How To Recover Financially From Unemployment

Depending on how long it took you to get that new job, depending on how much time it took will determine if and when you have to deal with your creditors. Asking them to take it easy on you is a lot more difficult and a lot less likely than presenting a bona fide plan of repayment to that creditor.

Recovering “Financially” From Unemployment

1. Gather your data
   1. Sources of Income
   2. Create a list of monthly expenses.
   3. Break expenses into two categories: fixed and variable.

2. Make a detailed list of all of your pertinent financial information 

3. Credit Report 
   1. Review for Accuracy

4. Income and Expense History 

5. Income
   1. Look for additional sources of income until you are caught up

6. Expenses 
   1. Determine Wants Vs Needs
   2. Take a hard look at your variable and fixed expenses.
   3. Make Adjustments Where Necessary
   4. Set Goals
   5. Lower Interest Rates
   6. Pay more than the minimum payments
   7. Try the debt Snowball
   8. Track Your Spending (Review Monthly)

7. Develop a Personal Financial Statement
   1. How to prepare a personal financial statement

8. Debt Forgiveness/Credit Card Settlement

9. Create a Debt Pay-Off Plan
   1. Determine How Much You Can Pay
   2. Approach Creditors

10. Debt Consolidation 
    1. Talk to creditors and negotiate a settlement of your debts
    2. Debt Settlement Can be Risky
    3. Potentially Taxable Income

11. Last Resort Bankruptcy
    1. What does filing for personal bankruptcy do?
    2. What’s the difference between Chapter 13 and Chapter 7 bankruptcy?
    3. What do I need to do before I file for bankruptcy?

Depending on how long it took you to get that new job, the fact that it took time will determine if and when you have to deal with your creditors. Asking them to take it easy on you is a lot more difficult and a lot less likely than presenting a bona fied plan of repayment to that creditor.

When planning a creditor payment plan you need to show them a believable plan of repayment, a plan that shows them that they are going to be caught up or paid off. By putting your numbers on paper in a format they understand, in a format that they can verify, and having the confidence in yourself to sell the plan to the creditor; that’s what will make your plan successful.

We will show you how you can verify to the creditor what you make, what you own and what you owe. Show you how to get the creditor to agree to a payment plan that is favorable and affordable to you.  

 Let’s get started:

1. Gather Your Data 

To start to get out of debt, start by knowing where you stand. You want to have a complete picture. Here’s what you need to get:

1. Sources of income.

If you are self-employed or have any outside sources of income, be sure to record these as well (Record all sources of income). If your income is in the form of a regular paycheck where taxes are automatically deducted, then using the net income (or take-home pay) amount is fine. Record this total income as a monthly amount.

1. Create a list of monthly/quarterly/annual expenses.

Write down a list of all the expected expenses you plan on incurring over the course of a month. This includes a mortgage payment, car payments, auto insurance, groceries, utilities, entertainment, dry cleaning, student loans, retirement or college savings — essentially everything you spend money on. Consider all quarterly, semi-annual and annual expenses (divide by twelve and include them in your monthly budget.

1. Break expenses into two categories: fixed and variable.

Fixed expenses are those that stay relatively the same each month and are required parts of your way of living. They included expenses such as your mortgage or rent, car payments, cable and/or internet service, trash pickup, credit card payments and so on. These expenses, for the most part, are essential yet not likely to change in the budget.

Variable Expenses are the type that will change from month to month and include items such as groceries, gasoline, entertainment, eating out, and gifts, to name a few. Tthis category will be important when making adjustments.

1. Make a Detailed List of Pertinent Financial Information

Now you will have one place to go to contact creditors and to compare pricing etc. 

1. Creditor’s – name Address and Phone Number
   1. Account Numbers
   2. Current Balance
   3. Minimum monthly payment
   4. Interest rate

1. Review Credit Report

You are looking at your credit report so that you can inform your creditors about your credit history. That way they can see your payment history and will help them decide if you are capable of abiding by any agreement made between you and the credit company.

