Debt consolidation when unemployed – Is it a good idea?

Unemployment period is the time to make some serious financial decisions regarding your outstanding balance on credit cards. Debt consolidation is often an option to pay your multiple bills when you’re unemployed.

Usually, you can consolidate credit card bills after a job loss and other unsecured debts in 3 ways:

  1. Enrolling in a debt consolidation program
  2. Taking out a debt consolidation loan
  3. Transferring balance to a low-interest credit card

It may sound like a great idea to pay off your debts when you’ve lost your job. But you should evaluate all your options closely before consolidating your debts. So let’s review each option minutely so that you can make an informed decision after a job loss.

(i) Debt consolidation program

This program combines your multiple debts into a single monthly payment plan. The debt counselor personally reviews your financial situation and determines the cause of your financial problems. He talks about your problems with your creditors and tries to arrange an affordable repayment plan for you.

You have to pay a fee to the consolidation company for consolidating your unpaid bills. Plus, you have to make monthly payments regularly. If you fail to make monthly payments, your payment plan gets canceled instantly.

The bottom line is, you need to have a regular source of income for taking the full advantage of a debt consolidation program. Otherwise, you should have enough savings in your checking account/savings account for making the required monthly payments.

(ii) Debt consolidation loan

This involves combining outstanding debts with a new loan at a low-interest rate. You have to make only one payment every month instead of multiple payments on different debts. It is easy to manage only one loan instead of 8 accounts.

Problems you may face

  • Lenders may not agree to give you money without a steady income
  • Lenders may ask you to pledge collateral against the loan
  • Lenders may not consider unemployment benefits as a steady source of income

How will you make the monthly payments? That’s the biggest question.

Your credit score will go down if you default on the new debt consolidation loan. If you have pledged a collateral against the loan, then the lender will foreclose it in the event of loan default.
Is debt consolidation a good idea in this case? What do you think? Calm your agitated mind and think logically. I’m sure you’ll get the right answer.

(iii) Credit card balance transfer

You can get a balance transfer credit card with a low-interest rate when you have a good payment history. The best part of this card is that you don’t have to pay any interest on it for 12-18 months. You can pay down the balance within this period and get out of debt. If you can’t pay off the balance within 12-18 months, then you’re in trouble. You have to pay almost double or triple interest on the credit cards.

Can you pay off the balance within 18 months?

This is the first question you need to ask yourself. If you can’t clear your dues, this option is not suitable for you. You have to pay off the outstanding balance plus the extremely high-interest rate. Moreover, you have to pay a credit card balance transfer fee, which is usually 3% of the total balance you’re transferring to the other card. Can you pay that fee? Think and then decide.

Debt consolidation when unemployed – Is it a good idea?

Is debt consolidation good when you’re unemployed? The honest answer is ‘yes.’ But much depends on your present situation.

Usually, debt consolidation is good when:

  • You have money to make monthly payments to the consolidation company.
  • You can lead a frugal life and save money.
  • You can get a new job soon.

What to do when you’re unemployed and can’t pay bills

There are a few debt solutions for unemployed individuals. You should use them wisely to get back on the right financial track.

1. Consider financial hardship programs

Many credit card companies offer hardship programs to their loyal customers. They create an affordable repayment plan for you. Of course, this is not as simple as it sounds. You have to prove you’re in financial hardship.

Some lenders give you a grace period because you have lost your job. You don’t have to make payments during that period. In some scenarios, lenders freeze the interest rate until a date in the future. They give you time to get a new job so that you can start making payments again.

2. Attend a free counseling session

Some online debt communities give a no-obligation free counseling session to consumers. You can attend an online free debt counseling session to know about the various debt relief options. You can get a personal budget plan and a few money management tips to pay back your creditors comfortably.

Conclusion

Let me tell you that there are no unemployed debt consolidation loans or programs in the country. You have to do a part-time job or get a new job for managing your debts. You have to live a frugal life and develop the habit of saving money. There is no other alternative. If you can’t get a job and have a huge amount of debt, then the only option for you is bankruptcy. But even in that case, you need to have some assets that can be sold to pay back your creditors.