What to Do About Debt After a Job Loss

Losing your job is stressful on its own. When you also have credit card bills or loans, it’s easy to feel overwhelmed. Taking a few steps in the first days and weeks can protect you from bigger problems later. Here’s what to do, in order.

1. Apply for unemployment benefits now

According to USA.gov, there’s no single federal unemployment program. Each state runs its own and sets its own eligibility rules. You generally apply in the state where you worked. Apply as soon as you can, because waiting can delay your benefits.

2. Keep your health coverage

A medical bill without insurance can create debt fast. You usually have two main options:

• COBRA: lets you keep your job-based plan for a limited time, usually 18 months, but you typically pay the full premium plus a small fee. You generally have 60 days to elect it, according to HealthCare.gov.
• A Marketplace plan: losing job-based coverage qualifies you for a Special Enrollment Period. You generally need to apply within 60 days, and you may qualify for savings based on your lower income. See HealthCare.gov.

You may also qualify for Medicaid, depending on your state and income.

3. Switch to a bare-bones budget

Look at what’s coming in (severance, unemployment, a partner’s income, savings) and cut spending to essentials. Protect, in order: your income-related costs, housing, utilities, food and essential insurance. Our bare-bones budget guide walks through it, and how to lower your monthly bills shows where to cut.

4. Call your creditors before you miss payments

Many card companies and lenders have hardship programs that can lower payments or interest for a while. Call before you fall behind:

• Explain that you lost your job and when you expect income again.
• Ask about hardship programs, lower payments or skipped payments.
• Get any agreement in writing.

See how to ask your card company for a hardship plan. For a mortgage or auto loan, contact the servicer or lender the same way.

5. Keep minimum payments going if you can

Missing payments brings late fees, possible penalty rates and credit damage. If you can’t pay everything, prioritize secured debts tied to your home and car, then essential bills. See secured vs. unsecured debt.

6. Avoid costly quick fixes

• Payday loans and cash advances are very expensive. See payday loans and credit card cash advances.
• Withdrawing from retirement accounts early can bring taxes and penalties. Check the rules or ask a tax professional before you do.
• Debt relief companies that ask for money upfront are a red flag. See 7 signs a debt relief company is a scam.

7. Find extra help

• Call or text 211, or visit 211.org, for local help with rent, utilities and food.
• Ask your utility about payment plans and assistance programs.
• Talk to a nonprofit credit counselor through the NFCC about your budget and options.

If collectors start calling

Know your rights. Collectors must follow federal rules on when and how they contact you. See your rights when a debt collector calls.

The bottom line

After a job loss, move quickly: apply for unemployment, secure health coverage, cut to essentials and call creditors before you miss payments. Avoid expensive borrowing, and get free help early. These steps can keep a temporary setback from becoming long-term debt.

Sources: USA.gov: unemployment benefits · HealthCare.gov: COBRA coverage when you’re unemployed · HealthCare.gov: if you lose job-based coverage · CFPB: start with your credit card company