How to Manage Credit Card Debt While Unemployed
Unemployment can pull the rug out from under you, especially when it comes to paying your bills. If you can’t pay your credit cards while unemployed, you’ll want to take a proactive approach and let your credit card companies know your position so you can take advantage of any assistance they may offer.
What to do if you can’t pay credit cards while unemployed
A large percentage of Americans rely on credit cards to make ends meet each month. Losing your job can make it even harder to keep up with payments, but a proactive approach can help put you in a better position. If you’re struggling to pay your bills, consider the following steps:
- Contact your credit card company
- Enroll in credit counseling services
- See if you qualify for government aid
- Consolidate or refinance your credit card debt
Contact your credit card company
If you can’t pay your credit card bill, contact your creditor right away. Financial challenges are common and most credit card issuers have policies in place for these situations.
Your credit card company likely offers a financial hardship program that may include assistance like reduced minimum payments, reduced APR, waived fees or even credit card forbearance. This can remove some of your financial burden while you sort out unemployment benefits.
Keep in mind, however, that if you sign up for a credit card hardship program, you may not be able to use that credit card during the enrollment period.
| Credit card issuer | Hardship assistance offered | Phone number |
|---|---|---|
| American Express |
| 1-800-551-1814 |
| Citi |
| 1-800-722-879 |
| Discover |
| 1-800-347-2683 |
| Wells Fargo |
| 1-800-642-4720 |
Tip: Request a written copy of the hardship program agreement for your records. Keep track of the date you first contacted your credit card issuer and the representative you spoke to. This can help if you need to dispute any inaccuracies down the road.Enroll in credit counseling services
If you’re unemployed with credit card debt, you can enroll with a nonprofit credit counseling service at little or no cost. Credit counselors teach consumers how to make educated financial decisions about budgeting, money management and debt management.
Credit counselors can work with your credit card company and advocate on your behalf. A credit counselor may choose to enroll you in a debt management plan to help you repay debt in three to five years. Debt management plans may show up on your credit report but won’t have a negative impact on your credit score, though paying off debt can sometimes cause your score to drop.
| Pros | Cons |
|---|---|
You can repay your debt within three to five years. Your credit counselor may be able to negotiate reduced fees and interest rates. Some borrowers may be eligible to enroll with little to no fees. Your credit card bills will be consolidated into a single monthly payment. | These programs may come with a startup cost and monthly fee for some borrowers. You’ll likely need to close enrolled credit cards. You’ll need to refrain from opening new credit cards. |
Tip: The U.S. Department of Justice provides a list of approved credit counseling agencies.See if you qualify for government aid
While there aren’t specific government programs for help with credit card debt, you may be eligible for aid in another form, such as unemployment benefits.
Each state sets its own guidelines for filing for unemployment. If you lose your job, contact your state’s unemployment insurance program to file a claim. Government aid programs can help you afford living expenses like food and health care, you may be able to allocate money toward your credit card minimum monthly payments to stay current on your accounts.
Other government aid programs include:
- Temporary Assistance for Needy Families (TANF): Eligible low-income families may be able to receive cash in addition to non-financial benefits, like child care and job training.
- Supplemental Security Income (SSI): This program provides cash to low-income seniors and people with disabilities.
- Supplemental Nutrition Assistance Program (SNAP): Also known as food stamps, SNAP can help you afford groceries and other necessities.
- Medicaid: Low-income families and individuals may be eligible for free or low-cost health benefits through Medicaid.
- Children’s Health Insurance Program (CHIP): Uninsured children under the age of 19 whose family income is above Medicaid’s limit may be eligible for free or low-cost medical care.
Consolidate or refinance your credit card debt
People struggling with insurmountable credit card debt may consider credit card refinancing.
However, it may be difficult to qualify for a personal loan or credit card while unemployed. When issuing credit or lending money, financial institutions like to see proof of income and a decent credit history.
