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How to Manage Money When You're Unemployed

Are you out of work, short on cash, and wondering how the heck you are going to feed yourself or your family in the weeks ahead? Don’t panic. Here’s how to develop a sound strategy for managing money while unemployed so you can stop worrying and start looking for work.

Get the income to which you are entitled.

If you are entitled to unemployment benefits, be sure to file a claim by calling your state labor department. Additionally, make sure your employer pays you promptly for the time you worked, any severance pay they promised, and—if you state mandates it—any unused vacation time. Furthermore, if you contributed to an employer-sponsored retirement savings account like a 401(k), be sure you understand how to access that money to roll it over into your own account. Except for extreme circumstances don’t cash it out.

Prioritize your payments.

When money gets tight, there is an order in which you pay for things. Always pay your rent or mortgage and utilities (heat, water, electricity) first. You need a roof over your head. Next, pay for food and medicine. You need to eat. Third, pay for transportation—including your car payment if you have one. You’ll probably need it to get to your next job.

When you are unemployed, everything else comes after these three priorities. If you have credit card bills or other debts that you cannot pay, collectors will start calling and harassing you, but do not let them trick you into paying them before you pay the rent or buy your groceries. At this point, don’t worry about your credit score, don’t worry about lawsuits. Until you have a job, your priorities are to keep the lights on and food on the table.

Do not use new credit.

Find any means possible to avoid using credit cards to keep you afloat. This is particularly important if you’re already in debt. Do not fall into the trap of paying down your credit card every month just so you can then use it to buy food, gas, etc. If your credit card company finds out that you’re in dire straights they can cut your credit line or close your account altogether at any time. Pay for everything in cash.

Keep creditors at bay.

If you lose your job while digging out of debt, there’s a good chance you won’t be able to pay all your bills. Letting your credit score slide when you’re unemployed isn’t the end of the world. Credit can be rebuilt (and it’s not such a bad thing to learn to live without it). A bigger problem is the fees and increased interest rates credit card companies will charge when you don’t pay on time.

Head off this problem by contacting your creditors before you’re late—or as soon thereafter as you can. Tell them your situation: You lost your job, you have no money, you will pay them as soon as you find work again. Ask them not to charge late fees or raise your interest rates. Some will say no, especially the first time you ask. But some will say yes, and save you lots of money. Be persistent.

If you anticipate being out of work for a long time, consider working with a debt management company like Care One Credit Counseling. I would not recommend this course in many cases, but if you are out of work and being hit with late fees, collection calls, and upped interest rates, they might be able to help work things out.

Hunt, hunt, hunt.

The best way to deal with money problems when you’re unemployed is to find a new job ASAP. Looking for a new job is a full-time job. I have heard career experts say you should aim for 10 interviews a week. Broaden your horizons. Do not search just in your field or in your neighborhood. Branch out. Be willing to try new things. Job hunters who are flexible will find work, many of those who cling to rigid job requirements will not.

Good luck!

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About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.