If you are short term unemployed and in debt you may struggle to maintain your monthly payments in the short term. There are different options for managing this.
- Borrowing more until you get a new job
- Start a short term Debt Management Plan
- Finding a job with a lower salary
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
Should you borrow more until you get a new job?
Generally speaking the one thing that you should avoid if you have a problem paying the debts that you owe is borrowing more money. In many circumstances doing this will end up simply making your debt problem worse.
Having said that if you know that you will only be without a job for a short period of time then maintaining your debt repayments by borrowing additional money can be a sensible solution. A good example of where this might be the case is if you already have another job lined up but you know that your first pay day will not be for another 6-8 weeks.
Although by borrowing more to cover your repayments your overall level of debt will increase the advantage you will gain is that you will protect your credit rating. This could be extremely useful if you know that you will need to borrow again in the future especially if you know that you might wish to remortgage or apply for a mortgage.
BMD Tip: If you start to borrow to maintain your debt repayments but your period of unemployment becomes longer than expected you should stop borrowing more and consider a debt management solution instead.
Should I use a short term Debt Management Plan?
If you believe that you will only be unemployed for a short while but you do not want to put yourself in a position where you are borrowing more you will have to find a way of temporarily reducing the payments you make towards your debts to fit into the budget you can afford.
This process of agreeing reduced payments with your creditors is commonly known as a Debt Management Plan (DMP). If you know you only need to reduce your payments on a temporary basis then it is normally relatively easy to speak to the people you owe money to yourself and agree reduced payments with them for a month or two.
By doing this you get the breathing space that you need from your debts in the short term but then you can increase the payments you are making to your creditors as soon as your income improves.
BMD Tip: It is very important to understand that if you agree to suspend or reduce your payments with your creditors for a fixed period they may allow you to do this without damaging your credit rating. However if your DMP lasts for any more than a couple of months it is likely that your credit rating will start to be negatively affected which will to seriously damage your ability to borrow more in the future.
What if you get a new job but the salary is lower?
If you are able to find a new job in the short term one of the issues you might face is that the salary is less than that which you have been used to. However if there is little or no prospect of any other work you may have no choice than to take the post.
The problem with this of course is that it could put you in the position where you are struggling to pay your debts every month. Borrowing more in these circumstances to try and keep up with your debt repayments will almost certainly lead to more serious problems and is not the answer.
You will therefore need to consider using a debt management solution which will allow you to reduce your debt repayments in the longer term so that they fit into your new budget.
There are generally three different debt management solutions to chose from in England and Wales (the options in Scotland are different). The solution you chose will very much depend on your wider financial circumstances and your attitude to the repayment of your debt.
If you are a home owner and do not want to consider any equity in your property then DMP could be right for you as you will not be required to release equity as part of this solution. However if you have significant debts and want to ensure that these are settled within a 5 year period then the IVA would be a preferable solution. If your new job means that you are unable to make any payments towards your debts or you simply want to be debt free in the fastest possible time then Bankruptcy might be right for you. You should discuss these options in more detail with one of our experts.
BMD Tip: Planning to use a debt management solution such as a DMP or IVA to reduce your ongoing debt repayments will open up the possibilities of far more job options for you as you do not need to be so concerned about finding a job with the same level of salary as you had before.
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