If you’re struggling to take out a debt consolidation loan or balance transfer credit card, consider getting a cosigner to increase your chances of approval.
| Balance transfer credit card | Debt consolidation loan | |
|---|---|---|
| What is it? | A new credit card to which you can transfer the balance of one or more credit cards. | A lump-sum personal loan with a fixed APR and fixed monthly payments that you use to pay off your credit card balances. |
| APR range | 10.24% to 29.49% | 6.70% to 36% |
| Benefits | You may be able to avoid paying interest altogether. Balance transfer credit cards sometimes come with an introductory 0% APR period that can go as long as 21 months. As long as you fully repay your balance within the promotional period, you can skip paying interest. |
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| Drawbacks |
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Tip: Before you apply for any sort of debt consolidation loan or another credit card, check your credit report. You can check your credit reports from Equifax, Experian and TransUnion for free at AnnualCreditReport.com. If you find inaccuracies, dispute the errors with the relevant credit bureau(s).Consequences of missing credit card payments
When you’re juggling multiple bills with no income, your credit card isn’t the highest priority when compared to those that keep a roof over your head, as well as court-ordered debts like child support. However, you should understand what will happen if you don’t pay your credit card debt.
If you’re delinquent on your credit card debt, you may be charged a late fee, your credit score may drop and a penalty APR may be applied. Your credit card issuer may even sue you and attempt to get a court judgment to garnish your wages.
| After 1 day… | You may be charged a late fee. Check your credit card agreement to find out how much this fee will cost. You may also lose any promotional financing offers, like reduced APRs. |
| After 30 days… | Your credit score may drop. After 30 days, the credit card issuer can report your late payment to the credit bureaus. The issuer can continue to report a late payment every billing cycle. |
| After 60 days… | Your penalty APR can be applied. Penalty APRs are typically capped at 29.99%. Your penalty APR is outlined in your credit card agreement. |
| After 180 days… | Your account will close. However, you’re still responsible for the debt, which may be collected by the credit card issuer or a third-party debt collection agency. Charge-offs stay on your credit report for up to seven years. |
Tip: While it’s normally advised that you pay the entire statement balance on your credit card each month to avoid accruing interest, that’s not always possible. However, making at least the minimum payment will ensure that your credit doesn’t take a hit.Budgeting for expenses on unemployment
Unemployment can send you into financial survival mode. During this time, you may need to tighten the belt on your budget. Here are some budgeting strategies to consider:
- Zero-based budgeting: This budget requires that you designate a purpose for every single dollar in your budget. So, if your unemployment benefits come out to $2,000 a month, you’ll need to budget all $2,000 with no money leftover at the end.
- Spreadsheet budgeting: Creating a spreadsheet budget can help you keep an eye on every dollar you make and where it goes. While tracking every single purchase you make may sound tedious, this budgeting strategy could help you tightly manage your budget while unemployed.
- 50/30/20 budget: This simple budgeting approach splits your budget into three parts: needs (50%), wants (30%) and debt repayment (20%). However, if you’re unemployed, you may need to adjust this budget to better fit your needs. For instance, you could lower your budget for wants to 10% and move the remaining 20% to your needs.
Frequently asked questions
If you’re unemployed and have bad credit, applying for a debt consolidation loan or balance transfer credit card may not be a good option for you since you may not qualify and, if you do, you may get stuck with high interest rates.
Instead, consider asking your credit card issuer about financial hardship programs and signing up for credit counseling and government benefits.
Whether you can pause credit card payments during unemployment will depend on your credit card company. Many credit card issuers offer financial hardship programs. While some may offer total payment deferment, others may instead work with you to figure out how much you can afford to pay every month.
While filing for unemployment won’t directly influence your credit, it could eventually affect your credit as your wallet is impacted. For instance, if you’re not able to keep up with your bills, your creditors could report your missed payments to the credit bureaus, which can bring down your credit score.