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 making some staff redundant because of Coronavirus.
If your firm has just closed suddenly, you may be worried about getting the pay for the weeks you have already worked, the pay for holidays you haven’t taken, the notice period you should have had and redundancy pay if you had been there more than two years. Your local Citizens Advice can help to understand what you should get.
If you don’t get paid all these, you may be able to claim for them through the government’s Insolvency Service. See this page which lets you start a claim and has the helpline number.
The 4 steps to take
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. Many people’s spending patterns changed significantly during lockdown – could you go back to something similar for a few months?
If you have big future commitments – Christmas, friend’s stag night, summer holiday you have paid a deposit for – be realistic about whether you have to cancel or cut back on plans.
With children, you will want their life to carry on as normal if possible, but as they go back to school after Coronavirus, go slow on restarting “extras” such as after school clubs and music lessons.
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 money detox 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.
Your situation is complex, especially if you or anyone in your family is getting any disability benefits. And sometimes it may be better to stay on tax credits and housing benefit than switch to Universal Credit – if you apply for UC you can never go back to getting the previous benefits again. Contact your local Citizens Advice who will be able to advise in detail what you should do.
As a rough guide:
- If there is little or no money coming into your household, then most people should apply for Universal Credit. Ignore all the scary things you have heard about Universal Credit, its errors and delays. Not everyone hits problems – go to your local Citizens Advice if you do.
- Universal Credit has an element that helps cover your rent – this replaces Housing Benefit if you were getting that before.
- It 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.
- If you have a mortgage, at the moment you can get a second 3 month mortgage payment holiday because of coronavirus. You won’t be able to get help with your mortgage costs until you have been on UC for 9 months and during that time neither you nor your partner has earned anything. This article Furloughed now redundant – what about my mortgage and IVA? looks at the problem when mortgage payment holidays end.
- If your household now has a low income, you should be able to get Council Tax Support – apply through your local council’s website.
Also, not strictly a benefit, but 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.
3. Put your debts on hold
If you have lost your job because of coronavirus, you should find lenders and debt collectors are very sympathetic.
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.
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. It is usually easy to get a payment break from your IVA while you look f0r another job.
Payment breaks foe mortgages, car finance, credit cards, loans etc are now expected to end at the end of October. If you haven’t yet had a break, or you had one but not a second one, it is probably a good idea to take one now while you still can. Interest will carry on being added but these breaks won’t directly harm your credit score, although it’s possible they may make it harder to get credit in future, you have a problem now that has to be dealt with!
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.
Once the payment breaks have ended, you can still ask your lender for help. For unsecured loans and credit cards this is easy – you need to ask for a token payment arrangement until you are back in work and for interest to br frozen. IF interest has been added during payment breaks, this interest should now be removed because you are still in difficulty.
If you ask Citizens Advice about benefits, also talk to them about your debts as well, so you feel comfortable with how it will work. They can also talk about priority debts – your redundancy money is probably best kept for paying the mortgage/rent, utilities, car finances, not non-priority debts such as credit cards and loans.
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. You may want to look for some of the temporary jobs available during this Coronavirus time if no-one is recruiting for your normal career.
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?
What if you get a large amount of redundancy money?
You may think £5000 is large if you have never had that much money in the bank before. But if you can’t get a job soon, it will be spent quite soon.
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 £16,000 in the bank, you won’t be able to get benefits which are “means-tested” – that 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.
- with a lot of money it is usually sensible to immediately clear any priority debts – rent/mortgage arrears, council tax arrears, utility bills etc.
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.