A reader asks:
Help! I have just been made redundant and I don’t know how I am going manage, especially as we have debts. I’m only getting a few weeks redundancy pay. What should I do?
A lot of firms are closing or going under in 2023.
Contents
Your employment rights
If your firm has just closed suddenly, you may be worried about:
- getting paid for the weeks you have already worked;
- paid for holidays you haven’t taken and the notice period you should have had: and
- be unsure if you will get redundancy pay.
Your local Citizens Advice can help to understand what you should get.
If you are owed some of these but don’t get paid them, you may be able to claim the money through the government’s Insolvency Service. Claim for redundancy and other money you’re owed by an employer is a gov.uk page that explains what to do and has a helpline.
The 4 steps to take
Unless you can easily get another job, your top priority is to stabilise your finances whilst you look for work.
Don’t delay starting this. A few weeks feeling depressed followed by a few weeks starting to make job applications will run through almost all your savings or max out your credit cards.
Benefits take time to be processed, so get applications going asap. Don’t wait until you have actually run out of money.
You are going to need the redundancy money to live on – for priorities such as food, bills and housing – not for paying off debts.
So here are the four steps to take.
1. Look for easy ways to reduce your expenditure
The less you spend on non-essentials now, the longer your redundancy money is going to last. When you get another job you can start spending again, but for now, think of yourself as being on a “war footing”.
For many people, food spending, eating out and takeaways are one of the easiest places to make large reductions. Look at stopping charity donations, Sky, gym membership, Spotify, magazine subscriptions etc.
2. Benefits whilst you are out of work
Benefits depend on how much National Insurance contributions you have paid and on your household income. Turn 2 Us has a good online benefit checker.
As a rough guide:
- If there is little or no money coming into your household, many people should apply for Universal Credit (UC).
- UC has an element that helps cover your rent – this replaces Housing Benefit if you were getting that before.
- UC also has an element that covers children’s costs, so it replaces Child Tax Credit.
- If you have paid enough National Insurance you will be entitled to New Style Job Seekers Allowance for six months even if you have a partner who is earning a lot or a lot of money in the bank.
- If you have a mortgage, you won’t be able to get help with your mortgage costs until you have been on UC for 9 months (this may soon reduce to a more reasonable 3 months) and during that time neither you nor your partner has earned anything.
- If your household now has a low income, you should be able to get Council Tax Support – apply through your local council’s website.
You may also be entitled to some of the income tax you have paid since April (the start of the tax year) back when you have been unemployed for 4 weeks. See Claiming your tax rebate after losing your job for how to do this.
But your situation may be complex, especially if you or anyone in your family is getting any disability benefits, if you have a redundancy money, or you are currently getting tax credits:
- some people already getting tax credits and housing benefit may be better off not switching to Universal Credit (UC) – if you apply for UC you can never go back to getting the previous benefits again.
- it may be better to apply for new style JSA rather than Universal Credit.
- if you get a large amount of redundancy, it may be better to delay your UC claim until the month after you receive the redundancy pay.
Your local Citizens Advice can help you look at all the options, what to apply for and when to do this.
3. Put your debts on hold
Because of the cost of living crisis, you should find lenders and debt collectors are very sympathetic.
if you already have debt arrangements, these need to change:
- in a Debt Management Plan, tell your DMP firm that you have to pause monthly payments until you get a new job;
- you have already made payment arrangements yourself with your creditors, phone them up and ask to pause payment;
- in an IVA, talk to the IVA firm immediately about your loss of income and the redundancy pay, see what happens in an IVA when you are made redundant.
If you don’t have debt arrangements in place, you need to consider them now unless you are confident about getting a new job quickly.
It’s better to take action on your debts – if you carry on spending on your credit card until it is maxed out, or borrowing to be able to make debt repayments, your situation is getting much worse every month.
For unsecured loans, credit cards and catalogues this is easy – you can ask to make token payments until you are back in work and for interest to be frozen. And ask your bank to halt charges on an overdraft.
These may allow to you manage paying your priority debts (mortgage, car finance) and essential bills (rent, energy, council tax etc)
If you don’t have enough for these priorities even if you pay nothing to your other debts, talk to Citizens Advice urgently about your options and how secured lender may help. Don’t wait until you are already in arrears.
