The following guest post was submitted by Knight Hooson. Knight was born and educated in Canada before moving to Great Britain in 2002. Now based in London, he writes for The Credit Letter where he blogs about managing credit cards and personal finance. When not working, he enjoys learning about wine and exploring France – especially at the same time.
As the old adage goes, when you find yourself in a hole, stop digging – a classic piece of advice to be heeded by those who have found themselves jobless and getting further and further into debt.
The downturn in the global economy has struck hard, and some people are suffering from the brunt of the fall out more than others. Unemployment numbers are at their highest levels since the financial turmoil of the 1980’s, and the situation only seems to be getting worse rather than better. And because lending was totally out of control in recent years, many of those who are now unemployed have access to large sums of money on credit, which they use unwisely with no means to repay their debts. It’s a predicament that could all too easily get out of hand, further compounding the amount of debt owed.
To ensure a bad situation doesn’t get any worse, it’s important for those currently unemployed to nip their bad habits in the bud and set up a good survival strategy so their chances of incurring yet more debt are limited. Here are a few ideas that will help you escape sinking further into debt while looking for work:
1. Devise a Budget
Before you know what you can spend, you have to know what you have available. The only way to do that is to draw up a budget. It doesn’t have to be anything fancy; you could do it on the back of an envelope, if you like. Start by tallying up what money you have available (severance package, spouse’s income, savings, unemployment insurance, etc.) and then divide by six – the amount of months it may take you to find a new job. If your geographic area or industry has been badly hit, you may need to plan for longer. You will then have more of an idea of how much money you have available to spend each month.
Now tally all of your monthly outgoing expenses. Start with the most important ones – your rent or mortgage, food, and utilities. Then move down the list: travel, car expenses, health care and any outstanding loans or credit card debts. Get everything down on paper.
You are left with two numbers: one representing your income and the other your expenses. Provided the income is greater than the expenses, you should be fine, but those who are unemployed will be very unlikely to be in this position. If that’s the case you need closely scrutinize what you do with your money.
2. Make Do With Less
It’s important to take a close look at your spending habits and see what you can do without – at least temporarily, until you’re back in work. Depending on the circumstances, you may have to be quite brutal. It’s time to ask yourself what are necessities and what are luxuries. You may need to forgo the luxuries for awhile.
Do you really need deluxe cable television or satellite TV? Do you need new clothes or Starbuck’s lattes? Probably not. It might require some tough questions to fully determine what you can and can’t afford on your budget, but in the long run you’ll be better off for having made the sacrifice.
3. Look for Additional Sources of Income
While you’re job-hunting it might be useful to think about other ways you can bring in some much-needed cash to keep you going.
- Declutter – now might be the time to sell some of your extra belongings on eBay, or in a garage sale. It will give you something to organize, help clear out some of your cupboards/closets and bring in some cash.
- Consulting – do you have a skill or a knowledge which you can offer on a consulting basis? Can you teach someone else how to do what you do? Would someone pay for your expertise in a certain area?
- Start your own business – is there a business idea you have always wanted to explore but never had the time? Now might be the right time to draw up a business plan and seek funding.
- Rent a room – Do you have a spare room in your house that you could let to help pay the bills?
- Casual jobs – don’t overlook dog walking, babysitting or doing yard work. They will get you out of the house and interacting with people, which is important for developing your network.
4. Fight Depression
It’s natural to feel depressed when you’ve lost your job, especially one you’ve had for a long time, and it’s hard to not take it personally. You must do everything you can to fight the urge to get down in the dumps. It’s all too easy to start charging everything to your credit card in an attempt to cheer yourself up, even though you know it’s the wrong thing to do. Thinking, “Oh, I’ll pay that off when I get a new job.” That will only lead down the slippery slope of debt, and the further you get into debt when unemployed, the longer it will take to get out of the red when you’re back in work.
Acknowledge that you’re experiencing a temporary set-back, adopt a positive attitude and you’ll soon get back on your feet and find another job. It’s important to keep physically active – go for a walk everyday – it doesn’t cost anything, and avoid day-time TV like the plague – it has a tendency to suck people in, keeping them from focusing on what they should be, and that’s finding a new job.
5. Ask for Help
Now is not the time to go it alone. Put your pride aside and ask your friends and family for help – whether it’s emotional support, a loan or a hot meal; their assistance will make a huge difference. There are resources in your community too which can help, whether it’s a food bank, a charity, or job search assistance.
If you’re eligible for government assistance, then be sure you apply for it. You may have to jump through some hoops, but it is better than losing your house or saddling yourself with additional debt.
And, if you’re not going to be able to meet payments on your mortgage or credit cards, then you can’t ignore the problem. You must phone them up and speak to them. Explain your situation and ask for help in finding a solution. Banks and other creditors are much more understanding than you would think. Don’t be tempted to go to debt management agencies, either. They will only charge you to do what the banks will do for free. Creditors just want to get their money back, so will help you devise a repayment plan that suits your budget.
These are trying times. Remember that what doesn’t kill us makes us stronger. Keep your focus on finding a new job and follow these tips to help you meet that goal without falling further into a hole.