Then it hits you: You’re not only out of work, but you have to pay your bills without an income. If you’re part of the minority of Americans with three to six months of expenses saved up, that might not be such a challenge. But for most people, coming up with the money to pay bills when they’re out of work is a struggle.
The good news, though, is that when it comes to your credit card bills, there are steps you can take to avoid doing long-term damage to your credit. It’s important to act fast, so check out the information below to keep from getting burned by missed payments or a default:
1. Stop charging
The best thing to do when you’ve just been laid off is to immediately and significantly cut back on your spending. Ideally, you should try to avoid making any more purchases with your credit card – keeping your next bill as small as possible will ease the weight on your shoulders as you’re scraping together the cash to meet your monthly obligations. But if you can’t stop charging, the next best thing is to cut your spending to just the bare essentials. After all, it’ll be much easier to pay off a small credit card debt than a large one.
2. Get in touch with your bank – right away
A lot of people who’ve recently been laid off slip into a low-grade denial, believing that they’ll figure out a way to make all their payments. That leads them to avoid getting in touch with creditors as soon as they know they can’t pay their bills – they’re hoping something will magically work out at the 11th hour.
Failing to contact the bank as you know you’re not going to be able to make a payment is a huge mistake, though. Getting in touch with your creditor right away is an important proactive step that will show the bank you’re not trying to be sketchy or dodge your obligation. But besides creating good will between you and your bank, contacting your credit card company right away could also yield some help in dealing with your payments (see below).
3. Ask about hardship programs
Since the start of the Great Recession in 2008, many major banks and credit unions have started what are called “hardship programs” for people who have been laid off. The programs are usually offered to customers who have been responsible with credit in the past and are facing a temporary setback.
Hardship programs differ from bank to bank, but most provide good customers with increased flexibility with payment terms, extensions on bill due dates, smaller minimum payments, or some combination of those. Be sure to ask your bank about its hardship program when you first get in touch after you’ve lost your job – because you’re going to do that right away, right?
4. Ask about other special programs
In some cases, banks launch special programs for industries that have recently had a major wave of layoffs of furloughs. These are usually just plumped-up versions of banks’ existing hardship programs, but they might offer some extra benefits and be a bit easier to access.
An example of this came up in October 2013, when about 800,000 federal employees were furloughed because of the government shutdown. Within a week, several big banks stepped up to offer those workers programs to help them avoid defaulting on mortgages and credit cards while they were going without a paycheck. Again, most banks are willing to work with customers who have been responsible in the past, so be sure to ask for help when you get in touch with your creditors.
5. For now, just make minimums
It’s not ideal, but when you’re just keeping your head above water, it’s much better to just make minimum payments on your credit card than no payments at all. Making timely minimums will keep your credit score from taking a serious hit, but it’s important to pay off any debt you accrued while you were laid off as soon as you start getting a paycheck again.
Getting laid off can be a serious blow to your financial health, but you can limit the damage by taking action right away to keep up with your credit card payments. Use the tips above to stay on the straight and narrow with your creditors and preserve the positive credit history you’ve worked so hard to build.
