How to Manage Credit Card Debt if You’re Unemployed

Contact Your Credit Card Issuers

As soon as you know you'll have trouble making the minimum payment on your credit card accounts, ask your credit card issuers for help. Some companies have specific hardship programs, which you can find on their websites or by contacting customer service.

If there's no clear way to ask for help through official company channels, write a hardship letter to the issuer explaining your financial challenges and suggesting a solution. You can ask for a lower interest rate, a lower minimum payment, a late-fee waiver or forbearance, which is a temporary hiatus from paying your bill. You'll likely need to provide evidence of unemployment or other documents to support your case.

Tip: If the credit card issuer isn't willing to work with you, ask other creditors for assistance. You could qualify for a loan modification program through your student loan or mortgage lender, for instance, freeing up money for credit card payments.

Avoid Adding to Your Debt

It's possible to use credit cards to pay for essentials when there's no other way to afford food or utilities. But an unexpected period of unemployment is an example of why it's so important to have an emergency fund.

If you have cash saved, draw on those reserves to pay bills instead of adding to high-interest credit card debt, which will only be harder to pay off later on. Avoid dipping into your 401(k) or individual retirement account. These are meant to house long-term savings, and withdrawing money means you'll lose out on investment gains that could significantly grow your account balance for retirement.

If you don't have an emergency fund and can't afford to pay for essentials, such as housing, during this time, consider taking out a personal loan—particularly from a credit union. Personal loans may come with lower interest rates than your credit cards carry, and credit unions often have more lenient credit requirements than traditional banks.

Tip: You may see personal loans for times of financial trouble advertised by credit unions as "emergency loans" or "hardship loans." If you go this route, borrow the smallest amount you need to cover expenses so that repayment doesn't add unduly to your financial strain.

Create a Bare-Bones Budget

While unemployed, make a bare-bones budget, a spending plan that helps you cut back as much as possible after a job loss so you can meet your monthly obligations. Here's how:

1. List all your expenses. Write down every recurring and occasional expense you have and split them into categories such as housing, utility bills, groceries, meals out and personal care. Include all your fixed expenses as well as discretionary spending.
2. Determine your take-home income. This may be your unemployment pay or your spouse's income if you don't have any source of income during unemployment.
3. Decide how much of your income to put toward each category. Ideally, choose a structured budget plan like the 50/30/20 rule, which recommends spending no more than 50% of your income on necessities, 30% on wants and 20% on savings and debt payoff.
4. Identify expenses you can trim. It's likely hard to change your housing payment in the short term, for instance, but consider limiting spending on meals out or subscription services. Negotiate your bills and look for ways to save money on groceries.
5. Track your spending. To stay within the limits you've set, track expenses using an app or by reviewing your bank statements. Recalibrate if your goals were unrealistic, too restrictive or not restrictive enough.
6. Stick with it. Once you're getting a regular paycheck again, don't abandon your budget. Rework it taking your new situation into account, perhaps with the goal of building or rebuilding your emergency fund. Adhering to a budget will help you regain financial stability after the difficulty of a job loss.

Learn more: How to Adjust Your Budget After Job Loss

Keep Making Minimum Payments

Aim to continue making minimum payments on your credit cards and loans even when you're unemployed. That way, you'll protect your credit score, which you'll need to keep strong to get credit at competitive interest rates in the future.

Since payment history is the most important factor in your credit score, a stretch of missed or late payments can have a significant negative impact on it. Consider minimum credit card and loan payments to be a necessary expense, like food and housing, as you create your budget.

Work With a Nonprofit Credit Counselor

If budgeting and identifying strategies to deal with debt becomes overwhelming on your own, seek out help from a reputable nonprofit credit counselor. To find a good credit counselor, look to agencies affiliated with the National Foundation for Credit Counseling (NFCC). These have trained counselors on staff who can assist you in making a basic budget and considering your options for paying credit card bills on a tight budget. An initial consultation—which may be all you need—is free.

Credit counseling agencies also offer debt management plans. These plans allow you to make one payment to the credit counseling agency, which pays your creditors on your behalf. The agency negotiates with creditors to reduce your interest rates and have fees waived. Debt management plans typically require you to pay an enrollment fee of about $50 and make a monthly payment to the agency, often $30 to $100.

Warning: Don't confuse debt management with debt settlement, which is offered by debt relief companies that counsel you to stop paying your creditors. That can hurt your credit score and lead to costly fees. When you're feeling stressed during a period of unemployment, avoid agreeing to a debt settlement plan that could cause long-term harm. Working with a well-regarded nonprofit credit counseling agency is a safer bet.

Frequently Asked Questions

The Bottom Line

When you lose your job, credit card debt doesn't go away. Continuing to pay your bills on time is crucial so you can keep your credit score strong. But there are ways to modify your credit card payments so that they're more affordable during a financial setback. Get in touch with your issuers to understand your options. And even if you're not able to pay less, it's possible to revamp your budget to afford the minimum payment, which will keep your accounts in good standing.

Keep an eye on your credit when you're trying to manage credit card debt while unemployed. Experian's free credit monitoring gives you access to your Experian credit report and FICO^® Score^Θ, and alerts you to changes on your report.