1. Personal information correct?

2. Review the Public Records Section
3. Review the Accounts Section
4. Review for inquiries
5. Dispute all deficiencies

1. Income and Expense History (Fill Out Income and Expenses History Spreadsheet) 

Your first tool is a historical listing of all your income and expenses. This is your starting point. The income and Expense History Statement will provide you an overview of where all your money has come from and how it’s gone out.

A budget is a better and more accurate insight into your spending habits. By listing all of your sources of income against all of your monthly expenditures (from required expenses like mortgage or rent payments to discretionary spending like eating out or going to the movies), you get a true picture of your personal cash flow, which will allow you to make better and more informed financial decisions. An accurate budget will also help you to better understand what you can and cannot afford.

If you’re finding your financial situation is changing due to an unforeseen economic downturn or job loss, now is a good time to get familiar with these resources and get ahead of your budget to make sure you’ll be OK in the long run.

1. Income

For households and individuals, “income is the sum of all the wages, salaries, profits, interest payments, rents, and other forms of earnings received in a given period of time (also known as gross income). Look for other sources of income until you are caught up.

1. Expenses

Expense is the money that something costs you or that you need to spend in order to do something.

1. Determine Wants and Needs

The best way to budget is to decide what you need vs. what you want. There is a big difference. It may mean that you have to make some “drastic” changes to your lifestyle to make up for your unemployed time. Here are some ideas to cut down on your spending:

1. Eating/Drinking Out – Going out for a burger and a beer can add up quickly.

1. Phone Plans – It’s not hard to change your phone plans to a cheaper option. Do you really need unlimited texts?
2. Grocery Shopping – Try to avoid brand names and look for the specials.
3. Books/Movies – Try the library. They have an awesome free selection
4. Cable – Do you really need to watch your favorite reality TV show?
5. Coffee – Buying a cup of coffee a day, can easily cost you over $1000 per year.
6. Vacation – Don’t cancel it, but plan to delay it until you can afford to enjoy it.
7. Insurance – Higher deductibles mean lower monthly bills.
8. Drive Less – Gasoline is always pricey. Try public transportation. It’s way cheaper.
9. Monitor Your Home’s Temperature – A few degrees difference in your home can save you bunches of cash each month.
10. Take a hard look at your variable and fixed expenses.

Sometimes a paycheck-to-paycheck existence means you’ve locked yourself into a lifestyle you can’t really afford. The general rule of thumb is that your monthly housing expenses should be 30% or less of your monthly gross income. If you are outside of that range, you may want to consider moving to a less expensive neighborhood or downsizing or getting a roommate. Remember that your monthly housing expenses should be 30% or less of our monthly gross income.

3. Make Adjustments Where Necessary

Determine what is important to you. Distinguish between what you want and what you actually need. See what expenses can be reduced and by how much, what is necessary and what is not.

4. Set Goals

Most people who make a budget do so because they want to accomplish more with their money. This usually involves achieving long-range financial goals. This could include paying off accumulated debts, paying back someone you borrowed money from, replacing a car, etc.

When you set goals, you can align your budget around achieving them by deciding how much you need to set aside to accomplish each goal. Goal setting has been shown repeatedly by studies to increase motivation and achievement. To be effective, your goals should:

• Be specific: Instead of “pay off debts,” your goal should be “save $15,000 for the pay off of debts.
• Include deadlines: When do you want to pay off your credit cards or purchase another car? Set a target date by which you’ll need to achieve your goal. 

Setting goals is the single most crucial part of making a budget. If you don’t use your budget to make sure you’re working toward goals, all you’re doing is shifting spending and you’ll still have nothing to show for your money in the end.

5. Lower the APR of your outstanding loans

APR is the single most important factor to consider when comparing and considering debt consolidation loans. APR refers to an annual percentage rate, and it’s not exactly the same as interest rates. Here’s the main difference:

Interest rate: The percentage you’ll be charged by a lender for supplying you with a loan APR: Includes the interest rate AND any fees charged by a lender when taking out a loan.

What are APRs, and How Will a Lower One Help Me?

So, an APR really gives you a broader scope of how much it’ll cost you to take out a loan. What this means is that the lower the APR you can get, the less you’ll be paying out over the life of your loan. In short, a lower APR means less money paid out of your pocket. That’s good news for the borrower.