4. Start job hunting
Then you can turn to job hunting, hopefully feeling that your finances may not be great but they are under control.
Tell everyone you know you are in the job market – don’t rely on the Job Centre to come up with ideas for you:
- think about getting a LinkedIn profile;
- smarten up your CV. Get some else to look at it for spelling errors or just how well it reads, perhaps an ex-colleague or boss;
- if you didn’t enjoy your previous job, is this a good time to think about re-training?
Review your debts after a few months
If the job search isn’t going well after a few months, and your debts are large you may want to review your debt options and look at alternatives such as a Debt Relief Order or bankruptcy.
If you are young then it may make sense to delay taking such final decisions, but if you are older, getting a well-paid job may seem unlikely so will you be able to clear your debts before you retire?
Do not start an IVA when your financial situation may change – IVAs are being mis-sold by firms because they get large amounts of fees from them. It may sound great (“write off 80% of your debts!”) but what the IVA firms don’t tell you is that:
- If your finances get worse, your IVA may well fail. More than a third of IVAs do.
- If they get better you can end up paying back a LOT more then the current total of your debts.
If anyone recommends an IVA to you, put the phone down and talk to either National Debtline on 0808 808 4000 or your local Citizens Advice.
What if you get a large amount of redundancy money?
You may think £5,000 is large if you have never had that much money in the bank before. But if you can’t get a job soon, it may not last long, so follow the steps above and use the money to live on until you do get another job.
Here I am talking about much larger amounts.
Most of the above advice on the four steps applies even if you get a large payout, with two exceptions:
- if you have over £6,000 in the bank means-tested benefits are reduced and over £16,000 you won’t get them at all. This includes Universal Credit and its help with housing costs. But you will still be able to get “new style JSA” for 6 months because you have been paying National Insurance – that isn’t means-tested.
- with a lot of money it is usually sensible to immediately clear any priority debts – rent/mortgage arrears, council tax arrears, utility bills etc.
- don’t pay off credit cards if you know you are going to struggle to afford to pay the mortgage or car finance.
If your other debts are small compared to the money you have, it may be worth clearing them. So if you get a payout of £12,000 and you have a small loan left and a credit card that add up to only £2,000, then many people would just like them gone.
But if the other debts are large, think twice and talk to a debt adviser first – it may be a nice feeling to be debt-free but if it’s going to take months until you find work, you may need that redundancy money to live on.
Can you really offer just £1 to a debt?
Are you about to run out of money?
Options when you cant pay bills & debts
Nick says
I am being offered about £8,000. I don’t think I will get any benefits as wife earns too much. I’m in debt plan and I’m going to try to use the money to settle all the debts. Does this sound sensible? What can I say to persuade them?
Debt Camel says
hi Nick, that could be a good move if you aren’t going to need that money to live on? You don’t want to clear your credit card debt and find that you can’t afford the rent or mortgage. Have a look at the Full & Final settlement page for how to make this offer.
HAIDER says
I have been out of work for a year. I have used all my 3 credit cards.(Santander, Barclays, Lloyds) So far, I am up-to-date with my payments. But it is getting impossible to make the minimum payments which are 112, 50, 50 per month respectively. Please advise me what I should do to avoid bankruptcy or poor credit history.
Thanks,
Sara (Debt Camel) says
If you can’t pay the minimum payments, there is no way to prevent your credit history being damaged. If you try to borrow to get the money to pay other debts, your debt situation gets worse, not better, and the cost of that borrowing goes up – that is the way to end up bankrupt.
You need to stop using the cards and set up a debt management plan. See https://debtcamel.co.uk/redundant-debts/. When you are back in work you can start paying off the debts, but for now you need to ask for the interest to be frozen, or your debts will get worse each month. If you want to see if you have any better options, talk to a good debt adviser – Citizens Advice is a good place to start as they will also be able to help look at whether there are any benefits you could claim.
Charles says
I’m already with stepchange and making regular payments.but I have been told that I will be made redundant .what do I do now.
Sara (Debt Camel) says
Well the easy answer is you tell StepChange and they will explain your options. But if you would like to know what they could be before you pick up the phone (it may make the call feel less scary) are you in a debt management plan with StepChange or an IVA? Are you getting much redundancy pay? Are you buying or renting?
