5 Ways to Stay Out of Debt When Unemployed

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.

Digging myself into a deeper hole! by Coljay72


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.


  1. Great picture… love it. Debt advice for the unemployed is a very informative post and not one I have seen before. Can I link to this? Let me know.

  2. I would totally encourage the “start your own business” idea. 12 years ago I was laid off from my job as a corporate art director. This job was the *cream of the crop* job in the area where I live. There was no way I would find another job like it, that paid as well without relocating. And I didn’t want to relocate. So I took the time while I collected unemployment to start my own business. I was extremely lucky in that I got two big clients off the bat and it snowballed into more clients. I more than made up for my corporate salary, and was able to work from home while my kids were small. In my case, being laid off was a huge blessing in disguise.

  3. Great post!

    For long-term contracts such as a lease, the other person may be willing to let you out if there are extenuating circumstances such as a lost job. From a landlord’s perspective, a broken lease and perhaps one month empty beats several months of late or missing rent followed by an eviction.

    I’ve torn up a lease for a good tenant who lost her job and told me she might not be able to afford to stay. She ended up getting a new job right away because of her skills and her work ethic, so she didn’t move after all. In fact she ended up staying an extra year and a half.

    The smaller the business, the more likely the other person is to let you negotiate.

  4. You would hope that there was an emergency fund in place, too often people forget the importance of an emergency fund and when it comes to times like this….ouch……even worse more and more people are depending on their line of credits as a source for emergency fund, worst time to get in debt when you don’t have an income!

  5. Excellent article and comments as well.

    I would add that it might also be a good idea to start thinking of your current situation as more permanent in nature. I realize that such thinking may seem negative, but it’s really a matter of emphasizing the need to hunker down for the long haul, because that’s what this is turning out to be.

    A lot of jobs are just plain gone, it isn’t likely you’ll be “called back” when the economy turns. So many of the current employment issues are really part of longer cycles, like advancing technology, globalization and offshoring of jobs, all of which have combined to reduce opportunities in so many fields.

    So now the best course is to be prepared psychologically and emotionally for a tough run. You’ll need to be prepared for jobs that don’t happen, to lower your living standard and to avoid going into debt under the notion that it’s just to tide you over for the short run.

    The self-employment suggestions in the post and the comments are right on the money.

  6. #4 and #5 are such important points – and ones to tend to forget too often. Get comfortable asking for help: from your credit card company (before you miss a payment), from your friends, from former colleagues, and from quality networks online. Asking for a little support early can go a long way.

  7. this is a great post. recently, i as i was cruising the internet, i found a blog that was for people who have been laid off. in the said blog they get to share their stories will people in similar situations. as i was running through this post, the blog came to mind and i kinda hope that the owner can trackback this post to his site. it would be really helpful to the owners.

  8. My favorite point is #2 “Make do with less.”

    In modern civilized countries we already have WAY more than we NEED. I think this “global recession” is actually a good thing for all of us. It is helping people wake up from the financial slumber and consumerism daze we’ve all been walking around if for years now.

  9. Matt (10)–That seems to be happening as a matter of necessity. What would be better is if we can learn to embrace making do with less as a POSITIVE long term lifestyle change, rather than as a temporary inconvenience.

    It really is a change that can produce positive long term results, so we shouldn’t feel bad about it in any way. We should see it as the New Us.

  10. I think your piece of advice may be really helpful because ery often we really spend money on something we like but necessarily need. But it’ll take a lot of efforts on your part, especially if you live with somebody else.