6. Pay more than the minimum payment

8. Starts tracking you’re spending.

One way to expedite debt reduction involves paying more than the minimum payment on your credit cards and loans each month. This strategy works well since every penny you pay over your minimum monthly payment goes directly toward the principal of your loan.

7. Try the debt snowball

If you’re paying more than the minimum payment, you can also try the debt snowball method for debt reduction. This debt repayment method asks you to make the minimum payment on all your debts except for the smallest one, which you’ll pay as much as you can toward. By “snowballing” payments toward your smallest debt, you’ll eliminate it quickly and move on to the next smallest debt while paying minimum payments on the rest. Over time, you’ll pay off each of your smallest debts until only a few are left. Eventually, all your debts will be gone.

In order to pay down your debt, you’ll need to find ways to free up the money you already have. Knowing where your money goes will help you spot where you can cut expenses. 

Look for big expenses that don’t align with your priorities. If you’re surprised to see you spend $200 a month at Panera or Chipotle for work lunches, start packing PBJs. Also keep an eye out for expenses that you’re not utilizing — goodbye, gym membership! And note anything that was more expensive than it should have been, and get used to searching for coupon codes for online purchases and only shopping at in-store sales

7. Develop a Personal Financial Statement 
   1. How to Set Up a Personal Financial Statement

A personal financial statement is a document that shows your personal assets and liabilities as well as your personal net worth. The equation here is that Assets minus Liabilities equals Net Worth. 

To begin, start gathering information about assets and liabilities. The personal financial statement shows assets and liabilities and net worth at a specific point in time, so just prepare the document with the most recent information you have. 

If you are unsure of the value of assets, do your best to get a reasonable figure. If the lender wants to use the asset for a guarantee on your business loan, they may do an appraisal. 

Some details on these assets and liabilities:

• Cash in a checking or savings account. The most recent balance is OK since these figures are always changing. 
• A copy of the latest statement on your home mortgage, with the balance outstanding. For a mortgage, you may also need a recent appraisal. 
• A copy of the latest statement on your car loan, boat loan, other loans. 
• Don’t include furniture and household goods as personal property. These items have no value to a lender because they can’t be sold to pay off the loan. 
• You can include special items of personal property if they have significant value and you can verify the value with an appraisal. For example, including antiques or jewelry might be appropriate. 
• Include credit card debt in liabilities. Actually, include any debt that may show up on a credit report. 
• Include any debt you have jointly with someone else (called a “contingent liability.” For example, if you are a co-signer on a loan with someone, be sure to put that in the report. 
• If you have unpaid taxes from previous years, these amounts should be included. These taxes include federal and state income taxes and any business payroll taxes, for which you are personally responsible. 
• The lender may want to know your sources of income (see the SBA form below). It’s a good idea to list this information, and be able to show the income through your checking account or business checking account. 

When you have entered all the information on assets and liabilities, the last thing to do is calculate your net worth. If you have a negative net worth (you owe more than you own), so be it. Don’t try to change the document by eliminating liabilities or over-estimating assets. Just let it be what it is.

8. Debt Forgiveness/Credit Card Settlement

Debt Forgiveness. In the past, debt forgiveness helped people escape thousands of dollars of debt, walking away scot-free. More recently, however, debt forgiveness programs have been disappearing, and options for easily clearing your debt have become tricky to navigate, if they exist at all.

As legitimate debt forgiveness programs are dying out, fraudulent debt forgiveness scams are becoming abundant and these shady alternatives can cost you money and hurt your credit. Be careful when looking into debt forgiveness.

Credit card debt settlement. “Warning” If you find yourself severely behind on your credit card bills, negotiating a debt settlement may be a way to clear your outstanding debt—but not without consequence. Debt settlement is not debt forgiveness—rather, it’s a process where you negotiate an agreement with your creditor to pay back less than what you owe using a third-party debt settlement company. This option might sound good, but it can hurt your credit score and can cost you in time and fees. Some debt settlement companies have you stop making payments while they negotiate, which can cause you to rack up missed payments and late fees. Once the debt settlement company reaches an agreement with your creditor—and it’s possible they never will—your credit score will probably be in bad shape and in most cases you will owe the settlement company a fee for their service. This is a last resort option, reserved for people who can see no other way to get out from under their debt. Debt settlement, while it could clear some or all of your debt, is not the same as debt forgiveness and should be treated very differently. If you’re considering using a debt settlement company, be extremely diligent about finding a reputable firm. Before turning to debt settlement, consider creating a repayment plan or consulting a credit counseling service to help you tackle your debt without hurting your credit

