When you’re unemployed there are many things vying for your attention such as finding a new job, figuring out how you’ll continue to pay for basics like food and housing, and managing your debt. When money is tight and you’re not sure when more will come in, keeping up with your credit card payments can feel like a low priority in the overall scheme of things.
However, neglecting your credit card debt can have negative impacts on your financial health and credit score that last long beyond this period of unemployment. Here are some steps to take when you find yourself unemployed with credit card debt:
Review Your Spending
Start by assessing your current financial situation. Figure out what your basic expenses are right now by reviewing your recent debit and credit card statements. Make a list of all your upcoming expenses, including the minimum monthly payments on your credit cards, and see if there’s anything you can cut back on or do without altogether. Remember that these adjustments aren’t forever, they’re to control your spending now so that you avoid additional unnecessary debt and give yourself more runway.
You’ll also want to see if there’s any income support available to you, such as Employment Insurance (EI) or other unemployment benefits.
Contact Your Lenders
Contact your creditors to see what sort of leeway or supports are available to you. This is especially important if you cannot make the minimum payment on your card, as missed payments negatively impact your credit score. You may have credit insurance on your card, such as balance protection insurance that covers minimum monthly payments. Skip payment features or payment deferrals should only be used if absolutely necessary as interest often still accrues over those months.
If you’re unable to keep up with your debt repayments, it’s best to be proactive by contacting your lenders. You may discover you have more options, and therefore more flexibility than you think.
Access Low-Interest Sources of Debt First
When your expenses exceed your income you need to be strategic about where you get the cash to make up the difference. If you have an emergency fund, now’s the time to use it. If you don’t have an emergency fund, don’t beat yourself up. You can make it a goal to build one down the line.
When accessing sources of debt available to you, use the lowest rate option first. Start by accessing any secured or unsecured lines of credit you may have, as the repayments on these are often interest only. This might be a personal or home equity line of credit.
If you need to continue using credit cards, consolidating your credit card debt to a lower interest credit card or loan can lower your monthly payments and help you pay off your debt sooner. Balance transfers can be used to transfer your debt from one credit card to another while taking advantage of a low or no-interest promotional period. Just be careful of transfer fees and make sure you know when the promotional period ends and what the interest rates are after that.
Taking money out of your long-term investments should be a last resort. If you need to access your investments, start by withdrawing from your taxable investment account or TFSA before accessing your RRSP. You will be taxed on any money withdrawn from your RRSP and you’ll lose that contribution room.
Remember to stick to your budget and prioritize your spending. Whatever source of cash you decide to access, do so sparingly by only using what you need as you need it.
Monitor Your Credit Score
Continue to monitor your credit report and score. Borrowell gives members free access to their Equifax credit score and report, letting you see an overview of your credit history including credit utilization and late or deferred payments. Your credit score and profile are updated every single week, so you can gain a realistic and up-to-date understanding of your credit health. Based on your history, Borrowell’s AI-powered Credit Coach, Molly, will share personalized tips on how you can improve your score so that you can strengthen your credit over time.
Your credit score and history will impact the sources of credit you’re able to apply for now, but you also need to keep in mind that it can impact your choices in the future, like applying for a mortgage or car loan.
Get Help From a Qualified Professional
If you’ve tried implementing these strategies and you’re overwhelmed by your financial situation, remember that you don’t have to face it alone. Contact a credit counselling agency or a licensed insolvency trustee. These qualified professionals can help review your options given your specific situation and provide concrete next steps.
The Bottom Line
Keep in mind, personal finance is personal. Your situation is unique and while it’s tempting, there’s no use comparing your situation to someone else’s or wishing you’d done something differently in the past. All we can do is focus on what’s in front of us and our actions moving forward (like making it a priority to pay down that high-interest debt once you’re employed!), and know that this is temporary. Keep an eye on your budget and finances every month, monitor your credit score with Borrowell, and track your progress. You’ve got this!