How to plan financially if you’ve been laid off
October 12, 2023 2 min video
Even in the best of times, juggling your finances can be a challenge. And if you’ve recently faced reduced hours at work, a furlough or a job loss, it can be especially scary to think about how to manage your finances.
Fortunately, there are some practical steps you can take to plan financially after an unexpected layoff.
- Being laid off from your job through no fault of your own—instead of being fired for something like misconduct—might mean you qualify for more types of financial assistance.
- You may be eligible for things like severance pay and unemployment benefits, depending on state and federal regulations.
- Evaluating your finances and creating a realistic budget can help you stay on track while you figure out your next moves.
1. Understand the difference between being laid off vs. fired
Why does the difference between being laid off or fired matter? Understanding this distinction will help you determine whether you’ll qualify for unemployment benefits.
According to the U.S. Department of Labor, in most states, you might be eligible for unemployment benefits if you lose your job through no fault of your own. That might look like a company deciding to downsize and lay off people without intending to replace them.
But if someone loses their job because of something like misconduct, that might mean they’re not eligible for unemployment benefits. But unemployment benefits and requirements can vary by state. So you should also make sure you meet any and all requirements your state has in place.
2. Take an honest look at your finances and what you owe
Once you’ve taken a moment to catch your breath after getting laid off, it’s a good time to review your current debt and financial standings. That might include car payments, credit cards, mortgages and more.
It might feel a little overwhelming at first—especially if you’re adding up your debt for the first time. But seeing everything together can help you make a plan. You could track your debts with a financial app, or you can simply create a spreadsheet. Even a handwritten list is a start.
For each item on your list, include the name of the lender, the total balance, the minimum payment and the due date. Remember to make note of any bills that need to be paid in full. You might be able to keep others in good standing with minimum payments.
Knowing how much you owe—and when bills are due—can be a step toward reducing negative impacts on your credit.
3. Figure out what supplemental income and benefits you may qualify for
If you’ve lost your job, you might be eligible for supplemental income and benefits. Here are some things to consider looking into:
- Severance. If your job was eliminated or you were laid off, you might receive a severance package that includes pay, benefits or both. Consider asking how much severance pay you’ll receive and whether your health insurance coverage will continue—and for how long. You can also ask if your company provides job counseling, resume services, retraining or other help in finding a new job.
- Unemployment. According to the U.S. Department of Labor, “Unemployment insurance is a joint state-federal program that provides cash benefits to eligible workers.” And while each state has their own unemployment insurance program and requirements, they all have to follow federal guidelines. You can learn more about your state’s requirements and benefits to see if you qualify.
- Health insurance. If you’ve lost your job-based health insurance coverage, there may be other coverage options. You might qualify to enroll in new coverage through federal or state marketplaces. Or continuation coverage through your former employer may also be an option, but it can be pricey.
4. Cut your budget and make a spending plan
It’s a good rule of thumb to have about three to six months of expenses put away in an emergency savings account. But that can be hard to do, and it’s not always realistic for everyone’s circumstances.
Whether you have emergency savings or not, it’s important to revisit your budget after a job loss. Budgeting can help you manage your expenses and find ways to cut back.
Wondering where to start? It can be helpful to consider these three areas:
- How you spend your money. You might want to start by creating a weekly or monthly budget with categories for bills and other necessities like housing and groceries. This can help you think through how much money you need to assign to each category. And it can also help you figure out how much of your budget is taken up by these essential expenses.
- How much income you have from different sources. Every little bit helps. Consider income you might have from things like emergency savings, unemployment benefits or other government assistance programs like Social Security.
- Nice-to-haves you can cut back on. Even though some of these expenses may seem small, they can add up quickly. For example, you might not need those streaming services and magazine subscriptions after all. And while cooking at home might not always seem the most exciting, it can be less expensive than getting delivery or takeout from restaurants.
5. Reach out to your credit card company
Sudden unemployment is stressful. And worrying about not being able to pay your upcoming credit card bill just adds to that stress.
The good news is that many credit card companies have programs designed to help customers experiencing financial hardship.
If you lose your job and can’t pay your bill, you should reach out to your credit card company as soon as possible. They may be able to work with you if you’re concerned you might miss upcoming payments.
6. Consider credit or financial counseling
Credit counseling organizations can give you personalized financial advice. And that can be a valuable resource in times of financial hardship.
Most reputable credit counseling organizations are nonprofits with certified and trained counselors. They can help you create a plan to address any financial struggles you’re facing. Organizations like these can help you think through your finances and calculate payment options.
Here are some questions to consider asking as you choose an agency:
- What kinds of services do you offer?
- Is there any educational information you can send me for free?
- Do you charge for your services? If so, how much? And what if I can’t afford to pay?
- Are you licensed in my state?
- Are your counselors accredited and trained?
You can get a list of government-approved credit counselors by visiting this list of counseling services from the Department of Justice. Or you can call the National Foundation for Credit Counseling at 800-388-2227.
7. Prioritize your bills
Once you’ve gotten a handle on your monthly budget, you can prioritize your bills.
If you can afford to, try to pay more than the minimum in order to reduce interest charges. Of course, that might not be possible during financially challenging times. But making at least the minimum payment will keep you from going past due, and that can help you avoid things like late-payment fees and penalties.
8. Consider options to consolidate or refinance your debt
If you have more than one loan or bill you’re struggling to make the minimum payments on, you might consider debt consolidation. Having your debts consolidated into one payment might also make tracking and managing your budget a bit easier.
A debt consolidation loan could help you save money by lowering your interest rate and monthly payment. But keep in mind: Debt consolidation loans don’t erase your debt. You may even end up paying more in the long run. So it’s a good idea to think about the big picture before you make any decisions.
If you own a home, you might consider checking to see if refinancing your mortgage would lower your monthly payment. Or if you rent, check your lease agreement and talk to your landlord. Finding new renters can sometimes be challenging, so you might be able to negotiate different terms.
And if you’re struggling with credit card debt, you can learn more about how to consolidate credit card debt—as well as the potential risks and benefits.
9. Avoid taking on any new debt
This might not be the time to add any new recurring payments to your monthly bills or make purchases for things you don’t absolutely need. Carefully consider applying for credit, including any store credit cards, no matter how attractive the deal might seem.
10. Start your job search
Looking for a new job can be daunting. It might help to take it one step at a time.
First, you can start by updating your resume. If it’s been awhile since you’ve reviewed it—or if you just aren’t sure where to start—don’t be afraid to reach out for help. You could consult a professional or ask someone in your network to help you review and perfect it.
Next, identify what you want in your next job before you start applying. This can help you narrow your search, minimize unnecessary applications and find a position that’s well suited for you. It might also help you tailor a cover letter when you apply.
There are countless sites that can help you find job openings. A quick internet search can turn up a ton of resources. And reaching out to connections within your personal and professional networks might also produce some good prospects. You might even get someone to recommend you for a position directly.
Consider a part-time gig
It can be tough finding a job, but part-time gigs might help you in the meantime. You could consider online jobs like consulting, tutoring or even temp roles for things like administrative work. You might also consider reaching out to previous employers to see if they have any jobs open—or if they’d be willing to hire you as a contractor for a short-term role.
Managing your finances after being laid off in a nutshell
Facing an unexpected job loss or financial hardship is stressful, and it’s not a situation anyone chooses to be in. But by picking up some new information, you’ve already taken an important first step. Being financially and emotionally prepared can make managing this process a little easier.
And if you’re exploring ways to help manage your credit card debt, you might consider looking into a balance transfer credit card.