9. Create a Debt Pay-Off Plan and Stick to It

Before and again after you have gathered your total debt and have decided how much extra you can pay each month and have adjusted interest rates and earning or spending, you want to have a goal and to know where you’re heading and how you’re doing. A budget and/or a debt management plan or debt pay-off plan can help and they don’t have to be complicated. 

A budget shows you what you’re spending when and where it makes the most sense to put your money, whether it’s from interest saved or dollars earned. The latter becomes your debt pay-off plan. It can be a part of your budget or separate.

1. Determine How Much You Can Pay 

The first thing to figure out is your discretionary income. This is the income that is left over after you pay necessary expenses such as food, transportation, housing expenses, gas etc. You use discretionary income to establish an emergency fund, debt payment plan, or use it to fund other saving goals. The thing to remember for this step is that not all of your discretionary income has to go towards debt. It’s all up to you. If the most important financial factor in your life is paying off your debt, then you can use all of your discretionary income. But if you are wanting to also fund an emergency fund at the same time, then you can choose to have 80% of your discretionary income go towards debt and the other 20% towards savings.

Total all of your income which includes things like the salary from your job, alimony, child support, guaranteed bonuses and other income sources. Then subtract this amount from your monthly expenses. Your monthly expenses will include things like your monthly rent payment, phone bill, groceries, and clothing purchases. The amount you have left over after you subtract your income from expenses is what you can use to pay down debt (or build your savings).  

2. Approach Creditors

If you do not have enough each month to meet your obligations, you will have to try another strategy: cutting your budget even more, changing your living situation (moving in with family or friends or renting a cheaper place), or setting up a discounted payment plan through your creditors.

Reached the end of your rope with credit card debt? To avoid the serious credit and financial damage not paying as agreed causes, you must speak 

If you can’t pay and don’t know what to say, here’s a four-step plan.

9. Clarify your money picture.

Lenders aren’t fond of approximates, so arm yourself with precise figures and timelines before calling.

List each of your essential monthly expenses and subtract the total from your income. Then, decide who gets what portion of the remainder. In general, secured obligations such as mortgages and vehicle loans receive top priority, as home and car lenders don’t have to take you to court and win a lawsuit to collect what’s owed. After those are covered, divvy the leftover sum among your credit card companies.

Now consider when you’ll be able to restart normal account activity. Be conservative. If you’ve been laid off and think you’ll find another job in three months, assume it will take five.

As you’re going through the numbers, try not to get discouraged. Overall, lenders are eager to help borrowers in need. Bank of America, for example, has accelerated efforts to reach out to customers early in the delinquency cycle, before their situation becomes too distressed.

 “If you don’t pay your bills, your creditors will likely take collection action of increasing severity over time,” warns Jeannine Moore, director of marketing and communications at Consumer Credit Counseling Service of San Francisco.

ii. Write a ‘problem and solution’ script.

The people you’ll be speaking with aren’t mind readers; it’s up to you to explain what happened and how you’d like to fix the problem. Arrange your thoughts by putting your situation and requests in writing:

• Summarize the problem.
  Be brief and focused. A rant about your hard times isn’t relevant, but the fact that you were unexpectedly laid off from your car sales job is. Also list specific actions you’re taking to remedy the setback. “Stick to the facts do not add commentary”.

• Propose a solution.
  Never make a creditor guess what will work for you — formulate a plan based on your unique hardship instead. Example: “The $197 minimum payment isn’t possible right now, but I’ve reviewed my budget and cut my spending, and I can pay $45 for the next three months. Starting in June, when I’ll be back at work, I can pay as normal again.” (Be aware that charging privileges are usually suspended during a reduced payment arrangement, so prepare to pay for everything with cash.)

