How Do I Manage My Debt When I Am Unemployed?

Managing your debt repayments when unemployed is a concern many of us face. The recent pandemic has led to a huge breakdown of the economy and has led to rising unemployment. Millions of people are struggling financially. For many South Africans, rising debt needs have replaced rising income levels. If you find yourself in this situation, how do you pay your debt when unemployed?

If you’re recently unemployed with a pile of debt, you need to assess your situation, create a financial plan and make decisions accordingly. Financial planning is essential if you want to stay on top of your game.

Understand your rights

Making ends meet is tough when you lose your job. There are several government assistance schemes that can help you during this time. The Unemployment Insurance Fund (UIF) offers financial relief to those who have lost their jobs. You can also apply for the COVID-19 Social Relief of Distress grant created by the South African government. Apart from this, South Africa also has the SASSA Child Support grant to assist with caregiving of children.

The UIF can be a windfall when you become unemployed. To ensure you receive UIF, you need to register at a South African labour centre. When you are employed, both you and your employer contribute towards UIF. Make sure your employer is doing so, and this can be checked by simply examining your payslip.

Plan your budget

The best time to create a budget is before you need one, and the same thing goes for cutting costs. No matter what your finances look like right now we recommend that you cut down your expenses as soon as possible and start saving.

When building a budget, prioritise your debt payments before other expenses so that you don’t fall behind. If you don’t pay your monthly debt repayments, your credit score will decrease and you’ll end up in more debt. Continue making the minimum amount of repayments on time until the debt is fully settled.

Budget your way through unemployment

Budgeting is a fairly simple and straightforward process and if done correctly, it can even help you get out of debt.

Below, we have created a list of additional things you should consider when creating a budget. Here are some of the easiest ways to cut back on your monthly spending:

  • Batch cooking - Cooking large quantities can drastically reduce costs and waste. Batch cooking once a week and freezing meals in separate containers can save you an incredible amount of both time and money.
  • Avoid takeaways - Many people turn to takeaways because they are convenient. They are, however, not cheap. It's best to try and avoid buying takeaways as they can become expensive, especially if you’re buying for more than one person.
  • Cancel unused memberships and subscriptions - Rid yourself of any non-essential subscriptions or memberships that you want to use, but never do. This may be a gym membership or a subscription for a magazine or another publication. Rather cancel it and save yourself some money. You can always rejoin when you can afford to.
  • Coffee - All the small things add up! That takeaway coffee can add up to a substantial amount of money each month. If you’re buying a coffee for R30 four times a week, that’s nearly R500 spent on coffee. Rather make yourself a cup of coffee at home.

Reach out to creditors

If you’re struggling to afford your monthly debt repayments, ask your creditors how they can assist you during this time. Some creditors will offer a repayment holiday, if you have been paying your bills on time every month. Other creditors may temporarily reduce your repayment amount. The best way to find out how your credit can help is by reaching out and making your creditor aware of your situation.

Debt Counselling

In some cases, consumers find themselves deep into debt by the time they find a new job. If you find yourself in this position, you may need professional help. Find the right debt counsellor who can take a look at your financial situation and give you the best possible advice

If you are having trouble keeping up with all of your debt payments, there are ways to make it easier. If you qualify for an income-based repayment plan, then your monthly payments will probably be less than before. The potential lower monthly repayments can be used to cover other expenses.

Tips to help you manage your money

Just as you take care of your physical health, you need to take care of your financial health too. The good news is that it’s never too late! Here is a list of ways to help you manage your money:

  • Track your monthly spending - We’ve all been in a situation where we look at our bank balance and think “where did all my money go?” If this has happened to you, then you may need to adjust your spending habits. The easiest way to track your spending habits is to check your bank statement. Many banks also offer a service where you can do this directly on the mobile app. By tracking your monthly spend, you can see exactly how much you are spending on things like groceries, clothing and transport.
  • Create a budget - Now that you know exactly how much you spend each month, it’s time to create a budget. Having an accurate budget is vital, even for those who are not struggling with their finances. A budget shows you exactly where your money is going. Be sure to leave some room in your budget for any unexpected expenses that may arise during the month.
  • Create an emergency fund - Yes! You heard it right, an emergency fund. This may be news for some, but an emergency fund is a vital tool to safeguard you (and your budget) against any large unexpected expenses that may pop up. An emergency fund will help you save a ton of money. Instead of having to rely on your credit card, which has high interest rates, you can rely on your emergency fund for these larger expenses. Don’t let those unexpected expenses catch you off guard, you won’t be smiling. Emergency funds are especially important if you have debt, as they can help you avoid borrowing even more money. The ideal emergency fund should have at least three months worth of living expenses, however, the more you save, the better.
  • Prioritise your debt - It should come at no surprise: Debt makes it incredibly difficult to manage money, this is why it is extremely important that you try and get it under control as soon as possible. It’s never easy to deal with debt by yourself, that is why debt counselling exists. Not everyone can handle their debt by themselves, sometimes all we need is a little help to get our life back on track.

Managing debt can be a real challenge, especially during unemployment. Sometimes you need to make sacrifices in order to get your finances in a better place, this means adjusting how you spend your money. This will be the case whether you are out of work for a short period or if you are unemployed for an extended period of time. Get in touch with Credit Health should you need any help with your financial situation.


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