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How Can I Handle Debt If I’m Made Redundant?

Losing your job can completely turn your world upside down. Whilst you may receive a redundancy pay-out, this can take between three and 12 weeks to reach your account. However, if you have been employed by the company for under 2 years, you are not entitled to anything. So, what can you do between jobs if you’re in debt?

What debts do you have?

Put your practical hat on and make a list of all the money you owe and prioritise your debts in terms of importance. Having a clear picture of what you owe can help you not only see the companies you need to contact but the outstanding balance you hold with them too. Often debts can include:

  • Mortgage
  • Car finance
  • Household bills
  • Credit cards
  • Store cards
  • Council tax

Whilst all debts are important, your mortgage is likely the one you will want to tackle first. However, when you have been made redundant money can be scarce, particularly if you are not eligible for a pay-out.

How do I pay my mortgage?

Get in touch with your mortgage provider immediately and explain the situation; they will appreciate your honesty. Your provider will likely suggest a mortgage payment holiday, this is an agreement between both parties where you temporarily stop making mortgage payments or the amount is reduced. Once this period is over, you will start making regular payments again.

Alternatively, if you have taken out mortgage payment protection insurance (MPPI) or short-term income protection (STIP) you will be able to make a claim on your insurance whilst you aren’t earning. You can contact your lender and ask if you have any insurance on your mortgage.

How do I know which are priority debts?

Before you were made redundant it is likely that you were managing your debts and were in control of your finances. Redundancy can result in monetary pandemonium which only adds to the stress of the situation. Separating your debts into priority and non-priority could be a huge help when trying to make a plan of action.

Priority debts

As we have discussed, your mortgage (or rent) is your number one priority when it comes to debt during redundancy. Similarly, anything where something can be taken from you should be considered a priority debt. These could include:

Fail to repay these debts and you could end up having your home repossessed or face eviction from your landlord if you’re renting. Your car may be reclaimed and household utilities cut off until your debts are cleared.

Non-priority debts

The consequences for not meeting non-priority debts straight away are not so frightening. However, this does not mean there cannot be substantial implications if the debt is ongoing or not addressed. Some non-priority debts include:

  • Overdrafts
  • Credit card payments
  • Unsecured loans
  • Store cards

Whoever you owe money to can go forward with legal proceedings to get the debt paid. You could be summoned to court and the judge would then make a decision based upon the debt and your current income as to what you can afford to pay back.

What is my monthly budget?

If you are living off savings or receiving financial help from family or friends during a period of redundancy, working out a budget will give you a clear picture of what’s coming in and going out.

Create a list of all your unavoidable expenses and tally them against the money you have coming in. If you have any leftover income you could use this to chip away at your debts, starting with priorities.

What can I do if I need income fast?

Sometimes, during testing times, people often have little choice but to part with some of their assets. Many people downgrade their cars or sell them all together and rely on public transport. Others downsize their homes or sell them and move in with family or friends until they get back on their feet. Selling your home should be the last solution if you are facing financial problems, but it is possible to sell your property quickly should it be the option you chose. If you are confused or are unsure of how to handle your finances you can receive free help from the Citizens Advice Bureau, National Debtline or StepChange.

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