• Establish credibility with proof.
  Note that you’ll be following up the conversation with a letter and supporting documentation, such as a disability benefits statement, a budget worksheet, or other paperwork that backs the validity of your claim.

• Request special help.
  Is there anything else you want during this time? Many banks, including Bank of America, are willing to waive or cease fees and reduce interest and monthly payment programs. You may also request that they report your activity as timely to the credit bureaus. If they don’t offer, ask. They can only say no.

• Extol your virtues.
  If you’ve been with your card issuer for many years, have always paid your bills on time, and kept your debt manageable, jot that down, too. Your history of past payment practices matters, so get ready to lead your own cheers.
  

“Make your tone sound like a request, not a demand. Good rapport is vital; you want to solicit cooperation.”

3. Pick up the phone and call.

When you reach the customer service representative, don’t launch into your well-planned conversation just yet — make sure that person has the authority to approve any changes to your account.

 “Make your tone sound like a request, not a demand. Good rapport is vital; you want to solicit cooperation,” says Cox.

Also identify the person, not just the department, to whom you’ll be sending your follow-up letter. If you encounter resistance, either search for management names on the company’s website or politely explain that you’ll copy all correspondence to the CEO.

Once you have the right employee on the line, pull out your notes and begin.

• Maintain a two-way conversation.
  After making your proposal, confirm that it’s mutually acceptable. If it’s not, be ready to negotiate a plan that does work for both you and your creditor. This process takes two (or more) participants, so don’t just talk, listen.

• Stick to the truth.
  Creditors have heard every excuse, so resist telling tales. A dramatic sob story will not increase your odds of getting a break. “I made a mistake” is fine; “The dog ate my statement” is not.

• Keep your composure.
  It’s easy to get aggravated, but yelling, threatening and crying are rarely effective. Remain calm and reasonable. After all, that’s what you would expect from card issuer, right? And while there’s no need to be saccharine, a sincere “Thank you; I genuinely appreciate your help” is always appropriate.

4. Follow up with a letter and keep in touch.

• You promised a letter with documentation — now write and send it. Include your full name and account number, and address it to the correct employee or department. In concise paragraphs, recap your situation, the agreed-upon resolution, and a statement of how you are committed to keeping the account in good standing. Don’t forget to add your telephone number and email address, so your card issuer can easily contact you. Make copies of the letter and any paperwork, then head to the post office to send the entire package via certified mail, return receipt requested.

• “Stay organized and maintain regular contact, “You’ll avoid the immensely frustrating situation of having to re-explain your situation; much less start from scratch if the ball gets dropped.” Periodic updates also reassure creditors that you’re doing everything possible to get back on track.

• Finally, know that early intervention is best, as your options for resolution are wide open. Ignore the urge to delay that first phone call. The fact is, even when you’re in a financial bind, you are a valued customer, and most creditors will do what it takes to assist you through this tough time

10. Debt Consolidation

Debt consolidation loans are convenient for people, whether you’re good at math or not. If the numbers have got your head spinning, here’s how it works:

Let’s say you have 3 credit cards on which you owe $12,500.

You also have $5,000 in a private loan that you took out (to cover the cost of a car) and a personal loan from a friend for $5,000. That’s another $10,000 in outstanding loans.

Each month, you’ll have to pay out a certain percentage (according to the minimum payment requirements and the APR subject to the specific loan) of the amount owed to each lender. So, you might have to pay out $50 to American Express, $125 to Visa, and $100 to MasterCard. Then, you also have to pay $75 towards your private loan and another $100 towards your personal loan.

Altogether, these payments come out to $450 per month. The payments are deducted from your overall balance, and this continues until you’ve paid off the entire debt amount. Now, here’s how it works when you introduce a debt consolidation loan into the picture.

You take out a new debt consolidation loan for the full amount of your debt, $22,500.

You pay off your entire credit balance for each of the three credit cards: $2,500 to American Express, $5,000 to Visa, and $5,000 to MasterCard.

You pay off your entire Personal loan: $5,000.

You pay off your entire private loan: $5,000.

