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.
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.
Many people’s spending patterns changed significantly during lockdowns – could you go back to something similar for a few months?
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 check out all the ideas in this financial review program.
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 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.