How to handle credit card and other bills while unemployed

By Marianne Curphey

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If you lost your job or became too ill to work, would you be in debt trouble? For many Britons, the answer is yes.

Britons not prepared for job loss
According to a survey by health and wellbeing provider BHSF, 37% of people admitted that they could not pay their bills in the event of ill health, while 28% said they would have to use credit cards for unexpected expenses.

Few of those questioned had any emergency savings. An estimated two-thirds of the entire UK workforce have no sick pay provision beyond the statutory minimum, the survey found.

"It is very worrying that employees appear to be in a state of denial over how precarious their financial situation is, in reality," Brian Hall, managing director of BHSF Employee Benefits, said in a press statement.

Dan Jones knows about the stress of money worries. He is a hypnotherapist who created a self-help MP3 programme called Mind Changers to help people overcome depression caused by financial worries and difficulties.

The idea for Mind Changers came about after Jones himself experienced coping with debts after illness.

"In my early 20s, I was offered credit and 20% off purchases at shops if you took out their store card," Jones says. "I didn't question it. I took out lots of store cards, including one where I had a £1,500 credit facility, and only had to pay off £27 a month. Then it was increased to £2,000 and I had to pay a bit more. Then I got a personal loan."

His debt increased gradually until he had £25,000 of debt, but he managed the repayments. Then,  in 2004, he was hit by a car, became unemployed, and suddenly couldn't afford to pay.

"There is a tipping point where every year your debt increases and creeps up a bit," he says. "I tried to claim on my insurance to cover my credit card bills, but my claim was declined. I had £25,000 of debt and no income. I had a very physical job but couldn't do it because I was recovering from my injuries."

What can you do about your bills if you're unemployed?
Though you may feel helpless, you aren't without options if you have debt and other bills, but no job.

1. Know the worst-case scenario.
"I tried to be proactive and talked to debt counsellors at Citizens Advice Bureau," says Jones. "They said the worst-case scenario was that I would be taken to court. And if the court decided that I could only afford to pay back £1 a week to my creditors, that is all they would get, even if I were to win the lottery the following week. They explained that it is not in their interest to take me to court for that reason."

That advice helped him to face his debt and think about how to clear it.

2. Know what might be covered.
Some companies will have insurance that will cover employees who are sick; otherwise, if you are ill, you will receive Statutory Sick Pay (SSP), which is worth £89.35 per week and paid by your employer for up to 28 weeks, says Jonathan Watts-Lay, director of Wealth at Work, which provides financial education on behalf of employers.

"Support from employers is mixed," he says.

3. Face your creditors right away.
"We are hard-wired to want to keep away from these sorts of problems when they occur," Jones says. "People don't look at their bills, and then they start getting letters from debt collection agencies after their debt has been passed on, and these organisations are much more aggressive."

The best thing to do is to contact your creditors right away and explain your situation, he says.

"As a therapist working with people around debt I want them to be proactive and phone up to sort things out," Jones says.

The Citizens Advice debt counsellor told Jones to contact his creditors and explained how to get the creditors to freeze the interest.

"I explained how much I was going to pay back to them per month," Jones says. "Some of them didn't like it, so I sent them information showing how I was paying each creditor a share of what I owed."

4. Budget carefully.
"For younger people, the important issue, if you are made redundant or are ill, is how you are going to manage financially in the future," Watts-Lay says.

To manage your crimped finances, it is important to budget carefully.

"The redundancy cheque might look nice but you are still going to have to pay the mortgage in three months' time, so don't blow it all on a holiday," Watts-Lay says. "You have to think sensibly."

5. Add a notice of correction to your credit file.
Finally, if you do miss payments on your credit card, you can explain that it was due to sickness or redundancy by adding a note to your credit files. Prospective lenders will see this if you make an application for credit in the future.

John Webb, consumer affairs executive at Experian, says this is known as a notice of correction.

"You can send it to all three of the credit reference agencies (Experian, Equifax and CallCredit) and this will cover all your reports and any other credit reference products on the market," Webb says.

However, though future lenders will be able to see the reason for any missed or late payments, they are not obliged to give you new credit.

"When you apply for new credit, it is at the lender's discretion whether or not they take this information into account," Webb says.

But, "by having a statement on your account, it stops it the application being automatically declined," Webb says.

See related: How to turn a 'credit detox' into long-term healthy habits, 4 wrong ways to pay credit card debt, What can you expect from a debt advice service?

Published: 6 September 2017