Now, you’re debt-free, right? Sort of! You have no more outstanding debt. The only thing you have to pay off now is your debt consolidation loan. So, instead of having to make five individual payments each month, you’ve shrunk your debt repayment requirements down to a single monthly payment. That is helpful in two ways:

You only have to pay off a single debtor, so your monthly payments will be significantly less than if you had to keep five individual lenders happy.

You alleviate the headache of having to juggle five different payments with five different amounts, payment schedules, due dates, fees, and more. One payment is much more manageable mentally than five.

What’s more (and often most important), you end up paying less all around because you have lowered your interest rate.

1. Talk to Creditors and Settle for less than you owe – Negotiate a settlement of your debts

Usually for a lot less than you owe. While it’s possible to take care of this yourself, an array of third-party companies also offers debt settlement services for a fee.

While paying less than you owe and escaping old debts may seem smart, the Federal Trade Commission does mention some risks. For starters, some companies that offer debt settlement ask you to stop making payments on your debts while you’re negotiating better terms, which can negatively impact your credit score.

1. Debt settlement can be risky

If a company can’t get your creditors to agree to settle your debts, you could owe even more money in the end in late fees and interest. Even if a debt settlement company does get your creditors to agree, you still have to be able to make payments long enough to get them settled. You also have to watch out for dishonest debt settlement companies that make promises they can’t keep, charge you a lot of money, and then do little or nothing to help you.

Debt settlement programs also might encourage you to stop sending payments directly to your creditors. They are required to tell you that it can have a negative impact on your credit report and other serious consequences like late fees and penalties that put you further in the hole. You also could get calls from your creditors or debt collectors, or be sued for repayment. Depending on your state’s laws, if your creditors or their debt collectors win a lawsuit against you, they might be able to garnish your wages or bank account, or even put a lien on your home.

1. Potentially Taxable Income

Depending on your financial condition, any savings you get from a debt settlement program could be considered taxable income. Consult a/your tax preparer

11. Bankruptcy
12. What does filing for personal bankruptcy do?

People who file for personal bankruptcies receive a discharge — a court order that says they don’t have to repay certain debts.

Bankruptcy is generally considered your last option because of its long-term negative impact on your credit. Bankruptcy information (both the date of your filing and the later date of discharge) stays on your credit report for 10 years, and can make it difficult to get credit, buy a home, get life insurance, or get a job. Still, bankruptcy can offer a fresh start for someone who’s gotten into financial trouble.

What are the main types of personal bankruptcy?

The two main types of personal bankruptcy are Chapter 13 and Chapter 7. You file for them in federal bankruptcy court. Filing fees are several hundred dollars, and attorney fees are extra. For more information, visit the United States Courts. Both types of bankruptcy may get rid of unsecured debts like credit card or medical debt and stop foreclosures, repossessions, garnishments and utility shut-offs, as well as debt collection activities. Both also provide exemptions that let you keep certain assets, though how much is exempt depends on your state.

1. What’s the difference between Chapter 13 and Chapter 7 bankruptcy?

Chapter 13 lets people with a steady income keep property, like a mortgaged house or a car that they might otherwise lose through the bankruptcy process. In Chapter 13, the court approves a repayment plan that allows you to pay off your debts in three to five years, rather than give up any property. After you make all the payments under the plan, you receive a discharge of your debts.

Chapter 7 is known as straight bankruptcy. It involves liquidating all your assets that are not exempt. Exempt assets might include cars, work-related tools, and basic household furnishings. Some of your property may be sold by a court-appointed official, called a trustee, or turned over to your creditors.

What debt won’t be erased by filing for personal bankruptcy?

Filing for personal bankruptcy usually won’t erase child support, alimony, fines, taxes, and most student loan obligations, unless you can prove undue hardship. And, unless you have an acceptable plan to catch up on your debt under Chapter 13, bankruptcy usually doesn’t allow you to keep property when your creditor has an unpaid mortgage or security lien on it.

1. What do I need to do before I file for bankruptcy?

You have to get credit counseling from a government-approved organization up to six months before you file for any bankruptcy relief. You can find a state-by-state list of government-approved agencies at the U.S. Trustee Program, the organization within the U.S. Department of Justice that supervises bankruptcy cases and trustees.

Recovering from unemployment takes time. Follow the steps above and your life will be back to normal before you know it.

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