Monday, November 21, 2022

What To Do When In Debt And Unemployed

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Installment Agreements For Unemployed Individuals

We’re Drowning In Debt And Don’t Know What To Do!

Many taxpayers who are dealing with a tax liability have already entered into an installment agreement with the IRS through the Fresh Start program.

For all taxpayers who are currently entered in an installment agreement, your payments are suspended from April 1 to July 15, 2020. This means you are not required to make your payments if you prefer not to, and you will not default on your agreement due to non-payment. Interest will continue to accrue, but if youre suffering a hardship, you might be better off withholding payment for now.

After July 15th, if no additional measures are taken to increase the suspension period for installment agreements, you should reach out to S.H. Block Tax Services to learn more about being placed in Currently Not Collectible status. This is a hardship status where the IRS eases your tax burden if you are unable to cover your monthly living expenses such as rent, mortgage, food, childcare, healthcare, utilities, and transportation costs.

If you are unemployed and owe back taxes but have not yet filed for an installment agreement with the IRS, the first thing you need to do is to make them aware of your unemployment status. The best way to do so is by requesting a letter from the unemployment office or sending a copy of your unemployment check.

The IRS is still negotiating installment agreements during the COVID-19 pandemic and will work with you to help ease the burden of your tax liability due to your unemployed status.

Payday Loans Cash Advance Loans And Short

Another solution you may be considering during a period of hardship is any no-credit-check loans. These are loans that tout the advantages of getting cash in your account within 24 hours, no credit check required. This can sound great. You dont have the income to qualify for any traditional loans, so you turn to the alternative financing solutions to get the cash you need.

However, just because you can use AFS to get the cash you need, it doesnt mean that you should. These types of financing solutions come with two huge problems:

  • Extremely high interest and financing charges
  • Automatic ACH payments that can drain your bank account
  • Finance charges

    Its not uncommon for these types of loans to have interest rates over 200% or even 400%. You can also expect to pay about $30 for every $100 you finance. These loans have excessively high costs and if you dont have a job to pay the loan back within the first two weeks of taking it out, those costs will stack up quickly.

    ACH direct debit

    The other issue is the ACH direct debit that most of these loan systems use for payment. They connect to your bank account to direct deposit the funds you receive, then they direct debit the payments from the same account. This can create issues with your bank account. ACH payments can be hard to stop and most AFS lenders make it extremely difficult, if not impossible, to stop those payments. Theyll drain your bank account and stack up NSF and overdraft fees.

    Inform Your Credit Provider Or Bank

    What happens to your debt if you get retrenched? Many people lose their jobs in an untimely manner, leaving them vulnerable to financial distress. Start by sending a copy of your retrenchment letter to your credit provider. The writing will serve as confirmation of your unemployment status and help you bargain with your creditor or bank for a friendlier repayment schedule.

    Contacting your creditor as soon as you lose your job is desirable and will help determine the possibility of deferring your payments temporarily or lowering them altogether. Your creditor will come up with a suitable payment alternative based on the type of loan you are servicing.

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    If Youve Exhausted Your Employment Insurance Benefits

    If youve exhausted your Employment Insurance benefits and are no longer eligible for EI, you may be eligible for the Canada Recovery Benefit if you meet the eligibility criteria . However, if you worked while on your EI claim, you may be able to establish a new EI claim. To determine your EI eligibility, you should make an EI claim before applying for the CRB .

    How To Handle Credit Card Debt While Unemployed

    What to Do When Youre Broke, Unemployed and in in 2020 ...

    Talking to your lender is the first step, says Criniti. They understand whats going on right now and they want to help.

    For their part, many credit card issuers have created relief programs in response to the pandemic. While each issuers program differs, most are offering forbearance options that may allow you to temporarily waive interest to lower your minimum payments or to defer payments entirely for a set period of time.

    Criniti advises taking the initiative andadvocating for yourself when communicating with lenders. Dont be afraid to negotiate, he explains. Lenders would rather be paid a portion of what you owe than nothing at all.

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    What Happens If You Cannot Pay Your Debt In South Africa

    Handling unemployment and credit card debt is overwhelming, but you can always lessen the burden with proper choices. Engaging your creditors, managing your cash reserves wisely, and not falling prey of easy but costly financing options are key. While loans for unemployed are handy in most cases, beware that they are not necessarily a perfect solution. If you fail to pay your debt:

    • You will be taken to court.
    • Get a bad credit score.
    • In some cases, your property will be repossessed if you had put them as security.

    Make sure to come up with a proper debt management plan as soon as you land on your next job to take care of all unforeseen credit distresses. You can always avoid becoming a victim of blacklisted loans by making sure that your savings are intact and safeguarded.