Katrina says
Hi. I have approx £18000 of debts which are out of control. I am part time at work with less than £50 surplus income. I am paying token payments but in Aug I will be made redundant. I will expect to receive £2500 redundancy payment. I assume I will need this payment because my work is finished and I will have to wait some time for JSA to kick in (approx 3 months I believe). Can I spend the money sustaining me while I look for a proper job- and then when the money is gone apply for a DRO? Thanks
Sara (Debt Camel) says
Based on rather sketchy information, as a rough approach that sounds OK.
Things to look out for:
– you don’t have to run the money down to zero before applying for a Debt Relief Order – you can have some money in the bank.
– you need benefit advice on your situation when you are made redundant. July is probably the best time to ask about this when you will know exact dates and amounts. Go to your local Citizens Advice. In addition to JSA, you may be able to get help with rent for example.
– you say the debts are out of control and you are paying token payments. Is the interest frozen on these debts? If your debts look like they are getting close to £20,000 you wouldn’t qualify for a DRO and would need to go bankrupt instead. Because of this, you should plan to have made the DRO/bankruptcy decision when you still have enough of your redundancy money to pay the high bankruptcy fees (£680).
– if you get a “proper job” and this is full time, it is possible you may have too much disposable income for a DRO. This may not be the case if the work is poorly paid and you have child care costs, but it’s something to bear in mind. If you think this is a real possibility, then bankruptcy may be a better option for you than a DRO as it can’t later fail if you get a good job.
Maria says
Hi Sara
I had been furloughed since March and was asked to go back to work 2 weeks ago but as I got the bus and have my elderly mum living with me I could do 10am to 4.30pm to miss the rush. They have today said they want me to go back to normal hours 9am to 5.30pm from next week but if I’m concerned about getting the bus at those times they may have to put me on part time work furloughed. ImCan they do this
Sara (Debt Camel) says
Hi Maria, this is an employment question – I suggest you talk to your local Citizens Advice about it.
Ed says
I was made redundant on Friday, but was also offered a new job at another company on the same day – however I can only start in two weeks as they need time to set up my system / run security checks etc. Should I just live off the redundancy money / wife’s salary for now, or is it worth apply for any benefits for these two weeks?
Sara (Debt Camel) says
Well done! If you can get through easily for 2 weeks on the redundancy money, that is what it was meant for.
It would be a good idea to look at the “cut back your spending” ideas in the article above.
Kim says
Hi I’ve just found out I’m being made redundant. I will get a small redundancy pay out, 1.6k my holiday pay and 3months notice pay. Totalling around 11k I have a debts of around 7k and would like to pay these off with this money!
I privately rent,
When will I receive help with my rent and benefits?
Sara (Debt Camel) says
How long do you think it may take to find another job?
Are you up to date with the debt payments?
Alex says
I would like the same answer please if all debts are paid off from redundancy pay can you claim benefits straight away as no redundancy pay would be left after paying off all debts… or keep some back until benefits kick in?
Sara (Debt Camel) says
How much is your redundancy pay?
How large are your debts and are you up to date with them?
Are you buying or renting?
Hav you looked at a benefit calulator to see what you you would be likely to get?
Lokanski says
So here it is, I lost my job and I have lost hope of finding a new one. I have crippling depression and panic atracks due to being overworked at my previous place.
My debts are:
1500 Lloyds Overdraft
1500 Lloyds Credit Card
1700 Barclays Credit Card
600 Likely Loans
234 Bamboo Loans
400 Capital One Card
1900 Paypal
I have no savings. My employer offered to pay my salary up to December, I intend to pay off Lloyds 3000 and go home abroad. If I find no work by December I will have to go, I am already feeling suicidal living in London.
My question is which other debt I should be worried about the most? I am worried about Paypal, they have been aggressive in the past.
Would other debtors follow me abroad after Brexit and quickly can I expect the debt to be sold off to debt collectors or sent to courts?
I know the standard answer is to look for job here, but my mental state is really bad and I worry something bad can happen to me if I stay in UK, I already been to AE last week with nervous breakdown.
So my questions are:
:which debt besides Lloyds should I focus on?
:how quickly will it be sent to debt collectors?
:how quickly goes it to court?
:do I have 1-2 years of safety abroad before being chased?
:can I ask some of the lenders to waive the debt off due to my health state(severe depression, panic attacks, self harming, suicidal thoughts)?
