Wise Use of Credit When You’re Unemployed

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Financial Empowerment Network


We’ve all been there, unemployed with a finite amount of money and credit to hold you over until you start a new job. Here are some tips I have used and others that I have learned from wise mentors. These ideas are not in any order of merit, just at list of recommendations.

  • Revisit the Family Budget (if one exists). The whole family (including children) needs to be involved and understand the need for temporary changes in spending. It can be a learning experience for children to see how adults solve money worries.
  • Hold on to your cash! When your cash is gone, it can’t be replaced, so use your credit first and save your cash as last recourse. Use credit for your essentials as much as possible. Make your credit last as long as possible.
  • Get Help From a credit counseling agency. A certified agency can serve as an objective third party to help you through your situation and give you educated advice.
  • If your employer offers severance and you haven’t received the check yet, contact HR and ask them to increase your tax withholding exemptions to the maximum. As a result, your “take home” pay for that last pay check will be higher. The resulting tax consequences will easily be offset by your reduced income and employment searching expense.
  • Do NOT use credit card cash advances as a way of finding income. The cost of using credit card advances is greater than using the credit card to pay for expenses. Cash advances always come with extra fees and higher interest rates.
  • Preserve your credit while you are unemployed. Try to keep your balances at less than 30-50% of your high credit limit. This will retain your credit score as high as possible. The closer your balance gets to your available credit limit, the lower your credit score goes.
  • Make all credit card payments on time. Making credit card payments by no later than the due date has a 30+% effect on your credit score. If you start to get behind on your payments, this will cause other creditors to anticipate that you’re going to do the same to them. They may suspend or close your account. Closed or reduced accounts affect your overall debt-to-limit ratio buy raising it.
  • Always pay your car loan first. Your car can be repossessed in as little as two weeks. If you lose your car you are less able to seek employment thereby less able to pay the rent or a mortgage payment.
  • Pay your rent or mortgage second. Don’t get more than 60 days behind on your mortgage payment. The foreclosure process is a very difficult process to stop once it’s started. If you are unable to pay the mortgage, contact your lender before you are 30 days behind and see what programs they have to help.

 “When you get to the end of your rope, tie a knot and hang on.”

― Franklin D. Roosevelt

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