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    Unemployed and in debt individuals in South Africa should make a conscious decision of managing their finances and making sure they plan for unforeseen debt crisis where possible. Seeking expert opinions on the appropriate financial decision is equally essential and inevitable for retrenched and unemployed persons.

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    Work With A Nonprofit Credit Counselor

    If budgeting and identifying strategies to deal with debt becomes overwhelming on your own, seek out help from a reputable nonprofit .

    Agencies affiliated with the National Association for Credit Counseling, for instance, have trained counselors on staff who can assist you in making a basic budget and considering your options for paying credit card bills on a tight income. Your first hour-long consultationwhich may be all you needis free. Credit counseling agencies also offer debt management plans: These require you to make one monthly payment to the agency, which negotiates with creditors and pays them on your behalf.

    But don’t confuse debt management with debt settlement, which is offered by debt relief companies that counsel you to stop paying your creditors. That can hurt your credit score and lead to costly fees. When you’re feeling stressed during a period of unemployment, avoid agreeing to a debt settlement plan that could cause long-term harm. Working with a well-regarded nonprofit credit counseling agency is a safer bet.

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    Early Distributions From An Ira

    Another retirement option is to take early distributions from an IRA. You may consider this if you roll your former employers 401k into an IRA or you might already have an IRA open to support your retirement goals.

    In either case, you will face tax penalties on the money you take out of your IRA. Again, the IRS will treat the money you receive as taxable income. That could lead to a tax bill next April, even if you get a new job before that.

    Restructure Your Debt Through Bankruptcy

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    It is possible to restructure your debts in bankruptcy. Under Chapter 13, an individual with a regular source of income may gain court approval of a repayment plan. Chapter 7 allows the debtor to keep certain assets but the rest is sold and the proceeds go to paying off creditors. The remaining debt is potentially discharged. Chapter 12 is the same thing for family farmers and commercial fishing operations. Chapter 11 is for businesses. The purpose of bankruptcy is to allow the debtor a fresh start. Consider bankruptcy carefully and seek the advice of an attorney and accountant when considering doing this option. It can have a significant impact on your finances down the road.

    Not being able to pay your bills can be stressful. Make sure to communicate with your friends and family to make sure you receive the support you need. Developing a plan as early as possible will also help get you through the difficult times.

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    Understand Your Unemployment Circumstances

    Theres a big difference between being laid off and being furloughed, so be sure you understand the circumstances for your unemployment. Ask to get the terms of your separation from your company in writing. And dont sign anything before youve had time to understand it fully.

    A furlough generally implies that the company plans or hopes to bring you back after a certain period. Think of it as mandatory leave without pay.

    A layoff, or reduction in workforce, generally implies full termination from a company. Your role, a percentage of the company workforce, or certain divisions may get eliminated.

    Another situation is a complete office closure, which happens when an entire location or company shuts down. Its similar to a layoff in that its usually a full separation, although sometimes you could be asked to relocate to another division or office location.

    Should I Withdraw Money From My 401 While Im Unemployed

    No. If you pull money out of tax-deferred retirement plans like 401s and traditional IRAs, you could face sizable tax penalties for early withdrawals. Worse still, you will be depleting accounts intended to fund your retirement, opening the door to future financial woes.

    Again, its important to consider the consequences and try to avoid early retirement-account withdrawals.

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    Federal Student Loan Deferment

    Deferment allows you to temporarily stop the monthly payments on federal student loans without facing penalties. This will keep your loans out of default as you work to secure another job. If you have unsubsidized student loans, interest charges will continue to accrue during deferment, so your balances will be higher when you get back to making payments. However, if you have subsidized student loans, the government will pay those interest charges for you.

    One Make A List Of All Your Debts

    What To Do If Youre Unemployed With Credit Card Debt

    List all your debts including the ones youd rather not think about. For example:

    • car loan
    • Council Tax.

    Theyll all need to be tackled at some stage. So you need to start off with a clear picture of where you stand.

    Include the outstanding balances and how much you pay each month.

    Find out more in our guide How to prioritise your debts

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    What Happens If You Stop Paying Credit Card Bills

    If you find yourself unable to pay your credit card bills, try your best to make at least the minimum payment on time every month. By forgoing timely minimum payments, youll risk late fees and may be subject to a penalty APR, in which the credit card company raises the interest rate on your unpaid balance. Once a penalty APR is issued, its likely to last a minimum of six months even if you make your subsequent payments on time.

    The longer-term impact of missing credit card payments is damage to your credit score. Regular, on-time payments account for 35 percent of your FICO Score, so do whatever you can to fulfill those obligations.

    If you miss one payment, however, dont assume the worst. Contact your credit card issuer, explain that you missed a payment, and ask if they can waive the late fee. Some credit card issuers automatically waive the late fee on the first missed payment, understanding that everyone makes mistakes now and then. Try to make up the payment within 30 days of the due date. Otherwise, you risk taking a credit score hit, calls from debt collectors and if you continue to miss payments, your credit card issuer might even close your credit card account.

