Losing your job is always scary and stressful. It can drastically change your financial situation and make it challenging to keep up with debt repayments. It can also jeopardise your debt review process, unless you manage the situation carefully. Here is what to do in this situation and what to expect.
7 Steps to Take When You Lose Your Job While Under Debt Review
1. Inform Your Debt Counsellor Immediately
If you've just lost your job, you're likely feeling numb, deeply stressed, and depressed. While it can be hard to summon the motivation to do anything, it's absolutely imperative that you inform your debt counsellor as soon as possible. They can negotiate with your creditors for a more manageable repayment plan, to give you breathing space to find a new job. If a debt review court order has been granted, your debt counsellor can still negotiate with credit providers to postpone payments or reduce monthly repayments to reflect your new financial situation. This reprieve is at the discretion of the credit providers and is not guaranteed, as the National Credit Act does not specifically cover this scenario.
You will need to furnish your debt counsellor with a copy of the retrenchment letter to submit to the credit provider, as documentary evidence of loss of income. Maintaining open communication with your debt counsellor is key to navigating this challenging period.
2. Claim Credit Life Insurance
Credit life insurance can cover your debt repayments if you lose your income. Find out from your debt counsellor whether credit insurance was included in your debt review application and is active. If so, the debt counsellor will handle the claim on your behalf; you do not have to engage with the insurer. Your debt counsellor can also verify that you have adequate insurance coverage.
3. Apply for Unemployment Benefits (UIF)
If you are eligible, apply for unemployment benefits to help cover your living expenses and maintain some level of payment towards your debts. This assistance is usually in the form of regular payments for a set period. It aims to help you cover your basic living expenses while you search for new employment. The specific eligibility criteria, benefits amount, and duration of support will vary depending on the current regulations and the your work history.
4. Cut Down on Your Expenses
Review your budget and cut down on non-essential expenses to free up some funds for debt payments. Take a close look at your current budget to understand where your money is going. This will help you identify areas where you can make cuts. Separate your expenses into essential (e.g. housing, groceries, utilities) and non-essential categories (e.g. dining out, entertainment, subscriptions). By prioritising essential expenses, you can ensure that the basics are covered first, such as rent or mortgage payments, utilities, and groceries. Take a look at our free action plan, with step-by-step guide, on how to craft a budget that works.
5. Use Pension and Provident Funds
South Africa’s laws and retirement plan rules permit you to withdraw from your pension or provident fund when you are retrenched; accessing these funds is otherwise discouraged until retirement. These funds can then be used to service your debt. However, you should not take this decision lightly, as your retirement funds are there to help you later in life, and consuming those funds now will put you in a worse position later. There may also be tax implications. You should discuss the pros and cons of accessing your retirement funds to service your debt with a financial advisor.
6. Look for a New Job
Once you've completed the preceding steps, you should actively start searching for a new job to restore your income as soon as possible. Ensure that your curriculum vitae (CV) is up to date and tailored to the types of jobs you're applying for. Highlight your skills, experience, and accomplishments. Use your networks, job boards (including LinkedIn), and recruitment agencies. By actively searching for new employment and leveraging various resources and strategies, you can increase your chances of securing a job that restores your income and moves your career forward.
7. Consider Alternative Income Sources
Look into temporary or freelance work as a stopgap measure to bring in some income. It is important to critically assess your skills and interests to identify opportunities from which you could make money. What can you do that other people or companies would pay money for?
What Impact Does Losing Your Job While on Debt Review Have?
Amended Payment Plan with Extended Debt Review Period
Without an income, you may struggle to meet the monthly payment plan arranged during the debt review process. Your debt counsellor will need to reassess your financial situation to adjust your repayment plan based on your new circumstances.
Your debt counsellor can negotiate a new payment plan with your creditors, more appropriate to your new reduced income, or lack thereof. They may be able to negotiate a longer repayment period with your credit providers, to accommodate lower monthly payments. That's why it's important to notify your debt counsellor as soon as possible when you lose your job.
Risk of Termination
If you cannot meet the agreed payments, the debt review process may be terminated, freeing your credit providers to take legal action against you to recover the debts. This is covered under section 86(10) of the National Credit Act. Speak to your debt counsellor as soon as possible to try to avoid this.
Increased Financial Stress and Pressure
Balancing living expenses with debt obligations when you've lost your job, adds considerable financial stress. It's important to communicate openly with your debt counsellor immediately. You should also discuss your new situation with your spouse/partner, as it will affect them and your family. Make sure they understand the implications and can offer you support as you navigate this difficult journey.
Impact on Credit Score
While under debt review, your credit score is already affected, but missing payments or defaulting could risk damaging your credit score. Speak to your debt counsellor to discuss options.
Applying for Bankruptcy
If your financial situation becomes untenable, bankruptcy might be the only option. This is a last resort and has long-term consequences on your financial health, so you should avoid this at all costs.
In Summary
Losing your job while on debt review is deeply challenging and will have a profound effect on your financial situation. It is critical to speak to your debt counsellor as soon as you can and build support structures for yourself. Lean on friends, family, and support networks for emotional and practical support during this period of financial uncertainty. Staying proactive and communicating clearly with all involved parties is crucial to successfully navigate this difficult period.