How to Pay Your Bills When You Lose Your Job

It's hard to predict when you might be out of work. Pandemics, recessions, bear markets, business failures, and various other crises have been responsible for layoffs and unemployment in the past. And even when you're out of work, the bills keep coming. Filing for unemployment, credit cards, lines of credit, prioritizing bill payments, and state assistance programs are just some of the options available that can help you manage your bills while you're between incomes.

Where to Turn for Money

Unemployment Insurance

When you find yourself out of work, the first step you should take is registering for unemployment. Each state has a different registration process, so you can contact your state's Department of Labor, Department of Commerce, or whichever department handles unemployment insurance. If you're having trouble finding it, you can search Benefits.gov for your state's information.

Credit Cards

Normally, the ideal way to handle credit cards is to pay your balance in full each month and avoid the often-exorbitant interest charges when possible.

However, if cash is in short supply, running a balance on your credit card for a few months may be a practical option. If you have multiple credit cards, start with whichever has the lowest interest rate. If you reach your credit limit on that one, move on to another. But remember, we’re talking about necessities here—not a shopping spree.

You should aim to pay at least the minimum balance due on your cards each month. If that’s a problem, some banks and credit unions allow customers to defer payments while waiving their customary penalties. So it’s worth checking your credit card issuers’ websites to find out what kind of aid they offer and how to apply. The best time to do that, and make the necessary arrangements, is before your next bill is due, not after.

Debit Cards and Checking Accounts

The amount you can charge to a debit card is typically limited to the balance in your checking account. However, you may have a credit line attached to your checking account that you can dip into once your balance hits $0.

Checking credit lines, or overdraft lines of credit as they’re often called, are usually small, and you’ll have to repay the money with interest. But it’s another source of cash in a pinch, and there's a chance your bank might increase your credit line if you ask.

Retirement Accounts

Raiding a 401(k) or similar retirement account before you retire is usually a bad idea. However, if that's where most of your savings are, it might be your only option. There are two ways to take money out of a 401(k)—loans and withdrawals. Each has pros and cons:

• 401(k) loans: You can normally borrow money from your 401(k) and pay it back over a specified period, typically five years. It's worth remembering that the money you borrow will no longer grow tax-deferred. And if you're unable to repay the loan when it comes due, you'll face additional penalties.
• 401(k) withdrawals: Simply withdrawing money from your 401(k) is another option, but it's usually worse than a loan. You'll owe income tax on whatever amount you withdraw and may be subject to a 10% penalty by the Internal Revenue Service (IRS). However, there are exemption situations where the IRS waives the 10% penalty, which an unemployed person experiencing hardship may qualify for.
  

529 Plans

If you have money in a 529 college savings plan for yourself or a child, you can withdraw it for any reason. However, you’ll owe income tax plus a 10% tax penalty on the earnings portion unless you spend it on qualified educational expenses.

If student loan payments are on your current list of bills, note that, as of 2019, they count as qualified educational expenses, up to a $10,000 lifetime limit.

Prioritize Your Bills

If you’re facing a stack of bills without a corresponding stack of cash, it’s time to prioritize. Food is likely to be high on your list, along with shelter, which includes mortgage or rent, and utilities.

Food

You’ll need ready cash or a debit or credit card for food. However, if your funds are low, you may qualify for the Supplemental Nutrition Assistance Program (SNAP). If you're pregnant, a mother, or have children under the age of five, you may also qualify for the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC).

Rent

If you are a renter unable to afford your next payment, you may wonder how to keep that roof over your head. Consider chatting with your landlord about it as soon as possible. Your landlord may be willing to delay your rent or allow you to make partial payments. Bear in mind that your landlord may also have money troubles—especially if they’re a person and not a large company.

You might be able to find rental assistance in your state. Many of the rental assistance programs created in response to the COVID-19 pandemic have been sunsetted or run out of funds, but your state might still be taking applications or have other programs available.

Mortgage Payments

If you have a mortgage on your home, contact your loan servicer. Many banks allow borrowers to postpone payments for a period or offer other types of relief. If your mortgage is federally backed, you may be eligible for forbearance, which typically allows you to postpone payments for up to a year, and 18 months in some cases. There are also additional options for mortgage relief, such as your state's Homeowner's Assistance Fund program. Your state may also have a housing counselor you can talk to, to learn more about assistance.

Car Loans and Leases

Contact your lender or leasing company if you have a car loan or lease. Many auto companies and other lenders have emergency programs that will let you defer payments for a month or more.

Car Insurance

Some insurers allow customers to put off paying premiums for a period without canceling their coverage. Check with your insurance provider to determine what options are available to you. Make sure you don’t take the risk of going uninsured.

Student Loans

Student loan borrowers have some help if they're low on funds. The Saving on a Valuable Education plan offers help to anyone with federal student loan debt and an income of less than $15 per hour. If you qualify, you won't need to make payments on a federal student loan.

This updated income-driven repayment (IDR) plan goes into effect on July 1, 2024. With this IDR plan, single borrowers with incomes of less than $32,805 per year ($67,500 for a family of four) will not need to make payments. If you're already enrolled on the REPAYE plan, you're automatically enrolled in the SAVE plan.

Keep in mind that these provisions only apply to federal student loans. This means if you owe money on private student loans and have trouble making payments, contact the lender or loan servicer to find out if it has a similar program or other kinds of assistance.

Utilities

Check your gas, electric, water, phone, and internet providers' websites to see whether they offer special payment plans to help you conserve cash. Additionally, some low-income families may qualify for the Low Income Home Energy Assistance Program (LIHEAP), which grants funds to offset the cost of heating and cooling bills for qualified candidates. Although a federal program, LIHEAP is administered by the states and tribal councils.

Protect Your Credit Rating

Now may not be the time to fret unduly about your credit score. However, there are some steps you can take to make sure it doesn’t take too big a hit. For starters, try to make at least the required minimum payments on your credit accounts and do so by their due dates.

After the Crisis Is Behind You

You’ll need to reprioritize once you’re back to work. In addition to abiding by whatever repayment agreements you reached with your creditors, aim to pay down any credit card balances you’ve accumulated, starting with the highest-interest ones first.

This is also an opportune time to start an emergency fund or replenish it if you had one and depleted it. Generally, it's smart to set aside at least three to six months' worth of living expenses in a liquid account, such as a bank savings account or money market mutual fund, that you can draw on as needed.

The Bottom Line

Many people go through periods where they're between jobs, searching for ways to pay important bills and living expenses. Most types of entities you make payments to are willing to work with you until you get back on your feet financially, especially if you've been consistent with your payments in the past.

While federal and state governments have programs designed to help individuals between jobs, the best thing you can do to help yourself is to save as much as possible in an emergency fund while you're still working. Also, use the resources discussed here to create a plan for covering expenses for the times you're operating under a reduced income.