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?
Every week in 2018 seems to bring more news of shops and other businesses closing down. And it’s not just the big names like House of Fraser and Carillion – when one firm shuts, its suppliers and small local businesses are affected, from hair-dressers to cleaners and minicabs.
What should you do?
Unless you know you can easily get another job, your top priority has to be to stabilise your finances whilst you look for work.
It is important that you don’t delay starting with this. A few weeks feeling depressed followed by a few weeks starting to make job applications will run through almost all your savings.
Benefits take time to be processed, so get those applications going right away, 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.
Think about future commitments – Christmas, friend’s stag night, summer holiday you have paid a deposit for – and be realistic about whether you have to cancel or cut back on plans.
If you have children, you will want their life to carry on as normal, but you may need to look at the cost of extras such as swimming lessons. It can be easier to finish this term’s block and then not start another one after the holiday.
Also look at whether there are any other simple things to do to improve your finances. The one thing you suddenly have more of is time, so switch energy suppliers and see if you can reclaim any PPI.
2. Benefits whilst you are out of work
Benefits depends on your exact household income. Turn 2 Us has a good online benefit checker, but unless your situation is very simple (eg single, no children, renting) you may prefer to go to your local Citizens Advice who will be able to advise in detail.
As a first guide:
- If there is little or no money coming in to your household, then you will get JSA (income-based). Go to your local Job Centre and sign on to claim JSA.
- If you have paid enough National Insurance you will be entitled to Job Seekers Allowance (contribution based) for 6 months even if you have a partner who is earning well.
- If you are renting, you will be entitled to Housing Benefit, unless your partner earns too much. You can claim on your council’s website.
- In some areas this means signing on for Universal Credit, not JSA and Housing Benefit. Ignore scary things you have heard about Universal Credit, its errors and delays, just get on with the application – the sooner the better. Not everyone hits problems – go to your local Citizens Advice if you do.
- If you have a mortgage, you may be able to get Support For Mortgage Interest, but this doesn’t start until after 39 weeks. This is another reason to apply for JSA or Universal Credit now, so the 39 week clock starts ticking. This is a help but it probably won’t cover your full mortgage payments. It is also paid as a loan, secured on your house – but it’s still better than nothing!
- If your household now has a low income, you should be able to get Council Tax Support – contact your local council about this.
- If you are getting Child Tax Credit, inform HMRC that you have lost your job. At some point your tax credits will go up, this may not be immediate if it is late in the tax year. If you have previously been earning too much to get tax credits and/or Child Benefit, you may now be eligible for these.
3. Put your debts on hold
If you are already in a Debt Management Plan, then tell your DMP firm that you have to stop the monthly payments until you get a new job. If you are in an IVA, you must talk to the IVA firm immediately about your loss of income and the reducndancy pay, see what happens if you can’t afford your IVA payments.
If so far you have been making the normal debt payments, then if you are are not certain that you can walk into another job quickly, look at only making token payments of £1 a month to your credit cards and unsecured loans. Making token payments and asking your creditors to freeze interest and not add charges will give you a “breathing space” to find another job. Read more about token payments.
Doing this will harm your credit record but, unless you know you can walk into another job easily, it has to be done. 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.
If you are going to Citizens Advice to ask about benefits, talk to them about token payments as well, so you feel comfortable with how it will work.
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?