Keeping up with bills and loan repayments can be challenging at the best of times. When something unplanned happens, such as losing your job, your financial situation can quickly become unmanageable.
Can you consolidate your debt when you’re unemployed? Here are some steps you can take to manage your money through unemployment.
Speak to your creditors
To give yourself some breathing space, contact your creditors and discuss financial hardship with them.
Many credit card providers, banks and other lenders offer grace periods where you do not have to make repayments for a set period of time. You may also be offered an interest freeze until a particular date, though not all lenders offer this.
Seek an alternative income
Even with a grace period, it is important that you begin to make repayments on your debts as soon as possible. You can find supplemental income whilst looking for new employment to keep your finances afloat.
Centrelink offers unemployment benefits for job seekers, and you could also consider using your skills to do ad hoc work for cash (though do make sure you notify Centrelink of any additional income you make).
Consolidate your debts
There’s good reason as to why so many people consider debt consolidation when unemployed. Consolidating your debts can make managing your debt easier, and is an option even if you are unemployed.
By combining multiple debts into a single loan (and therefore a single monthly repayment), you can lower the amount you need to repay each month. An additional benefit is the convenience of only dealing with one lender.
It is recommended that you seek financial advice before applying for a debt consolidation loan.
Improve your chances of being approved
Choosing the right type of debt consolidation loan, and preparing a diligent application will give you the best shot at being approved for debt consolidation.
While lenders are keen to find new business, they will want some assurance that you will be able to repay your loan, so your choices will depend on your particular situation.
If you have collateral, such as property, a vehicle or business, you can apply for a secured loan. Even without having an income, the lender will have security that if you default on your repayments, they will be able to recover some of their losses.
Unsecured loans are also an option, especially if your spouse has an income. Lenders take the total household income into consideration when determining whether to approve an application.
For the best chance of having your application approved, provide where possible a co-signer, references and even a down payment.
Be aware of potential traps
If you’re approved for a debt consolidation loan while unemployed, you should be prepared for a higher interest rate. Ensuring that you make your repayments on time, every time, will protect you from potential fees and defaults on your credit listing.
It’s especially important to not default on your loan if you have secured it with an asset, as the lender may seize that asset to recoup their losses.