Getting laid off is tough, period. No matter your job title, it’s often very shocking and disheartening to find out your company is letting you go. While it’s not a direct reflection on you, it’s still a very difficult situation to handle. The truth is, layoffs tend to stem from factors outside of most employees’ direct realm of control. Most industries are moving at breakneck speeds these days, and companies find themselves in the middle of a competitive marketplace.
What you do have control over is how you defend your personal finances after being laid off. There are a few things you can do to make sure the end of your job doesn’t mean the end of your financial security.
Should You Save or Pay Off Debt?
As USA Today reports, the average American household carries $16,883 in credit card debt alone. There’s also the average $29,539 in auto loans and $182,421 in mortgages to consider on top of that figure. If you’re amongst the ranks of the majority of consumers with some kind of debt, then you know those balances exist whether or not you’re bringing in steady income. In other words, there’s no “pause” or “stop” button on outstanding balances, even if you’ve just been laid off.
Your next question is probably whether you should prioritize debt repayment or saving in the wake of a layoff. It depends. If you still have your job but suspect you’ll be laid off soon, then saving is your number one priority. You’ll want at least six months’ worth of living expenses in the bank.
However, “in general, it’s better to pay off debt rather than save your money, assuming you have a sufficient emergency fund in place.” This is because debt tends to compound thanks to interest, so you’ll find yourself continually deeper in the hole if you don’t find a way to address your debt. So, an integral part of defending your finances in the wake of a layoff is figuring out how to best tackle your debt.
Exploring Debt Elimination Options
Keeping up with your minimum payments is important because it staves off late fees. However, this does nothing to actually reduce debt. For that, you’ll need to strategize. The first step is budgeting assertively to wring every last cent out of your remaining funds. From there, you may decide to:
- Debt avalanche: Pay the minimum balance on all debts while putting more money toward whichever balance has the highest interest rate. Once you’ve paid it off, focus on the next-highest interest rate. This helps you avoid racking up interest.
- Debt snowball: Pay the minimum balance on all debts while putting more money toward the smallest balance. Once you’ve paid it off, focus on the next-largest balance. This helps you earn victories as you go so you’ll stay motivated.
- Debt settlement: If you’re unsure how to pay back thousands of dollars and are already getting collection calls, a structured program may help. You’ll make monthly deposits into a special account you control; once you’ve saved a certain sum, trained negotiators from your debt settlement company will contact your creditors seeking a lower settlement. If you’re curious about a given program, be sure to read testimonials before enrolling, i.e. Freedom Debt Relief reviews. This will help you learn more about the genuine client experience.
- Debt consolidation: Taking out a lower-interest, fixed loan and paying it back over the long term may be more manageable than trying to juggle multiple higher-interest loans for someone dealing with the aftereffects of a layoff.
Generate Interim Income
Even if you’re not able to land a full-time position right away, you may need to generate interim income to pay off your debt and pay your bills. One Forbes contributor managed to pay off $1,500 in credit card debt and save $1,200 after being laid off—but only because she offered her freelance services and set aside a fixed amount from these interim paychecks for saving and paying off debt.
Defending your personal finances after being laid off is a matter of minimizing your expenditures and devoting what you can to paying down debt and saving for emergencies.