Unemployed & Can’t Pay the Bills?

How many of you are tired of the COVID19 epidemic? Are you unemployed and can’t pay the bills because you work for a small company or are hourly?

I wrote this article to help those of you who feel like there is no place to turn. Follow the 8 steps to help you pay the bills while you are unemployed.

Plus your questions answered regarding borrowing from your retirement, following a debt settlement program, borrowing from a life insurance plan, and how to get health insurance.+

NOTE: anything highlighted in blue is a link to resources with further information on that subject to save you time researching.

Steps to Help You Pay Bills While Unemployed

There is nothing worse than being told by your employer that they are laying you off. How many years did you have that job; 2 yrs, 10 yrs, 40 yrs, etc?

What do you do now?

Below are the recommended steps to follow as soon as you find out you’ll be unemployed.

Step 1: Create a survival budget

This is exactly what it sounds like. You are creating a budget that helps to stretch out your cash for as long as you can.

These items below will also help you create a plan if you collect severance pay from your employer.

- Review your finances to see what your cash situation is.

Take note of all of your income resources. Savings, severance pay, unemployment benefits, etc

- Look at your expenses to see if you can reduce them.

Consider getting rid of cable, trade in your expensive cell phone bill for a cheaper one, find ways to cut your utilities down, etc.

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- Figure out which debts you will always pay every month.

Always pay your mortgage/rent, food, and utilities. Other bills such as credit card and personal loans may have to take a back seat when your funds get really tight. You may even want to give up your car if you have access to public transportation.

- Negotiate with your creditors to see if you can get deferred payments, lower payments, or lower interest.

There are even mortgage modification programs you can apply for. (click here to skip to the more detailed explanation below)

- Consider looking into public assistance programs.

Such as church charity groups, SNAP (Supplemental Nutrition assistance Program) formerly known as food stamps, WIC (Women, Infant, and Children) to help with providing food for toddlers and infants, Low Income home energy assistance programs (LIHEAP) to help with utility costs, etc.

Step 2: Call Creditors to ask about hardship programs and a mortgage modification.

Creditors do not advertise it but they have hardship programs to help you from defaulting on personal loans and credit cards.

All you have to do is tell them about your situation then ask how they can help.

Creditors are willing to negotiate because they want to collect as much of the debt from you as possible. Some money is better than no money.

Expected Effects of Job Loss On Your Mental Health

Unemployment, especially if you weren’t expecting it, can be the most stressful event that can take place in your life.

It can take a toll on your mental health as well as physical health. Seeing all of your future plans go right down the drain due to lack of income.

Worrying about how to provide for your family if you are deep in debt is enough to keep you up at night.

But what you are feeling is all normal.

The overwhelming feeling is being caused by more than one factor of losing a job.

You will be feeling:

1. 1. 1. 1. Lost professional identity
      2. Lower self-esteem and self-confidence
      3. An interruption of your daily routine
      4. Aimlessness without a purposeful activity
      5. Cut off from a work-based social network
      6. Lost security

These are all normal.

What you need to know is that unemployment is not forever. Keep telling yourself this is only a temporary situation and keep hitting the pavement daily to find a new position.

Also, be aware the below feelings of grief are normal:

1. You feel like:
  - You have to make quick unexpected changes
  - Upset, angry, depressed, or off balance
2. This situation is only temporary so make your inner critic go easy on you
  - When you get knocked off of the horse get back on again no matter what

Try starting a journal to write out how you are feeling from day to day. This is the best way to work through this difficult time.

It will also help you get some of your dangerous feelings, such as depression, out of your system.

This will help increase your motivation as well as sharpen your focus for what needs to be done to get you back on track again.

How Mortgage Modifications Work

I know I mentioned Mortgage Modifications earlier but what the heck is it?

Basically, it is a hardship program to help you keep paying your mortgage during your unemployment without losing your home.

This is also a great option if you are trying to avoid bankruptcy.

Here are a couple of options mortgage companies don’t advertise:

1. Home Affordable Unemployment Program (UP)
  - Qualification for this option requires you to be actively job hunting.
  - This program allows for your mortgage payments to either be temporarily reduced or suspended for at least 12 months
2. FHA Special Forbearance
  1. You must be unemployed without any other income
    - No side jobs
    - No part time work
    - Not even a rental property (you get the idea)
  2. The FHA requires your mortgage company to give you a forbearance period up to 12 months. Hopefully after 12 months you have a new job.
  3. Your mortgage payments will either be lowered to be more affordable or suspended all together for 12 months.

I know what you may be thinking at this point. Why would my creditors work with me regarding lower or no payments when I’m out of work?

A company would rather have some of the payment rather than none at all. Things such as bankruptcy or debt relief programs cost the company more than designing a hardship program for you.

Plus if they help you now you are more likely to get a new reliable job faster as well as repay your debt in full.

Healthcare Options While Unemployed

Photo by Lelia Milaya

How many of you are scared to death about healthcare options when you are unemployed? Especially when you are unemployed for 6 months or longer?

