There are ways to minimize the financial damage caused by a period of unemployment, but you need to be proactive.
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Being unemployed and in debt is never easy. What can become too easy is avoiding or ignoring the situation at hand. But don’t fall into that hole because it will only make matters worse. Instead, you need to take steps to help minimize any financial fallout so that you can recover as quickly as possible once you secure new employment. There are a few ways you can ensure your finances can quickly see the light of day again.
Step 1: Apply for federal student loan deferment and CNC tax status
Government-issued debts often have built-in solutions for people who temporarily can’t afford to pay. They essentially offer ways to stop or avoid collection actions on things like federal student loans and IRS back taxes. This will help minimize the issues you’ll face with these types of debt.
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 payday loans Arkansas. However, if you have subsidized student loans, the government will pay those interest charges for you.
Currently not collectible (CNC) status for tax debt
If you owe back taxes to the IRS, there’s a status that you can file for during a period of unemployment called Currently Not Collectible (CNC). This status lets the IRS know that you don’t have the means to make any payments towards your tax debt. It stops all IRS collection actions until you have the means to start paying off your debt. CNC status will not stop penalties and interest that the IRS applies to your balance, but it will stop things like bank levies and liens.
Step 2: Call your mortgage lender immediately
If you are a homeowner, then the biggest concern you need to have during a period of unemployment is keeping your mortgage current. If you default on a credit card, the worst thing that will happen is that they can take you to civil court. However, if you default on your mortgage, the lender can start foreclosure actions and you could lose your home.
The good news is that mortgage lenders generally want to avoid the expense and potential losses they face when a homeowner forecloses. So, they’re usually very willing to work with you, so you can avoid default. This is especially true if you contact them early before you start to miss payments.
It’s fairly common for mortgage lenders to grant forbearance to homeowners. This means they will temporarily reduce or stop your monthly payments altogether while you work to get back on your feet. This will take the stress of losing your home off your shoulders and give you one less bill to worry about.
Step 3: Call your loan servicers to make arrangements
Mortgages aren’t the only loan payments you may be able to temporarily pause. In fact, you should call each of your loan servicers (lenders) to explain your situation and ask if they have any options that can help you. Don’t treat lenders like collectors and attempt to hide! If you’re not making payments and they haven’t heard from you, they’re more likely to write you off as a loss. Then you’ll face collection threats and repossession.