There is rarely a good time to become unemployed. However, if you’re also dealing with crippling debt, the situation can feel even more stressful and overwhelming. Whether you’ve just been made redundant or you’ve been out of work for a few months, it’s important to still pay your bills and service your debt as best you can. Of course, this is much easier said than done. However, the good news is there are strategies you can implement and professional support you can access to improve your financial situation. You just need to know where to look.
In this guide, we take a look at some of the most effective strategies for managing debt when unemployed. We also explore what professional debt management solutions you could be eligible for, which could see debt written off.
How to get out of debt without a job: Understanding your options when unemployed
Regardless of your employment status, if you’re struggling with significant debt, there are two stages to regaining control of your finances. The first stage involves trying to manage your debts organically by implementing certain strategies, such as negotiating with your creditors and sticking to a set budget . If this is successful and you’re able to properly service – and ideally pay off – your debt, there may be no need for the second stage, which involves seeking support from professional debt management solutions.
Below we take a look at both of these stages. First we explore the simple financial management strategies that can help you take back control of your finances when in debt and then we look at which professional debt management solutions are eligible for those out of work.
How to manage your finances when unemployed
Contact your creditors
When you become unemployed, one of the first steps you should take is to contact your creditors. Many lenders have hardship schemes specifically designed for customers experiencing temporary financial difficulty. By being proactive and honest about your situation, you may be able to negotiate reduced payments, payment holidays, or alternative payment arrangements. Remember to get any agreements in writing and understand how these arrangements might affect your credit score. Finally, don’t wait until you’ve missed payments to reach out – early communication shows responsibility and gives you more options.
Apply for unemployment benefits
Applying for Universal Credit – and specifically Jobseeker’s Allowance – should be done as soon as possible after losing your job, as there may be waiting periods before payments begin. Research your eligibility requirements and ensure you have all the necessary documentation ready, including employment history and reason for unemployment. These benefits can provide crucial financial support while you search for new employment and help prevent your debt situation from getting worse.
Set (and stick to!) a realistic budget
Creating a bare-bones budget is essential when managing debt without regular income. Start by listing all essential expenses like rent, utilities, and food. Then, identify areas where you can cut back. This could include subscription services, entertainment, and non-essential ‘luxury’ purchases, for example. As part of this budgeting, you should try to track every penny you spend and look for creative ways to reduce costs, such as meal planning or using public transportation. Remember that this stringent budget is only temporary and necessary to prevent your debt from growing while you search for new employment.
Avoid taking further credit to cover expenses
While it can be super tempting to use credit cards or take out loans to maintain your standard of living, this can create a dangerous debt spiral. Using credit to pay for daily expenses when you don’t have regular income can quickly lead to overwhelming levels of debt. Instead, focus on reducing expenses and using any savings or emergency funds (if you have them) wisely. If you have to use credit to keep your head above water, try to keep this option for absolute emergencies only, and have a clear plan for how you’ll repay it once you secure new employment.
Debt solutions available without employment
If your level of debt continues to deepen despite a concerted effort to regain control – and you’re still struggling to find a new job – it might be time to speak to professional financial experts to see what help is available to you. Although they come with conditions, debt management solutions can be a helpful tool to not only get you back in control of your financial situation, but, in some cases, actually write-off a large percentage of what you owe. But does your employment status impact which solutions you are actually eligible for?
Can you get an IVA if unemployed?
In theory, yes, you can apply for an Individual Voluntary Arrangement (IVA) if you’re unemployed. However, if the entirety of your listed income is made up of benefits alone, you may struggle to have an IVA agreed and approved by a debt management company. This is because benefits are only really designed to cover an individual’s monthly essentials, such as rent, utility bills and food. After these expenses have gone out, it is unlikely you will have enough left over to make a significant or meaningful debt repayment as part of an IVA. For this reason, it can be tough to have an IVA approved while you are unemployed.
That being said, if you have an additional source of income – such as a small amount of income coming in from a side hustle or if a friend or family member can help you out in the short-term – you do stand a better chance of being approved for an IVA.
Can you get a Debt Management Plan if unemployed?
Similar to IVAs, you can get a Debt Management Plan (DMP) while unemployed, but it may be challenging. Like IVAs, DMPs typically require you to make regular monthly payments to your creditors. For this reason, you’ll need some form of income to be approved. As discussed above, benefits alone may not be enough, but if you have savings, a side hustle income and/or support from friends and family, you do stand a better chance of approval.
If, after a debt advisor assesses your situation, it is determined a DMP is not a viable option for you while you remain unemployed, they may suggest alternative debt solutions like bankruptcy.
Can you file for bankruptcy if you are unemployed?
Yes, you can file for bankruptcy while unemployed in the UK. In fact, unemployment is often a key contributing factor in bankruptcy cases. You’ll need to pay a fee of £680 to file for bankruptcy in England and Wales, though you may be eligible for help with this cost if you’re on benefits. Unlike IVAs and DMPs, being unemployed doesn’t affect your eligibility – the main criteria is being unable to pay your debts. While bankruptcy can provide a fresh start by writing off most debts, it’s considered a serious step with long-term consequences for your credit rating and future financial options, so it’s important to seek debt advice first.
If you’re unemployed and are struggling with overwhelming levels of debt, get in touch today. Here at MoneyPlus, our expert debt advisors can provide guidance tailored to your situation and suggest the best debt management solutions for your situation.
Alternatively, you can get free debt advice at MoneyHelper .
