What to Do if You Lose Your Job and Can't Pay Your Credit Card Bills

You may be concerned about your bills if you are facing a loss of employment. It's especially important if you are in credit card debt or have little or no emergency savings.

Your credit score may suffer if you are unable to pay your credit card bills and other debts that appear on your credit report.

You can manage your finances and protect your credit if you are suddenly out of work. You will need to be organized, make some phone calls, and possibly sacrifices. But you can get help.

If you are worried about paying credit card bills, but you don't know when you will get paid next, here's what you can do.

Severance is a good way to pay credit card bills.

You may receive a severance pay after a layoff based on the length of your employment and what you made. If your unemployment period is brief, a severance can be used as a bridge to help you transition from one job into another.

Many employers provide severance, even though it is not mandatory. According to Randstad RiseSmart, the number of employers who offer severance to employees laid off has increased from 44% to 64%.

Use the money you receive in the weeks and months following your loss of employment. It will be needed to pay for any credit card or loan payments that you cannot defer.

Job hunting isn't easy. Mike Sullivan is a personal financial consultant at Take Charge America in Phoenix, a nonprofit debt management and credit counseling agency.

What is the best way to prioritize payments?

It can be difficult to accept that you will have to cut back on certain aspects of your life when you lose income. Robby Dunn is the vice president of counseling for Parachute Credit Counseling in West Seneca.

You'll have enough money if you cut out unnecessary expenditures from your budget to pay the minimum on your credit card and loan debt. It may mean that you have to carry credit card debt month after month, but it is better than not paying.

You should prioritize secured debts over unsecured debts if you can't pay all your debts. Secured debts such as mortgages and auto loans are different than unsecured debts such as credit card debt because lenders can seize collateral if they don't receive timely payments.

You should always view secured debts as your No. Dunn explains that if you fail to make your mortgage payment, the foreclosure process can start within months. Missing mortgage payments can be more damaging to both your credit report, and your credit score.

Dunn also says that if your car payments are a few months late, the vehicle could be repossessed. To get a car out of repossession, it can cost thousands or hundreds of dollars.

It doesn't necessarily mean that it's a smart idea to skip a credit card repayment. Dunn says that if you miss one credit card payment your score can drop up to 80 points and the mark could remain on your report for 7 years.

"Credit Cards are definitely the least priority in times of crisis," says Sullivan. Credit cards can damage your credit but they are less expensive than losing a vehicle or home.

Can Credit Card Companies help consumers affected by job loss?

The consumer must take the initiative and contact the card issuers via phone, app or website. Dunn advises that it's better to deal with the problem head-on. It will only get worse if you do not answer the phone and don't inform creditors that you've lost your job. They won't know."

Dunn advises consumers to "become their own advocates, contact your creditors, and honestly state your hardship, as well as your intention to not fall behind, or damage their credit."

Hardship plans are available from most card issuers, even if they don't advertise them. Hardship plans may include provisions such as interest waivers or lower monthly payments.

Customers may have to bargain with the customer service department, but they are willing to help. Discover may offer assistance with late fees and other charges, while Citi cardholders might be eligible for a forbearance.

Forbearance is a temporary solution that offers relief to cardholders. It could include reduced rates of interest, fees eliminated, delayed payments, and lowered minimum monthly payments.

Consumer Financial Protection Bureau recommends getting all agreements with lenders written down and checking your credit report regularly to ensure accuracy.

The longer you can delay using these programs, the better.

Sullivan warns that consumers should not forget that these concessions are ending and the credit card balances must be paid again. It is best to keep paying your credit card balances if possible to avoid accumulating a large amount of debt.

Are there any drawbacks to Hardship Plans?

The consequences of hardship plans are both short-term and long-term. Hardship plans can be a quick fix, but they may damage your credit unless you have made arrangements to avoid it.

Sullivan warns that damage can be done if you credit report indicates your debt "is no longer being paid according to the agreement".

A hardship plan may have long-term impacts on your credit score, report and access to credit. If you tell the credit card company that you are having difficulty making payments, it is likely they will take action to limit your credit.

Credit card companies reduce your credit limit in order to lower their risk.

Lowering your credit limit will increase your credit usage ratio. This is the amount of credit that you are using in comparison to your credit limit. Your credit score could be affected if your credit utilization rate is higher than 30%.

Sullivan says that "if you are unable to make payments, there is no other option than to request relief."

Consolidating debts with a personal loan or balance transfer card can also affect credit utilization. "It can really affect your credit score and how much credit you have," Sullivan says.

How can you pay off debt when you're unemployed?

Some options are better for paying credit card debts when you have lost your income. Consider home equity loans, balance-transfer credit cards, 401 (k) loans, or IRA withdrawals.

Home equity credit line. If you are able to manage your payments, then a home equity line of credit may be the best option for paying off credit card debt. Rates of interest are usually lower than those for credit cards or personal loans.

Balance transfer credit cards. You might be eligible for a balance transfer credit card if your credit rating is high. This can give you more time to pay off the balances. Beware of balance transfer fees and make sure you have a plan for paying off your debt before regular interest rates kick in.

Dunn says that it could only be a Band-Aid to delay the inevitable and you might not be able make more than the minimum payment. If you only need to make it through three to six month, this is a good way to keep up with your payments.

Retirement funds. This option is the most risky because of steep penalties if you withdraw money from your 401(k) or IRA too early. Sullivan warns that this is a costly way to borrow and you may lose your retirement income.

It's not something that people should take lightly. Think long and hard before you withdraw from your retirement account.

Can Credit Counseling help if you can't pay your credit cards?

Credit counselors can help you with budgeting and debt management, as well as with negotiating with creditors.

If you have suddenly lost your income due to a job loss, a National Foundation for Credit Counseling certified counselor can help you create an emergency budget. Dunn explains that during a financial session, "we sit down with the client and do an in-depth review of their monthly budget, income, and expenses, and their credit report."

A counselor might recommend a DMP (debt management plan), which combines several bills into a single monthly payment, and reduces your interest rate while you pay off the debt over 3-5 years. A DMP will ensure that your payments are current, and your credit rating is protected.