    Should I Take Out A Home Equity Loan To Pay My Credit Cards

    A low-interest home equity loan or line of credit may be the right solution for you but be careful. If you find yourself heading toward bankruptcy, your primary residence may be exempt, in which case you are putting your home at risk needlessly. It is difficult to qualify for a home equity loan or line of credit, however, without reliable income. Youll also need a good credit score to qualify for the best interest rates.

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    Get What You Can For Free

    You have to give up some private information for this but try to see what you can get for free. Many companies offer free samples or even sometimes free items in exchange for some personal information. You can even make a new email address specifically for these promotions to avoid too much spam. Hip2Save,Slickdeals, and Reddit are all great places to look for free items and swag.

    Home Equity Loans / Helocs

    Unemployed and Stressed About Bills? This Strategy Can Help

    With these types of financing solutions, you borrow against the equity built up in your home. Equity is the fair market value of your home minus the remaining balance on your mortgage. You can generally borrow up to 80 percent of the equity you have available.

    With a home equity loan, you borrow a set amount of cash in a single lump-sum that you pay back over time. The payments on a home equity loan will generally start immediately. With a HELOC, the lender extends you a line of credit that you can borrow from as needed. Theres generally a 10-year draw period, where youll only be required to pay interest charges on what you borrowed. After 10 years, you must begin to pay back the principal debt.

    The risk of these two options is that both are secured forms of credit. They use your home as collateral. So, if you dont make the payments, you could be at risk of foreclosure. You should only consider this option if you have a high degree of certainty that you can secure a new job quickly to get your income back. And even then, its an increased risk that shouldnt be taken lightly.

    You may also have issues getting approved for these types of loans when youre unemployed. Verifying income to make payments is a requirement during the loan underwriting process. So, if you have no income to make the payments, you may not get approved at all.

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    Keep Making Minimum Payments

    Aim to continue making minimum payments on your credit cards and loans even when you’re unemployed. That way, you’ll protect your , which you’ll need to keep strong to get credit at competitive interest rates in the future.

    Since payment history is the most important factor in your credit score, a stretch of missed or late payments can have a significant negative impact on it. Consider minimum credit card and loan payments to be a necessary expense, like food and housing, as you create your budget.

    Make The Minimum Payment If You Can

    During times of limited income, keeping money on hand for the essentials is key. First, youll need to address mandatory expenses like keeping a roof over your head and food on the table. Then, if you can continue to make the minimum payment on credit cards, thats great. But if doing so would take money away from critical needs like food or shelter, you may end up missing a payment or two if your creditor doesnt offer support.

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    What Happens If I Cant Pay Credit Cards While Unemployed

    Relatively speaking, the implications of missing a arent dire. You may see a ding to your credit score if you cant make a full payment or miss one entirely. But failure to make payments on secured loans like your mortgage or auto loan could mean lenders may try to repossess your property.

    Thats why when youre struggling with how to pay off credit card debt without a job, its critical to work with creditors and prioritize what you can afford to pay. Unfortunately, that may mean you need to deprioritize debt consolidation while unemployed. Here are steps to take if you find you cant pay off your credit cards.

    Ask Yourself What Are Your Current Expenses

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    Look through your checking and credit card statements to see what you are spending money on right now. The average consumer spends almost $18,000 per year on purchases that arent essential, so there may be quite a bit you can cut back. Think about what you are paying for right nowgym memberships, streaming services, dining out, cable, and so on. When youve lost your job and cant pay bills, these are some of the first things you should cut. In other words, look at ALL the expenses you can eliminate. Dont worry you can sign back up with Netflix later and go back to trendy restaurants once your income recovers.

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    Choose The Right Poison

    The fact is, bills have to be paid, and food has to be eaten. We are lucky enough to live in an age where credit is readily available, albeit at a steep price. If you have to feed your family and there is no money coming in, you will have to put things on credit.

    This should not be an invitation to spend freely. Everything you borrow, you will need to pay back at one point. But you can, and should, pick your poison correctly. For example, certain credit cards offer 0% interest rates for a certain amount of months. Selecting a card like that can help you borrow money at no cost. .

    IMPORTANT CAVEAT: When those months are up, you will usually be hit with a tremendous interest rate that generally compounds from the cards start date. Therefore, you need to make sure that you can either pay when your 0% runs out or transfer it to a different card with a low-interest rate. THIS IS A VERY DANGEROUS GAME. Please only do this if you are desperate and dont have a choice. Playing with credit cards can backfire massively and cause a lot of financial harm in the future. Dont fool yourself into thinking that this is not poison. It is. Just pick the poison that will do the least amount of damage.

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