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Layoffs rarely come with enough warning that people have time to get their finances in order. Suddenly you're out of work — and then your credit card bill arrives, filled with purchases you made when you naturally assumed you'd have the income to pay them off.
If you have an emergency fund, your savings may be enough to handle your credit card bills until you can find a new job. But millions of Americans aren't so fortunate. When you're living paycheck to paycheck, saving up money to cover three to six months' worth of expenses is far easier said than done.
Right now, your goal is to stay afloat until you again have a steady income, without running up huge debts and without wrecking your credit. Here's a plan for doing so.
1. If possible, stop charging
Under normal circumstances, it's smart to put most purchases on a credit card to maximize rewards and enjoy consumer protections, and then pay the bill in full to avoid interest. When your income suddenly goes away, that may no longer be realistic. If possible, avoid making further purchases on your credit card. Keeping the next bill as small as possible can reduce the load on your shoulders as you’re scraping together the cash to meet your monthly obligations.
That said, if you have no savings, your credit cards may be your only financial lifeline. If you must lean on them, cut your spending to just the bare essentials. It's easier to manage a small credit card debt than a large one.
2. If necessary, pay just the minimum
Paying only the minimum amount due on your credit card bill is not ideal, since it doesn't do much to get you out of debt. But when you’re just getting by, it’s much, much better to pay the minimum than to pay nothing at all. Paying the minimum by your due date prevents late fees and avoids major damage to your credit score. It also keeps your account in good standing — especially important if your cards are your temporary lifeline.
When you're working and earning again, make it a priority to catch up by paying more than the minimum.
3. If this will last, call your issuer
Credit card companies have options for people undergoing financial stress. For example, your issuer may be willing to let you skip a payment, or it may agree to waive a late fee, or it may reduce your minimum payment.
But you have to be proactive. Don't wait until the last minute or, worse, until you've already missed a payment. If it looks like you'll have trouble meeting your obligations, get in touch with your issuer ASAP. Explain the situation and ask what accommodations are available. Many issuers offer formal "hardship programs" for people in financial difficulty.