Money Advice, Debt Advice & Debt Help
Long Term Unemployed and in Debt
Money Advice, Debt Advice & Debt Help

Long Term Unemployed and in Debt

Long Term Unemployed and in Debt

If you are made redundant or are suffering a period of unemployment for another reason then the financial problems that you are probably already facing are likely to be made much worse if you are also struggling to pay any debts that you owe. The significance of the problem will of course depend on how long you expect to be without a job.

If you believe that it will be difficult for you to find a new job and your financial problems are likely to last into the long term then you cannot afford to ignore your debts. You will need to take the appropriate steps to manage them for the period you are unemployed and beyond.

Struggling with debt due to unemployment? Give us a call (0800 077 6180) or complete the form below to speak to one of our experts

Can I settle my debts with a lump sum payment?

If you have access to a cash lump sum the first thing you might have thought about is simply paying off any debts you have in full so that you then do not have to worry about ongoing repayments. If you have recently been made redundant you may have been paid redundancy money which is a good source of cash with which to make these payments.

However the main issue you have to consider is that you will probably need to use at least some of the cash lump sum you have to live off for the next few months while you find a new job. As such there is no way that you can use all of it to pay off debt.

The answer here is to settle your debts rather than pay them off in full. This process will allow you to use a portion of your cash to settle your debt while keeping enough back to live on. There is nothing to stop you negotiating settlements with your creditors yourself explaining the fact that you have no income coming in and it will be difficult to continue to pay them.

BMD Tip: Your creditors will often be willing to accept settlement offers of as little as 40%-50% of the debt that you owe if you make reduced payments to them using a Debt Management Plan (DMP) for a few months first.

The alternative option open to you is to use a full and final settlement IVA. This is a formal agreement to settle your debts with the cash lump sum that you can afford. It is a more formal agreement but the advantage is that you could settle the debt you owe for much less than 50% of your total debt if this is all you can afford to pay.

Can I reduce the payments I make towards my debts?

If you have been made redundant or are facing a period of long term unemployment but do not want to use the cash lump sum you have to make settlement offers or you have simply no lump sum then the next thing to consider is a plan to make reduced monthly payments to your creditors.

Even though you are unemployed you may still have some income which will enable you to pay for your both you living expenses and a smaller payment towards your debts each month.

In this situation the two options which you should consider are a DMP and an Individual Voluntary Arrangement (IVA).

A DMP is the more flexible of the two solutions and can be implemented even if you can afford only a very small payment towards your debts each month or if you have a lump sum that you do not want to use for some reason. However there are disadvantages you need to be aware of such as the fact that it is not certain that your creditors will freeze their interest charges and you may be repaying your debt for a very long time.

An IVA offers a significant benefit over a DMP in that it gives a fixed repayment period. You normally make payments for five years and then any outstanding debt is written off. However this solution will only be appropriate if you can afford monthly repayments of at least £100-£150 to cover all of your debts.

What are my options if I cannot afford to pay anything towards my debts?

If the fact that you are unemployed has left you in a situation where you only have just enough income to cover your living expenses then the reality may be that you simply cannot afford to make any ongoing payments towards your debts.

If this is the case you need to consider a solution which does not require you to make monthly repayments. In these circumstances a good option to  consider is bankruptcy. There are many myths surrounding bankruptcy but in fact for many people this solution can be ideal.

If you are renting your home then you actually have very little to lose be declaring yourself bankrupt but everything to gain. Once bankrupt your unsecured debts will simply be taken away from you and as you are unemployed and on a low income you will then normally pay nothing towards your debt. After 12 months your debts will be written off and you will be debt free.

BMD Tip: If you are a home owner bankruptcy does need more careful thought. However in many cases particularly if you have little or no equity it will not mean that you will lose your property.

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