Unemployed With Credit Card Debt? 6 Ways To Handle It (2024)

Credible takeaways

  • Contact your credit card issuers as soon as possible to discuss modifying payments, reducing interest, or waiving fees.
  • Try to make your minimum monthly payments to avoid late fees, penalty APRs, and damage to your credit.
  • Consider transferring your credit card debt to a 0% APR balance transfer card, if one is available to you, to save on interest.

If you’re unemployed, it can be tough enough to make ends meet, let alone pay off credit card debt. But it’s important to deal with that debt to avoid racking up fees and damaging your credit. Thankfully, there are several steps you can take to manage and possibly reduce your debt, and avoid missing payments.

1. Assess your resources

Missing payments on your credit cards can have a host of negative consequences. Not only can it damage your credit, but you may be charged hefty late fees and an increased penalty annual percentage rate (APR).

Before any of this occurs, assess your resources to determine what avenues are available to you, and if you can keep up with minimum monthly payments. Consider these questions:

  • Do you have other income or assets? Consider whether you have or can set up other sources of income to pay the bills. For instance, you could pursue a side hustle to earn extra cash, such as driving for Uber or renting out storage space in your home. And if you’ve built up an emergency fund, now is probably the time to use it.
  • Are you eligible for aid? If you were laid off, you might qualify for unemployment assistance benefits from your state. You may also qualify for federal government assistance that can free up cash to put toward debt payments. Check your eligibility for Temporary Assistance for Needy Families (TANF), Supplemental Security Income (SSI), and the Supplemental Nutrition Assistance Program (SNAP) — your county may have additional resources as well. A good place to start is 211.org.
  • Do you have a 0% balance transfer offer? Transferring your debt to a credit card with a 0% APR balance transfer offer could help you pay it down while avoiding interest charges. It can be tough to qualify for a new 0% APR balance transfer card, so check the cards you already have for such an offer. Note that it’s best to pay off the transferred balance within the 0% APR period, and that you’ll typically pay a fee between 3% and 5% to transfer the balance.

Unemployed With Credit Card Debt? 6 Ways To Handle It (1)

Tip

If you have sufficient alternate income, you may be able to pay off your high-interest debt with a consolidation loan to lower your monthly payments and/or interest rate.

2. Make a budget

When you’re unemployed with credit card debt, a budget is more important than ever. Start by listing out all your mandatory expenses, such as housing, utilities, and food, along with your discretionary spending, such as meals out and subscription services. Take note of any take-home pay, as well, such as severance pay, unemployment benefits, or a spouse’s income.

As you review your income and expenses, find the areas where you can cut back — the cuts don’t have to be permanent, but can help keep you afloat until you find your next job. For instance, eliminating a subscription service or two may allow you to funnel that money toward credit card bills and avoid late fees.

Make minimum payments while unemployed

If you expect your financial situation to improve, make the minimum payments on your credit cards for as long as you can. By keeping up with those payments, you’ll avoid late fees and penalty APRs.

Plus, your accounts will remain in good standing, and your credit card issuers won’t have missed payments to report to the credit bureaus. Your outstanding balance will still rack up interest, but you’ll avoid the consequences of missing payments if you pay the minimum each month.

3. Look into creditor hardship programs

If you’re worried about paying your credit card bills, reach out to your card issuer as soon as possible to let them know you're unemployed, and inquire about a creditor hardship program. Although not widely advertised, some credit card companies can modify payments if you run into financial hardship.

Your card issuer may agree to adjust your payment plan, reduce your interest rate, or waive late fees for a certain period of time. The earlier you can reach out, the better, so call your credit card company before you miss payments if possible.

4. Negotiate credit card debt

Negotiating credit card debt may also be an option, though there’s no guarantee of success. With this approach, you may try to settle your debt for a lower amount than you currently owe. If you can pay off that amount in a lump sum, the company may discharge the rest of your balance. You can try negotiating on your own by calling your credit card issuer. Keep in mind that any successfully discharged debt may need to be reported as income on your taxes, per the IRS, and may also have a negative impact on your credit score.

Unemployed With Credit Card Debt? 6 Ways To Handle It (2)

Warning

Be wary of debt settlement companies, which try to negotiate down your debt for a fee. You’re often required to stop making payments, which can seriously hurt your credit and leave you open to legal action. Plus, there’s no guarantee it will work.

5. Work with a credit counselor

A credit counselor can help you find ways to manage and pay off your debt. They can discuss various strategies with you, including debt consolidation, budgeting, and other ways to improve your financial situation. Some credit counselors can also negotiate with your creditors on your behalf.

There are nonprofit organizations that offer free or low-cost credit counseling services. The National Foundation for Credit Counseling is a helpful resource for finding a credit counselor. Check a site like Trustpilot or the Better Business Bureau to ensure an organization is reputable before working with them.

6. Consider bankruptcy as a last resort

If your financial situation is dire, you may consider declaring bankruptcy. Bankruptcy could allow you to discharge or restructure your debt, acting as a hard reset for your finances.

