When you lose your job and no longer have a steady income, it’s tempting to fall back on your credit card as a way to make ends meet. It seems like free money you can rely on when you have no source of income.
Unfortunately, this money isn’t free. It can come at high interest rates, and if you find you can’t handle this debt responsibly, you may inadvertently damage your credit. You’ll want to open a credit card for bad credit if your FICO scores are still low.
The best-case scenario is having savings to fall back on. If you don’t have an emergency fund, follow these tips while you’re unemployed.
1. Don’t miss a payment
One of the keys to maintaining good credit while you’re unemployed is to continue paying your credit card bill on time. Failure to do so may not only result in a penalty interest rate kicking in (which can be as high as 30 percent) on future purchases, but it can damage your credit score.
Many employers check credit scores in the job screening process, so a bad credit score can hurt you in the job search.
2. Avoid maxing out your credit card
Your debt utilization ratio is an important factor in your credit score; this refers to what percentage of available credit you are using. It’s ideal to utilize less than 30 percent of your credit limit at any given time.
If you overly rely on your credit card while unemployed, you can harm your credit. If you go over the limit (max out), you can incur fees and end up with a penalty rate, depending on your credit card.
“Consider finding short-term ways to make
money to ensure your bills don’t go unpaid.”
3. Reach out to your creditors
Are you struggling to make your credit card minimum payments or pay your bills on time? Call your creditors to let them know you are unemployed and want to inquire about a payment plan.
You may be surprised how many companies will be willing to work with you and set up an alternative payment plan until you are no longer unemployed.
Your credit card company may lower your minimum payments or give you a longer deadline for bill due dates.
4. File for unemployment
Make sure to find out if you are eligible for unemployment benefits, as this income can help you get by until you find new work. Note you will not qualify if you were fired or left willingly. These benefits are geared toward people who have been laid off.
5. Find other ways to earn income
As you are pursuing your job search, consider finding short-term ways to make money in the meantime to ensure your bills don’t go unpaid and harm your credit.
This could be babysitting, doing odd jobs for neighbors, painting, writing, graphic designing, event planning for a friend’s wedding or any other type of work that can put cash in your pocket right now.
Photo source: shawnwhatley.com
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