Out Of A Job? These Measures Will Help You Manage Debt

A survey by Finsafe India, a financial education firm has revealed that 29 per cent of respondents have said that they are not prepared to handle their debt in case of a job loss.

A job loss can come as a shock to many, as it means that one’s regular income suddenly stops. However, one can plan for it in several ways.

“Job loss is an unplanned event and for such events, one should always maintain an emergency fund of at least six to 12 months of expenses,” says Abhishek Kumar, a Securities and Exchange Board of India (Sebi) registered investment advisor (RIA), and founder and chief Investment Advisor of SahajMoney, a financial planning firm.

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What To Do

“The first step is to deep dive into your income, expenses, and debts. Make a comprehensive list of your monthly obligations, including rent or mortgage payments, utility bills, loan instalments, and credit card balances,” says Madhupam Krishna, Securities and Exchange Board of India (Sebi) RIA and chief planner, WealthWisher Financial Planner and Advisors.

Next, identify the areas where you can cut back, such as entertainment, dining out, vacations, or discretionary spending. Focus on critical needs like housing, food, and utilities. This budgeting process will free up precious funds to allocate towards your debt payments.

“The next step you have to step up and have open and honest conversations with your creditors. Most lenders recognize the challenges that job loss can bring to an honest person,” says Krishna.

How To Tackle Debt

“One should focus on the "avalanche method" or paying off high-interest debts first and then the low-interest debts,” says Kumar.

While focusing on high-interest debt, ensure you make minimum payments on all other debts to avoid late fees and penalties.

“Now that you have spoken to lenders, and streamlined the repayment priorities, it is time to make up for the lost income. This may include working temporarily and finding a long-term job in your industry. If eligible, consider taking on part-time work, freelance projects, or consultancy. Every little bit of additional income will help you to stay afloat and make progress on your debt repayment,” says Krishna.

Consider debt consolidation strategies, which can potentially merge high-interest debts into a single loan with a lower interest rate. Balance transfers can be used here to travel from high-interest to low-interest loans.

“Finally, you may consider working with debt management specialists or credit counselling services. These organizations offer expertise in budgeting, debt reduction strategies, and negotiation tactics, providing valuable support during this challenging time,” says Krishna.