To be honest being unemployed terrifies the heck out of me as someone who has asthma, relying on 3 inhalers.

Did you know that nice little medical device costs $400 each without insurance? Yikes!

Ok, here is the nitty gritty. You will want to complete a healthcare application with the online marketplace after your employer’s healthcare coverage ends.

It doesn’t matter what time of year it is. This is a life changing event so you don’t have to wait for an enrollment period.

With that said you only have 60 days to apply with the marketplace once your employer’s coverage ends. Keep in mind when completing the application your unemployment checks is considered income.

After you complete an application with the healthcare marketplace online you’ll find out if you qualify for:

1. Marketplace insurance
  - This option allows healthcare tax credits, lower deductibles, lower co-payments, and reduced costs of other out of pocket costs.
2. Medicaid
  - Approved for families considered to have limited income and disabilities. (You must qualify for both)
3. Children’s Health Insurance Program (CHIP)
  - This coverage is specifically for the children in your household (some states will include pregnant women) if your family is considered low income
  - You also qualify if your family’s income is too high for Medicaid benefits and too low to pay for private insurance.

What If I Don’t Get Severance Pay

I wanted to discuss this because some of you may be receiving severance pay without realizing it. Severance pay can be reimbursement through payroll checks or using vacation time instead of being reimbursed financially for it.

Some of you coming from higher paying office jobs could be receiving a hefty lump sum over a 6 month period.

I want you to understand that until you use your last vacation day or receive your last paycheck from your company you are not eligible to apply for unemployment pay or unemployment health insurance.

You are still considered an employee whiling using these benefits.

If you do not fall under any of the circumstances I just mentioned here is what I want you to do.

1. I want you to find out when you receive your last paycheck from your company and mark a reminder on your calendar.
2. As soon as you have that last check apply for unemployment pay.
3. Then go to the top of this blog to start following the unemployment steps.

Consequences of Borrowing From My Life Insurance Policy

If you have been planning your future for a while you may have access to a life insurance policy. But you need to understand the details as well as the consequences that will occur if you borrow from it.

I always think it is better to be forearmed rather than forewarned.

Permanent or whole life insurance policies only:

These are policies without an expiration date. If your policy runs out in 1 to 30 years you are not eligible to borrow from it.

You also have to wait for the “death benefit” to be met before you have an invested piece. It is the excess cash the insurance company invests after your death benefit has been paid that qualifies you to borrow from it.

What makes these loans dangerous is the fact you don’t have to provide a reason to borrow. The funds can be used for any type of expense or even a vacation.

Consequences of borrowing:

Once you borrow from the invested cash your death benefit has a lien placed on it. This makes the insurance policy collateral for the loan.

The death benefit is the piece that covers all of your funeral costs and provides anything remaining to your family to pay off debts.

The insurance company will also charge you interest just like a student loan. However, they will not set a repayment schedule for you.

You will have to do that task on your own. Make sure you send in monthly payments that you can afford.

If you do not pay the loan back before your invested cash piece runs out your entire policy will be considered lapsed.

If the insured person dies before the loan is paid in full the death benefit will repay the original loan plus the interest owed. This may not leave enough to pay for the funeral or give an inheritance.

How this affects your credit history and Taxes:

Believe it or not this loan will not affect your credit history. The approval process does not require a credit check since you are technically borrowing from yourself.

This is also a tax free option. The IRS does not currently recognize this loan as income; as long as you repay the loan.

If your policy winds up in lapse status due to failure to repay the loan the IRS will then tax you on the entire loan cash value; the original loan amount plus the interest charged.

If you decide to take this route make darn certain you will be able to pay the funds back.

Consequences of Borrowing From My IRA or 401(K)

Photo by Tatiana Maramygina

This one does have limits to borrowing. If you are unemployed check to see if your 401(k) has a hardship withdrawal option.

You will be charged a 10% early withdrawal fee but the amount you borrow can be increased to cover that payment as well as the taxes you’ll be charged on your income taxes.

Qualifications for hardship withdrawal are:

1. If you are paying medical expenses
2. Avoiding eviction from your primary residence (also referred to as principal residence)
3. Purchasing a primary residence; your down payment
4. Paying for a higher education

If you are using this withdrawal option you will have to show valid proof of the need for the money. The investment company will give you further instruction on what they consider to be proof of need.

When you borrow from your 401(k) it is considered income. You will need to pay taxes on it.

As I mentioned earlier in this post, I borrowed $4,000 to cover taxes and the down payment for my house from my 401(k). The taxes I was charged for that withdrawal was $800.00.

Concluding Thoughts

If you are unemployed or going to be consider taking a part time job in order to keep some form of cash coming in. This will help you pay bills as well as keep enough time free to job hunt for a more permanent position.

Follow the 8 steps provided above to prioritize your budget. They will also help you prevent defaulting on your debt for as long as possible.

Also, make sure to plan on job hunting for up to 6 months as a worse-case scenario. It takes time to find a position as full filling as the one you were let go from.

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Unemployed & Can’t Pay the Bills?