There are several ways to avoid bad credit after losing a job. Understandably, if you're laid off from work, you might worry about how you'll pay your mortgage, auto loan and other bills. Unemployment checks might not provide enough income, and you may fear getting behind on your bills. Late payments can damage your credit score, but there are ways to avoid bad credit after losing a job.
Applying for unemployment compensation sooner rather than later is one of the best ways to avoid bad credit after losing a job. I've known people who've lost jobs, and it took between two and four weeks to receive their first check. And unfortunately, bills don't stop just because you've lost your job. So, you’ll need to get proactive and head down to your local unemployment office.
In many cases, unemployment checks will not cover all your monthly expenses. If necessary, get side work to supplement. Babysit your nieces or nephews, or watch a friend’s children. Or do odd jobs around your neighborhood, such as house cleaning or lawn work. Any extra income is better than none.
It takes some people up to six months to one year to find new employment. If you lose your job, quickly downsizing can alleviate credit damage. Place your house for sale and temporarily move in with a friend or relative, or sell an extra vehicle that you don't drive on a regular basis. The fewer monthly expenses you have, the easier it'll be to keep your head above water until you find another job.
You might be surprised to learn that creditors are willing to help during your time of need. Many banks have provisions to help people who lose their jobs. For example, if you have a federal student loan, you might qualify for deferment or forbearance, which suspends monthly payments for a certain number of months. Speak with your credit card companies and they might temporarily reduce your interest rate to help you keep up with your payments.
This is the biggest benefit of having a savings account. If you have cash in the bank, you might be able to maintain your lifestyle until you find new employment. And if you had a 401K plan through your employer, you might be eligible for a hardship withdrawal. Just know that any money taken from your 401(k) plan might be subject to income taxes and penalties, plus it reduces the value of your retirement account.
If you lose your job, this isn't the time to save face and spend extra money. You need to adopt a frugal mindset and look for any and every way to save money. Start clipping coupons before grocery shopping. Check online and thrift stores before buying anything. Barter with friends to get the items and services you need without spending a dime.
Even if there's not a lot of money to go around, do your best to keep up with minimum payments. As long as you’re paying your minimums each month, your credit accounts will remain in good standing and you can avoid bad credit.
Acquiring bad credit after losing a job can be devastating, especially if you've always been responsible with your money. But if you take quick action, you can protect your credit rating. What are other ways to avoid bad credit after losing a job?