, there’s a good chance you’ll qualify for the JG Wentworth Debt Relief Program.* Some of our program perks include: 

• One monthly program payment 
• We negotiate on your behalf 
• Average debt resolution in as little as 48-60 months 
• We only get paid when we settle your debt  

If you think you qualify for our program, give us a call today so we can go over the best options for your specific financial needs. Why go it alone when you can have a dedicated team on your side?