5 Ways To Tackle Credit Card Debt While Unemployed
- Call your credit card issuer right away if you think you won’t be able to make your payment.
- You may be able to move your debt to a new credit card or loan with a lower interest rate.
- You can also try to negotiate to lower your balance via debt settlement.
- Some debt assistance programs come with fees.
Even if you’ve lost your job, you can still manage your credit card unemployed. You can look for a hardship program or find a low-interest loan or credit card to move your debt to. The key is to act quickly and make sure you keep paying your bills.
1. Ask about a credit card hardship program
If you’re struggling with credit card debt while unemployed, start by asking your card issuer if it has a hardship program. These programs may waive late fees or lower your interest rate or monthly payment if you have a financial hardship, like a job loss, long-term illness or severe accident.
How it works: Contact your card issuer’s customer service and explain your situation. Be prepared with documents to prove your hardship, as well as a budget to show how you can get back on track.
Be aware that you probably won’t be able to use your credit card while you’re in the program, and it may hurt your credit score temporarily.
Not all credit card companies offer hardship programs, and few advertise them. Some companies that do have this service include American Express, Bank of America and Capital One.
Who it may be best for: Those who have enough funds to cover a lower monthly payment.
Pros
- May lower your interest rate or monthly payment
- May waive late fees
- You work directly with your card issuer
Cons
- May not be allowed to use your credit card during the program
- May hurt your credit score temporarily
- Typically only lasts for six to 12 months
Anytime you look for help to reduce your debt, you should watch out for debt relief scams. If a debt settlement company or debt consolidation lender asks for money up front, tries to pressure you to take an offer or “guarantees” a settlement, it could be a red flag. Research any debt relief offer to make sure it’s legit.
2. Enroll in a debt management plan
A debt management plan is a repayment plan set up through a nonprofit, credit-counseling agency, and it can help make your monthly payment more affordable. The agency will help you lower your interest rate and create a monthly budget without needing to take out a loan. Debt management plans typically last three to five years, and there’s no minimum credit score needed.
How it works: Enroll in a debt management plan through a credit-counseling agency like American Consumer Credit Counseling, InCharge Debt Solutions or Money Management International. After a phone call to discuss your situation, the agency will work with your creditors to create a manageable repayment plan.
You’ll then make a single monthly payment to the credit-counseling agency, which will then pay your creditors on your behalf. You’ll likely need to close your credit card accounts and won’t be able to open new lines of credit during the program. There may also be a fee for the service.
Who it may be best for: Those looking to consolidate multiple debts into a single payment.
Pros
- Combines your debts into a single monthly payment
- Can last for several years
- No credit score requirement
Cons
- You may need to close your credit card accounts
- Restricted access to new credit until your repayment is complete
- May need to pay a fee for the service
3. Get a debt consolidation loan
A debt consolidation loan is a personal loan that you use to pay off multiple credit cards, hopefully at a lower interest rate than your existing credit card debt.
These loans typically require repayment within two to five years, with longer terms usually having lower monthly payments.
How it works: Many lenders offer debt consolidation loans. Compare offers from banks, credit unions or online lenders to get the best rates and terms. You might check your credit score first — if you have poor credit, you might try to get a secured consolidation loan (using an asset like your home or car) or try to find a cosigner.
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Who it may be best for: Those with good credit scores who can qualify for better loan terms.
Pros
- Consolidate debts into a single monthly payment
- Often has lower interest rates than credit cards
- Can improve your credit score if you make payments on time
Cons
- Must meet credit score requirements to qualify
- Rates may not be much better than credit card interest
- Loans may have additional fees or require collateral
4. Apply for a balance transfer credit card
Getting a new credit card for unemployed borrowers may sound risky, but if you can get a better rate and transfer your existing debt there, a new card can work in your favor.
Some credit cards let you transfer your debt balance and pay no interest for a time, usually 12 to 18 months. These zero-interest balance transfers can work well if you can pay the debt off before the interest kicks in.
How it works: Open a new credit card with a lower interest rate than your current card, or even better, with a zero-interest balance transfer promotion. You can then transfer your existing debt to your new card online, over the phone or with checks through the mail.
Watch out for balance transfer fees, which may be 3% to 5% of the debt you transfer. Also be aware that most balance transfer cards will still charge interest on new purchases — and if you start using your new card without paying off everything you owe, then you may have to pay interest on the full balance.
Who it may be best for: Those with good credit who can repay their existing debt within the promotional period.
Pros
- May offer zero-interest on balance transfer
- Can consolidate all your debt on one card
- Doesn’t require collateral
Cons
- Must meet credit score requirements to qualify
- May charge a balance transfer fee
- Interest may still be charged on new purchases
5. Consider debt settlement
Debt settlement is when your creditor agrees to accept less than what you, forgiving the rest of the debt. You try this on your own or through a company that offers debt settlement programs, usually for a fee. If you work with a company, be sure to research them beforehand, checking for complaints and with your state attorney general.
But beware that if the company can’t settle your debt, you might end up with additional penalties and fees, or even face debt collectors or lawsuits.
How it works: To try debt settlement on your own, you’ll need to contact your creditor directly and figure out a fair amount. Ask your creditor to send you any agreement you reach in writing.
If you work with a debt settlement company, it will usually negotiate a settlement amount with your creditors, and then you’ll set aside money each month in a designated account until you’ve paid off the settlement.
Money forgiven through debt settlement is considered taxable, as if you had received the funds yourself, so be sure to keep a good record.
If the settlement is successful, your slate will be wiped clean, but if the company can’t settle the debt, it could damage your credit score and maybe even result in a lawsuit. For this reason, be sure to research any debt settlement before working with them.
Who it may be best for: Those who can afford to put money aside each month to meet the settlement and who don’t qualify for any other relief options.
Pros
- No credit score requirements
- May be able to negotiate lower payment than what is owed
- No fees if done yourself
Cons
- Beware of dishonest debt settlement companies
- Can be severe consequences if settlement terms aren’t met
- Debt settlement companies can charge fees
Frequently asked questions
Yes, you can get a credit card while unemployed since credit card companies consider other income sources besides employment. However, if you have low income, you might not qualify for certain cards.
Credit companies can’t directly see your employment status since it’s not listed on your credit report. However, they may ask about your employment if you apply for a new card.
If you lost your job and can’t pay your credit cards, you should take action immediately. Your options include hardship programs, debt management plans, consolidation loans, credit card balance transfers or debt settlements. These strategies, described above, can help you manage a credit card unemployed.
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