Sara (Debt Camel) says
I don’t know why you are planning to clear the Lloyds debts but not the others?
If you want to go home abroad, the most important thing seems to go, get yourself settled, which may involve some money if you need to rent somewhere, and find a job abroad. That could take a long while and who knows how much spare money you will have at the end of it?
You could offer to pay all your debts a token £1 a month until you have another job? You could not talk to any of them until they contact you?
How likely is it that you will return to Britain?
No-one knows what will happen after Brexit, but these are all small debts. realistically there is a limit to what a credit is prepared to pay to enfoce a debt in a different country.
Lokanski says
I have family abroad that can provide me with a place to stay, food and give some small change to travel for interviews.
I am clearing Lloyds because it is my main account and I want to have at least one debt off. I might ask my family for £1000 to either clear the small debts or part of Paypal or Barclays.
Sara (Debt Camel) says
ok, it’s your choice, but no debt adviser would suggest doing this – your debts should be treated equally, not some paid in full, others ignored. And certainly not borrowing off family to clear other debts.
Lokanski says
Well without work, there is little choice I have I am afraid :(
Clearing some of the debt will help with my mental anguish considerably, the idea of not clearing anything with what you have means in month or two when you are still unemployed you are still left with all thhe debts. At least I will clear some of it.
The only thing that worries me is how quickly they will follow me abroad.
Sara (Debt Camel) says
But £3000 would let you carry on making the minimum payments for a while.
Lokanski says
Is there any point in taking Job Seekers allowance if I apply for Universal Credit? It seems the first reduces the second? I don’t really understand it.
Sara (Debt Camel) says
Some people can get JSA who would nit be entitled to get Universal Credit. I suggest you talk to your local Citizens Advice.
Bonnie says
Hi , me and my partner have both been made reduntant we are getting 6000 redunacy pay, and owe a company 9,000 I’ have applied for universal credit act and pip and our health have b9th gone down hill , what do I do ?
Sara (Debt Camel) says
owe a company 9,000
what sort of debt is this – a loan, credit card, or something else?
Do you have rent arrears? council tax arrears? utility arrears?
Bonnie says
No arrears , and it’s angel and debt plan company
Sara (Debt Camel) says
ok, can you confirm that you are paying Angel for a Debt Management Plan? Or is it an IVA?
How much redundancy pay are you getting? Your partner?
The 9k debts – how much are yours, how much your partners and how much are joint?
Are you buying or renting?
Bonnie says
Paying angel for a debt management plan, it’s a joint payment plan all debts are joint
I getting 2,500 and partner getting 3.500 so 6,000 altogether, we lost our house and now live back at home with my partners mum was paying 750 rent unroll list job now no rent being paid but have applied for universal credits and been accepted first payment if 25th December
Sara (Debt Camel) says
ok, it’s unusual for all debts to be joint, what sort of debts are these? have they been sold to a debt collector?
how much are you paying in fees for the DMP?
when you lost your house, did you end up with mortgage or rent arrears? any remaining utility bills from the house?
Is it practical to carry on living where you are? If not, your first thought has to be to get a new tenancy and use the redundancy money to pay for that and any moving costs, new furniture etc
Lynn says
I am being made redundant in a couple of weeks. I have £13,000 of credit cards (3 cards). They are on 0% interest promos into January, March and June 2021. My husband earns national minimum wage and even if we paid off all the cards with my redundancy pay our monthly outgoings equal his pay with no leeway for future price increases. Should I use some or all of my redundancy pay to clear the cards? My redundancy payment will be £13,300.
Sara (Debt Camel) says
What is the chance of you getting a job in the next 8 months?
When you say your husband’s wage will pay your monthly outgoings, is that based on a reasonable budget, or a bare minimum one with nothing for clothes, Xmas, servicing the car etc?
You will be able to get new style JSA for 6 months: https://www.gov.uk/guidance/new-style-jobseekers-allowance
Lynn says
Thanks for your reply. Husbands wsg we will cover outgoings only leaving around £50 a month for clothing, emergencies etc. Any increase in council tax and water bills next April could wipe this out
Sara (Debt Camel) says
A lot will depend on how quickly you can get a new job. If it’s going to be a long while, you definitely don’t want to use all the redundancy pay to clear those debts.
