It’s natural to worry about how your finances may be affected while you look for a new role. There are ways to keep your finances on track or deal with any debts you already have, following redundancy.
Redundancy is one of the main causes of debt problems in the UK, but there are practical steps you can take.
If you’ve been made redundant, it’s understandable that your main focus at the moment is on getting another job. But while you’re brushing up your CV, filling in applications, and scrolling through the latest alerts from job agencies, it’s important to put some time aside to think about your finances.
A survey by StepChange Debt Charity revealed that reduced income, unemployment, and redundancy were the most common reasons for seeking help with debt problems.
How to keep your finances on track?
Understand what you can and can’t afford to pay
Making a budget is very important. List your income and debts, and gather details of your spending and other outgoings to create a monthly budget. This will help you get a clearer picture of how much money to need to allow for essential household spending each month.
Using a budgeting template, such as IE Hub, makes this easier. Many people find this daunting, but it’s an important first step. Make sure you’ve got all the information you need by:
Checking through letters from lenders, bank statements, and records of other accounts you have, such as your mobile phone
Making sure there aren’t any debts you’re not aware of by checking your credit file with three main credit reference agencies: Experian, TransUnion, and Equifax
Including amounts for things that you pay for less regularly, such as Christmas, car repairs, or vets bills. To do this you need to divide the yearly cost by 12 to give you a monthly figure
Writing down everything you bought during the previous month.
Pay your most important bills first
When you don’t have a regular wage coming in, it’s important to keep on top of your ‘priority bills’. These are the ones you should pay first, because the consequences of not paying them are more serious than for other payments. The advice is always: “Protect your home and avoid being cut off”.
If you fall behind with your rent or mortgage you’re at risk of eviction or repossession. Failing to pay energy bills could lead to you being cut off. That’s why these bills are the most important ones to keep on top of when money is short.
There’s more information about priority bills on the StepChange website.
Don’t be afraid of getting in touch with your creditors and asking them for help
People are often scared to admit they might struggle to pay what they owe, but if you tell your creditors, many will give you some breathing space while you deal with your money problems. They may freeze interest and charges, apply other temporary measures, or agree to a payment holiday.
Most creditors are willing to be flexible and will look at options to try to prevent their customers from falling into further financial difficulty. It's important that you get in touch with them sooner rather than later.
Work out if there are any ways you can save money
As the saying goes ‘If you look after the pennies, the pounds will look after themselves. While that’s not guaranteed, it is a good start. You can:
Use price comparison sites to find cheaper energy suppliers to switch to
Ask your phone provider to review your contract
Check you’re getting all the benefits you’re entitled to
Don’t worry about money, get help
If any of this sounds like a struggle and if you’re already worried about falling behind with important payments, don’t wait to get help. A free debt charity will look at your budget and provide you with advice tailored to your circumstances.
Common questions about dealing with money problems following redundancy:
Should I use my redundancy pay to pay off debts?
You could consider using your redundancy pay to pay off your debts, but you should weigh this up alongside the other options available to you. Do think about how doing this could impact your financial situation. For example, have you considered how long it will take to find new employment or how you will pay for your essential household expenses in the meantime?
If you owe money on a bank account, for example an overdraft, you could open a new, separate bank account for your payment. Otherwise, the bank could take it to repay any money you owe them.
Should I take out more credit to get by?
A credit card or overdraft might seem like a good idea, but it’s only a short-term solution.
Taking out more credit when you have less money coming in can make your financial situation worse, as you’re at risk of not being able to afford all the repayments.
If I’m on a debt solution how will my redundancy affect it?
You need to get in touch with your debt solution provider and ask them to review your situation. They will give you advice based on your circumstances. This may be a recommendation to change to a more suitable solution, or adjusting payments made through a debt management plan.
If you’re worried about how you’re going to cope financially while you’re out of work, don’t wait to get help. Make sure you get advice from a trusted source. Go to Stepchange.org, National Debtline, or the Citizens Advice Bureau for help by phone or online.