But it can cause severe damage to your credit. FIling for bankruptcy can drop your score by more than 100 points, and remains on your file for seven to 10 years, depending on the type of bankruptcy filed.

Due to the consequences, filing for bankruptcy should generally be used as a last resort. Consult an attorney before pursuing this option.

Learn More: Debt Consolidation vs. Bankruptcy

Credit card debt while unemployed FAQ

Does bankruptcy clear unemployment debt?

Filing for bankruptcy can discharge various types of debt, including credit card debt, medical bills, and personal loans. In some cases, certain student loans can also be discharged in bankruptcy. If you received an overpayment of unemployment benefits, this debt may also be discharged in bankruptcy. However, some other types of debt, such as tax debt, alimony, and child support, are typically exempt from discharge through bankruptcy.

Can you consolidate debt if unemployed?

It can be difficult to qualify for debt consolidation if you’re unemployed, since you usually need a source of income to qualify for a debt consolidation loan. If you have good credit and your spouse has an income, you may be able to qualify for a 0% APR balance transfer card or a joint debt consolidation loan to pay off credit card debt. It’s also worth checking your current credit cards to see if one has a 0% APR balance transfer offer.

How to get out of debt with no job

If you don’t have a job, it can be challenging to pay off your debts. Focus on setting up a new stream of income for yourself, as well as making a budget and cutting down on your spending. Also call your creditors to discuss options for payment plans. Consider reaching out to a nonprofit credit counselor to help structure a repayment plan with your creditors.

Related Articles:

  • How Much Credit Card Debt Is Too Much?
  • What Is Credit Card Consolidation?
  • Debt Consolidation Loan Rates
  • Credit Card Refinancing vs. Debt Consolidation
  • How To Consolidate Credit Card Debt
  • How To Pay Off $10K in Credit Card Debt
  • Debt Payoff Strategies for $30K in Credit Card Debt

Meet the expert:

Rebecca Safier

Rebecca Safier has over eight years of experience writing on personal finance and higher education. Formerly a senior writer for LendingTree and Student Loan Hero, she’s covered student loans, financial aid, personal loans, budgeting, and more. She loves helping people make informed financial decisions. When she’s not writing, you can find her blogging on her personal site Remote Bliss.

I'm Rebecca Safier, a seasoned expert in personal finance with over eight years of experience. My expertise extends to various aspects of financial management, including credit cards, debt consolidation, and navigating challenging situations like unemployment. I've worked as a senior writer for LendingTree and Student Loan Hero, where I covered topics such as student loans, financial aid, personal loans, and budgeting. My commitment to empowering individuals with sound financial advice is evident through my contributions, and I continue to share my insights on platforms like LinkedIn and my personal blog, Remote Bliss.

Now, let's delve into the concepts covered in the provided article:

  1. Contact Credit Card Issuers:

    • Discuss modifying payments, reducing interest, or waiving fees with credit card issuers.
    • Prevent late fees, penalty APRs, and credit damage by making minimum monthly payments.
  2. 0% APR Balance Transfer:

    • Consider transferring credit card debt to a 0% APR balance transfer card to save on interest.
    • Qualification may be challenging, and fees (3% to 5%) may apply, but it can be a valuable strategy.
  3. Managing Debt While Unemployed:

    • Assess available resources, alternative income, and assets to determine the ability to make minimum monthly payments.
    • Explore aid options like unemployment assistance benefits, federal government assistance, and hardship programs.
  4. Budgeting:

    • Create a budget by listing mandatory and discretionary expenses.
    • Identify areas to cut back temporarily, such as eliminating subscription services, to allocate funds toward credit card payments.
  5. Minimum Payments While Unemployed:

    • Make minimum payments to avoid late fees, penalty APRs, and maintain good standing with credit card issuers.
  6. Creditor Hardship Programs:

    • Contact card issuers early if facing difficulty and inquire about hardship programs.
    • Programs may involve adjusting payment plans, reducing interest rates, or waiving late fees.
  7. Negotiating Credit Card Debt:

    • Negotiate with credit card issuers to settle debt for a lower amount.
    • Be cautious about debt settlement companies, as success isn't guaranteed, and it may have adverse effects on credit.
  8. Credit Counseling:

    • Engage with a credit counselor for strategies like debt consolidation and budgeting.
    • Verify the credibility of counseling services through platforms like Trustpilot or the Better Business Bureau.
  9. Bankruptcy as a Last Resort:

    • Consider bankruptcy cautiously as a last resort, recognizing its potential severe impact on credit.
    • Consult with an attorney before pursuing bankruptcy.
  10. FAQs:

    • Address common questions like whether bankruptcy clears unemployment debt and the challenges of consolidating debt while unemployed.

This comprehensive guide, rooted in financial expertise, offers practical advice for individuals facing credit card debt during unemployment. It covers a range of strategies from proactive communication with creditors to exploring financial assistance programs and emphasizes the importance of informed decision-making in challenging financial circ*mstances.

Unemployed With Credit Card Debt? 6 Ways To Handle It (2024)

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