I see no hurry to do this. As they are at 0%, you can just carry on repaying them from the redundancy pay for while. When the first 0% ends in January, see what your job situation feels like then. And whether any unexpected expenses have happened.
New style JSA is not affected by you having any money in the bank or by your partner’s work, so make sure you do claim that when your job ends.
Theo says
Hi Sara,
I was told now in December 2020 I will be made redundant from March 2021. I should received approx 11k redundancy payment.
I own approx 10k to six different lenders, all these are already in defaults, and I paying agreed small amounts to debts collectors.
But I want to ask about another one the most recent loan took from Salary finance.
The monthly payments are taken directly from my wage slip. This “benefit” was being advertised in our company for a while and I was magically accepted for 15k loan on 19.9% ( so another 21k debt) in July 2020 even though my credit score was very poor.
Now just after 5 months company made all employees redundant and most of us left with no job, but having paid off Salary finance loan via direct debit.
I believe to shut down whole company is not overnight decision and they should make sure that employees were unable to take new or top up the loan a much much earlier. Nor should just inform Salary finance about they thinking to close the business.
Is it possible to make complaint for this behaviour? Though I definitely will raise one for irresponsible lending, but maybe there is something else which could help.
Sara (Debt Camel) says
It would seem to be unlikely the company knew in June 2020 that it would be closing. And if it has closed or gone under, there may be no-one to claim against.
You may have a good claim against Salary Finance if the repayments were unaffordable. But if they have been fine so far and it’s only a problem because you lost your job, you won’t win an affordability complaint.
Can I suggest you talk to your local Citizens Advice, they can help you check your redundancy pay ios correct, what benefits you might be eligible for and what to do about your debts.
John says
Hi Sara,
I took out a loan from HSBC for £21k (consolidation) in Jan 2020..now £26k owed with interest
I have been paying with no problems until now.
I have just been made redundant due to covid in November
Getting a job that paid as well as my last one will be extremely difficult as will getting any job.
I have received £21k in redundancy.
I have contacted HSBC regarding my situation and been put on a 3 month deferal holiday.
Would it be beneficial to offer a F&F with some of my redundancy money?
I currently pay £305 per month and have 88months left….my settlement figure today would be just over £21k.
Do you think they would accept an offer given i have never defaulted and my credit score is fantastic.
I was thinking along the lines of 12k as i would need some to put by for future emergencies etc
I have no other debt.
Kindest regards
John
Sara (Debt Camel) says
I assume you don’t have any other debt?
Do you have a mortgage? Any priority bills – rent/service charge/utilities/council tax?
Are you single?
Presumably you are using the redundancy money to live on at the moment?
john says
Hi Sara,
I have no other debt, rent via council.
Normal bills like everyone else.
Married
Cant get benefits as savings over 16k (redundancy)
Thanks
Sara (Debt Camel) says
does your other half have any debt?
john says
very small debt about 2k end of loan
not behind on any bills.
my only concern really is the HSBC loan, but i could afford to pay out of my redundancy until i got work but thinking if they would take a F&F that would end the loan and not be a burden.
Thanks
Sara (Debt Camel) says
If HSBC would settle for 12k that would be a great result for you. However I suspect they won’t, that is a big loss for them when you could get an OK job in 6 months and be able to start repaying.
You could offer them 15k – that would leave you with 6k, which would mean you would get full Universal Credit. Have you looked at what you would get with UC? Use a benefit calculator here https://benefits-calculator.turn2us.org.uk/AboutYou and find out, put your capital in as 6k so you are pretending you settled the debt for 15k. You would also get council tax benefit from your local council when your capital is below 16k.
HSBC may not accept 15k either…
john says
Thanks Sara,
Do you think i run the 3 month holiday, then offer the 12k rising to possibly 15k if my circumstances dont change.
Would they normally come back with a counter offer or just outright reject any F&F if my circumstances dont change or would they expect me to default before any negotiation even starts.?
Im assuming a offer doesnt effect my credit status/score unless accepted ?
Thanks again
Sara (Debt Camel) says
Are you actually running down this money every month at the moment? Or are you living Ok on your partner’s income?
There isn’t any “normal” about this situation. But in the past a lender would not be likely to accept even 15k on a 21k undefaulted debt unless you clearly had some health problem that would prevent you ever working again.
Why do you care what your credit score looks like?