Unemployment versus Debt

by Heidi
(Pelham, NY, USA)

I've been unemployed since Feb 2008. I've been staying afloat collecting unemployment and freelance. I've made huge payments towards my credit card due to a small inheritance. With the new laws, I'm right back where I started. I also have school debt and though I'm making all my payments each month is so stressful. I don't know if or how much money I might be getting monthly. Sometimes I haven't gotten paid for 2 months. Any suggestions as to how to deal with Credit Card first, that's the one killing me!! More accurately... do I tell them about my unemployment status, does this hurt me?

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Mar 21, 2010
 Debt advice student loans and credit cards
by: Gerri

Heidi,

Thanks for submitting your debt collection question on our Q&A page.

I am so sorry to hear about your financial difficulties. It's hard to know how to advise you without knowing your entire financial picture.

However, two things stand out to me. One is the fact that you have been unable to make headway on your debts without outside help (in this case, an inheritance.) I wonder whether you really have the financial ability to pay back your debts on the money you earn now. If not, you may need to consider getting outside help, either from a credit counseling agency or from a debt negotiation firm.

While you say that your credit cards are your top priority, in fact, your student debt should be your first priority. That's because student loan debt that goes into default becomes incredibly expensive, and even more stressful than owing credit card companies. One thing I would recommend is that you check out the income-based repayment program for your student loans. You can find IBRinfo.org.

In a worst case scenario, credit cards can be discharged in bankruptcy. Student loans, however, typically cannot be wiped out in bankruptcy. That's one reason why it's so important to make them a priority.

I don't know how much credit card debt you owe so it's a little difficult to advise you here. You can certainly talk to your credit card companies to see if they work with you, however, if you tell them you are unemployed or sporadically employed, they may close your accounts or lower your credit limits. Be prepared for that possibility.

A good rule of thumb is that if you can't pay off your credit cards in three to five years on the money you make now, you may need to consider either trying to negotiate settlements on your credit cards, or even bankruptcy attorney.

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