If you lose your job, you face not only the loss of a steady paycheck but also the possibility that your credit could be impacted. You may be especially worried if you already have some credit card debt and not much money in a savings account. If you’re wondering how to protect your credit when you lose your job, read on.
Options for Cash
The immediate problem when you lose your job is where to turn for cash so that you can continue to pay your bills. If you were fortunate enough to get a severance package from the company that laid you off, you’ll need to find a way to make the money stretch as long as possible. Try to stick to a budget and cut unnecessary expenses.
You can also start a temporary side hustle for extra cash. We recommend Steady, a free app where you can quickly find local listings for jobs, earn extra cash, and easily track your income. Steady has helped over 2.7 million workers find jobs and make an extra $5,500 a year, on average.
If you have money in a 401K, you may be able to borrow against it and pay the loan back over a few years. If you’re unable to pay what you borrow when it’s due, you’ll face penalties. Withdrawing money from your 401K or an individual retirement account may be an option for immediate money, but you’ll owe income tax and penalties on it.
Relying on Credit Cards
Whenever you can, it’s a good idea to borrow less than 30 percent of your available credit on credit cards. If you suddenly lose your source of income, you may have to rely on credit cards for necessities, which may mean you end up carrying a bigger balance than usual. It’s still important to at least pay the minimum payment each month.
If the loss of your income means you can’t afford to pay all your bills, you’ll need to prioritize. This means paying secured loans before credit cards or unsecured loans. If you don’t keep up with payments on your mortgage or auto loan, the lender can seize your property. You’ll need to pay rent and utilities ahead of credit card payments. Utility companies may be willing to work out a payment plan to help you avoid losing your utilities.
Working with Creditors
If possible, it’s important to avoid missing payments on credit cards since a missed payment can cause your credit score to drop dramatically. But if you’re unable to make the minimum payments on your credit cards, reach out to your creditors rather than trying to ignore the bills. They may be willing to work with you to make more flexible arrangements. Expect that if they’re willing to reduce your payments, they’ll most likely also reduce your available credit.
Your Credit Report
While you’re preoccupied with the loss of your job and the financial challenges you’re facing, it’s important to still make sure everything that’s on your credit report is accurate. Confirm the balances being reported are correct and that nothing is showing paid late when it was paid on time.
Errors on your credit report can make your situation even more challenging. Dovly is an AI credit engine that can take care of disputing errors with the credit bureau for you. Try it risk free with our free membership tier. Get in touch with Dovly today.