What to do about debt if you lose your job

Money’s a big worry when you’ve been made redundant or lost your job – and you’ve got debts. Even if you’ve had a decent redundancy payout, keeping up repayments could put a strain on your finances. Here are some simple steps to help with your debt.

Step one – make a list of all your debts

List all your debts – including the ones you’d rather not think about. For example:

  • car loan
  • mortgage
  • utility bills
  • store cards
  • credit cards
  • Council Tax.

They’ll all need to be tackled at some stage. So you need to start off with a clear picture of where you stand.

Include the outstanding balances and how much you pay each month.

Step two – claim on insurance

  • Mortgage payment protection insurance (MPPI) will cover your mortgage repayments when you’re not earning for a limited period.
  • Payment protection insurance (PPI) will cover some or all of your loan or card repayments for up to 12 or 24 months.
  • Short-term income protection insurance will replace a proportion of your income for up to 12 or 24 months.

Find out if you might have previously taken any of these out. If you have, make a claim.

In the past, because of the way payment protection policies were sold, you might not realise that you have this cover.

Ask your lender whether your mortgage, loan or credit card is covered by insurance.

Step three – prioritise your remaining debts

Losing your job can easily tip you over from a situation where you were managing your repayments into one where they’re starting to feel out of control.

Start by being clear which of your debts are priority.

Priority debts

Things like your mortgage, your rent and any tax or utility bills are classed as priority debts.

If you don’t pay these debts, you might lose your home or be evicted, have your electricity or gas cut off, have essential items (such as your car) repossessed, or be faced with imprisonment in some circumstances.

Non-priority debts

Things like credit card bills, unsecured loans, bank overdrafts and catalogue debts are classed as non-priority debts.

The consequences for non-payment of these aren’t quite as severe. The companies you owe can’t take your home, for example.

At the worst, you could be taken to court and ordered to pay an amount that’s judged to be affordable from your income.

Step four – work out your budget

Get a clear idea of what you’ve got coming in and what’s going out.

The amount that’s left after paying for your:

  • household bills
  • living expenses
  • repayments and interest on anything you owe,

is what’s available to start paying off your debts more quickly.

Step five – start paying off your debts

On top of what’s left at the end of each month, you can also use redundancy pay or savings to pay off some of your debt.

It’s best to start with priority debts first.

Consider keeping back some of your redundancy pay to top up your income while you’re not working or to meet unexpected bills.

Need help?

If you want help managing your debts, there are various sources of free, independent advice and help.

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MoneyHelper is the new, easy way to get clear, free,
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Whatever your circumstances or plans, move forward with MoneyHelper.

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