Question 1

Should I Pay My Credit Cards When I’m Unemployed?

Accepted Answer

Yes, if you can afford to. If you can afford the minimum payments (as well as food, shelter and utilities), then you should absolutely pay your credit cards during unemployment.

Question 2

Should I Use My Credit Cards While I’m Unemployed?

Accepted Answer

Be very careful about using your credit cards. It’s tempting to take on credit card debt expecting to pay it off later. Problem is, you don’t know how long “later” is going to take. Taking on new cards or not paying off your balance at the end of the month can be extremely costly if you don’t get a new job quickly. Best suggestion? Stop using credit cards and avoid taking cash advances or signing up for financing plans until you find work. Also, avoid using your credit cards as cash machines. While you might find such options tempting, high interest credit card debt can create more problems than they solve.

Question 3

Should I Withdraw Money from My 401(k) While I’m Unemployed?

Accepted Answer

No. If you pull money out of tax-deferred retirement plans like 401(k)s and traditional IRAs, you could face sizable tax penalties for early withdrawals. Worse still, you will be depleting accounts intended to fund your retirement, opening the door to future financial woes.

Again, it’s important to consider the consequences and try to avoid early retirement-account withdrawals.

Question 4

Should I Take out a Home Equity Loan to Pay My Credit Cards?

Accepted Answer

A low-interest home equity loan or line of credit may be the right solution for you but be careful. If you find yourself heading toward bankruptcy, your primary residence may be exempt, in which case you are putting your home at risk needlessly. It is difficult to qualify for a home equity loan or line of credit, however, without reliable income. You’ll also need a good credit score to qualify for the best interest rates.

Question 5

Should I Consider Bankruptcy If I Can’t Pay My Credit Card Bills?

Accepted Answer

If your unemployment persists and you are not able to pay your bills, bankruptcy may be a viable option for you. Bankruptcy is a serious step that can cause long-term damage to your credit. Before filing a petition for bankruptcy protection under Chapters 7 or 13, make sure you understand the consequences. Bankruptcy might relieve your immediate financial pain and might be the only viable option, but approach it cautiously.

Seeing a nonprofit credit-counseling firm like InCharge should prove very helpful in creating a plan to deal with disrupted finances. Credit counseling can help you design an emergency budget that helps you allocate your money to cover expenses. You will need to rank priorities and pay essential expenses first. If you had credit card debt before you lost your job, a counselor might recommend a debt management plan that consolidates debt into a single monthly payment. The plan will allow you to pay off debt in three to five years.

Question 6

What about Debt Settlement?

Accepted Answer

Consider debt settlement only if you have enough money in a bank account to settle your debt (usually about 50% of the debt). Don’t allocate money towards a debt-settlement stockpile if you anticipate having problems paying for the basics: food, shelter and utilities. Debt settlement might be a path for you after you’ve found a new job and have the income to tackle your debt.

Question 7

What Can My Creditors Do to Me If I Don’t Pay Them?

Accepted Answer

Most people want to pay their bills on time and take pride in doing so. The thought of not paying can cause panic. But here’s the good news: Credit card companies are limited in what they can do if you default on your debt. They can’t take your house or car away. They can’t garnish your unemployment check (government income is exempt from liens). They can’t put a lien on your wages, because you don’t have any.

That said, creditors aren’t toothless. They can, and often do, sue those who default. If you are sued for credit card debt, immediately review the filing to make sure it’s accurate. Often the plaintiff isn’t the credit card company but another a collection agency that bought your debt and will try various tactics, including a lawsuit to recoup at least part of what you owe. If you determine that the lawsuit is accurate, you need to defend yourself, which means you likely will need a lawyer.

If you get calls from your creditors, calmly explain that you’ve lost your job and you’ll catch up once you’re re-employed. Sometimes you can stall and reach a settlement agreement before a suit is filed.

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