What to Do When You Lose Your Job

What to Do When You Lose Your Job article image.

Unemployment can affect more than just your finances—an interruption of income, especially for a prolonged period of time, can rock your lifestyle and overall sense of security. The COVID-19 pandemic brought that into sharp focus. In April 2020, the unemployment rate skyrocketed to 14.7%, but has since fallen to 5.4% as of July 2021.

Now for a silver lining: Those who are looking for work may actually have a leg up in today's job market. Nearly half (46%) of small businesses recently had job openings they couldn't fill, according to the National Federation of Independent Business. Numbers like these are good news for job seekers.

Losing your job can be devastating, but you can set yourself up for recovery and future success with these simple action steps.

1. Negotiate a Severance Package

A severance package may or may not be on the table, but it's certainly worth exploring. According to a 2020 study from HR consulting firm Lee Hecht Harrison, 73% of companies offered severance pay if the termination was due to corporate restructuring or workforce reduction, 50% offered it if the termination was involuntary, and 26% if the employee left on their own accord. The terms of a severance can vary based on how long you've been with an employer, your role and how much you were paid. Paychecks aside, some severance packages include health benefits in the form of COBRA (more on this in a bit). Others might provide resources to help support you in your new job search.

2. Leave on Good Terms

You may leave your job for all kinds of reasons—whether you're undercompensated, burned out or simply in need of a change—or you may be laid off or fired. In any case, it can be helpful to leave on good terms without burning bridges on your way out. This is especially important if you're planning to continue working in the same field since industry circles can be small. You'll also improve your chances of securing a new job if you can list your previous employer as a reference.

3. File for Unemployment

If you find yourself unemployed through no fault of your own (read: you weren't fired and didn't quit), enrolling in unemployment benefits can help shore up your finances. These programs are designed to provide a portion of your previous pay while you look for new work. Eligibility varies from state to state, but you'll likely need to prove that you were recently employed and that you're actively seeking a new job. Just bear in mind that unemployment benefits count as taxable income.

The federal government stepped in and temporarily expanded unemployment benefits during the pandemic. This widened eligibility and increased weekly benefits, but those changes recently expired.

4. Check Your Health Insurance Coverage

Unemployment can present a significant hurdle if you or your family members rely on the health insurance you got through your job. COBRA can help you avoid a lapse in coverage. Companies with 20 or more workers are required to allow former employees to keep their employer-provided health insurance for 18 months after being terminated. The catch is that premiums tend to be much higher.

Another option is to secure health insurance on your own through the HealthCare.gov marketplace. This could be a good solution if your new employer has a waiting period before your benefits kick in. Alternatively, if your spouse has health insurance through their job, you can sign up during the next open enrollment period.

5. Adjust Your Budget and Cut Spending

If your income has taken a hit, you'll want to prep your budget sooner rather than later. Doing so can help you live within your means while you're job hunting. A budget is made up of two key parts: your income and expenses. For the former, you'll want to factor in all sources of income, including any unemployment benefits you have coming your way.

From there, you'll take an overall look at your expenses, with an eye toward costs you can temporarily cut while you're unemployed. This can include everything from subscription services to restaurant dining. If you have federal student loans, you won't have to worry about them for now. In response to the pandemic, the U.S. Department of Education has paused repayment on federal student loan repayment requirements, interest accrual and collections until January 31, 2022.

If your budget is still in the red after making these adjustments, you may be able to lean on your emergency fund to see you through. In more extreme cases, you might consider bigger lifestyle changes, like taking on a roommate or moving to less expensive housing.

6. Review Your Retirement Accounts

If you were contributing to a 401(k) or other employer-sponsored retirement account, you'll want to make plans for it after exiting your job. Instead of leaving it with your previous employer, you can consider rolling over your vested balance into an individual retirement account (IRA) or your new employer's 401(k) once you're working again.

Just try not to tap that money in the meantime: Any distributions you take before age 59½ will trigger a 10% penalty (on top of a tax bill). And on the topic of retirement, make a mental note to revisit your retirement savings once you land a new job. You may choose to dial up your savings rate if your contributions were on hold during unemployment.

7. Continue to Make Your Debt Payments

This is important as failing to pay your bills can have a negative effect on your credit score. In fact, late payments can stay on your credit report for up to seven years. When reworking your budget, list out all of your monthly debt payments—from credit cards and medical bills to car loans and mortgages. As mentioned earlier, your student loan servicer may allow a temporary pause in payments. It pays to reach out to your other creditors to see if they'll grant you any leeway. Some may let you make a partial payment or defer one or more payments, for example. You won't know unless you ask.

8. Update Your Résumé and LinkedIn Profile

Now is the time to beef up your résumé. Be sure to add any new skills, relevant experience or certifications you gained while with your previous employer. It's also smart to personalize your résumé for each new job application. Read over each job posting carefully so that you can optimize your resume to emphasize certain aspects of it accordingly.

Updating your LinkedIn profile is another simple way to increase your visibility. Remember that it's more than just a virtual resume. It's also a hotspot for recruiters who are searching for new talent. Fleshing out your profile can put you in their line of vision. Make sure to include relevant keywords, an up-to-date photo, and a spruced up personal description that accurately captures your qualifications and career desires.

9. Network and Look for Employment Opportunities

Don't be afraid to tap your network and put your feelers out—it's a great way to learn about new job openings. Even if you don't find something right away, nurturing your relationships and strengthening your connections now can set the stage for new opportunities later down the road. Consider checking out networking events in your industry, including virtual events. The idea is to stay top of mind when employers are looking to fill an open position.

10. Check Your Credit

An interruption in income can throw a wrench in your financial life. If you've left any bills unpaid while unemployed, it's in your best interest to act swiftly to remedy the situation. This can help prevent any further damage to your credit score. With that said, those who are relying heavily on credit cards to see them through may notice a dip in their score. That's because increased balances can cause your credit utilization to skyrocket. Credit utilization factors heavily in the "amounts owed" category of your FICO® Score , which makes up 30% of your score calculation. You can check your credit report and credit score for free with Experian.

The Bottom Line

Getting on the other side of unemployment may feel stressful, but utilizing the right resources can make things a little easier. Free credit monitoring with Experian is a simple tool to help keep your credit score going strong while job hunting.