Key Takeaways

Unemployment or reduced hours can quickly dwindle your savings and put you in a tight spot. If you have racked up crippling debt while being unemployed, there are many resources available, including unemployment debt relief. 

Job loss is one of the most stressful life situations. Not knowing when you will find a new job and mounting debt is stressful for anyone. The last thing you want is to worry about whether you can make repayments.

The unemployment rate in the U.S. in December 2023 was 3.7%, with 6.3 million Americans unemployed. Do not lose hope if you are being chased by lenders or receiving creditor calls. There are many resources available for those who have unemployed debt. 

Below, we list some of the steps you can take to regain control of your life.

Take action at the earliest so you can quickly resolve your financial situation. 

4 Ways To Get Unemployment Debt Relief

Facing debt during unemployment can be a daunting challenge. But with effective strategies and helpful tips, financial relief is possible. From budgeting to consolidating options, find out how to take concrete steps to mitigate the financial burden during these difficult times.

1. Make a Budget and Prioritize Expenses

One of the best things to do when dealing with unemployment debt is to make a budget with free budgeting tools such as budgeting templates in Google Sheets and banking apps or even with just a pen and paper.  

Borrowers who can budget appropriately and commit to monthly payments to pay down debt are more likely to achieve a debt-free life. Take a look at all your bank accounts and separate your expenses into two categories:  fixed expenses and discretionary expenses.

Brad Reichert, a debt expert and the founder and managing director of Reichert Asset Management LLC, offers advice on how to handle long stretches of time without a job: “The average length of unemployment as of 2023 is 22 weeks (about 5-½ months), so the potential for a longer than expected stretch of unemployment makes an emergency reserve fund even more important,” Reichert explains.

“By saving a minimum of 4-6 months of expenses, you can combine the cash you have saved in your emergency reserve with any part-time or ‘side-gig’ work you may be able to do (e.g., rideshare driving, food delivery, online work) to pay your bills while you look for a full-time job within your chosen field,” Reichert shares.

Mandatory or fixed expenses, such as food, utilities, and housing, can’t be avoided. However, you can reduce spending on discretionary expenses such as events, shopping, and dining out. Ultimately, you will need to think about what you need and things you can temporarily do without.


Here are a few ways to manage different expenses while dealing with unemployment.

Housing

Rent or mortgage is a mandatory expense, but several options are available to ease your burden.

You can contact your mortgage lender to explain your situation if you have a mortgage. Some lenders have temporary financial hardship programs that you may be eligible for. 

It is a temporary solution and one that is not very effective, but it can help.

If you rent, you can negotiate with your landlord or property management company to temporarily reduce your rent in exchange for maintenance work. You can also consider moving in with your parents or family members or to a cheaper place while you are out of work. Another solution to reduce your housing costs is to take in roommates.

Utilities

Try to reduce your utility bills by taking measures to reduce your consumption. Take shorter showers, turn down your thermostat, wear warmer clothes indoors in winter, and any other measures that will allow you to save energy. Many utility companies offer tips to reduce energy consumption. 

Food

Food is one area where you can find the most savings. Cut down on dining out and cook more at home. Compare prices at different stores to reduce your grocery bills. 

If you are in a tough situation, you can also check to see if you are eligible for food stamps through the Supplemental Nutrition Assistance Program (SNAP). Check to see your eligibility for SNAP benefits here.

Car Payments

If you have a car loan, check with your lender to see if they have a hardship program. While you will need a car for job interviews, you can save money on car payments.

If your car payments are quite high, switching to a cheaper used car might be best. Look around and compare your options to find a used car that will be more affordable than what you currently have.   

Phone

Another area where you can save money is your phone bill. While you’ll need to have a cellphone to look for a job, see if you can scale back to a cheaper payment plan. You can temporarily forego features like international calling or unlimited data to save money each month. If you are in a contract, you can check with your provider to see if they have a temporary hardship program. 

Health Insurance

If you had health insurance through your former employer at an affordable rate, you could continue the group coverage through COBRA. If you choose this option, however, it will usually be without employer subsidy, so be prepared to pay between $400 and $700 per month per individual covered. This may make sense, even temporarily, if you are already close to meeting your deductible for the year or you’re far enough into the calendar year where you’ve already met your deductible.

If this option is no longer affordable, you can also look for options on HealthCare.gov.  In addition, if your income is low enough, you may qualify for federal financial assistance with your health insurance premiums under the Affordable Care Act’s Premium Tax Credit to the point where your monthly health insurance cost is less than $50 per month.

Cable and Subscriptions

If you still have cable, consider switching to streaming video platforms, many of which are free to stream if you don’t mind sitting through a few ads before your program. If you can’t do that, you can reduce your monthly payments by dropping all the premium channels. 

If you have multiple subscriptions, it may be time to review all of them and see which subscriptions you can temporarily drop until you find a new job.  Streaming services do not have long-term contracts like the cable company or your cell phone service provider does.

2. Apply for Government Assistance

For Unemployment Insurance (UI) benefits, Pandemic Emergency Unemployment Compensation (PEUC), or extended benefits, contact the unemployment insurance program in your state as soon as possible. Each state has its own guidelines and eligibility criteria for filing for benefit payments. Contact information is available on state websites. 

There are also many other federal programs that you may be eligible for: 

  • The Temporary Assistance for Needy Families program offers eligible families financial assistance and other benefits such as job training and child care. Check your state’s TANF program eligibility criteria.
  • SNAP or food stamps can provide you assistance with necessities such as groceries.
  • Supplemental Security Income provides cash to people with disabilities and low-income seniors.
  • CHIP, or Children’s Health Insurance Program, offers uninsured children low-cost or free medical care if the family income exceeds Medicaid’s limit yet is too low to make health care affordable for the child(ren) in the household.  
  • You may also be eligible for low-cost or free health benefits through Medicaid if you meet the program’s financial and non-financial eligibility requirements. 

Utilize government assistance programs to save money on health care and food. This will allow you to allocate more money toward debt repayments.

3. Get an Expert Opinion on Paying Off Debt While Unemployed

When you have unemployment debt, it is important to be very vigilant. Taking out a cash advance or payday loan may seem like an easy way out. Because of the exorbitant interest rates on payday loans, it is easy to quickly rack up a lot of debt. 

Other, better debt relief programs are available, like debt settlement, debt consolidation, and debt management. Loans and credit cards may tide you over temporarily, but soon, you’ll realize that you can’t afford to make the debt repayments each month.

Another option to avoid is a home equity loan which, along with Home Equity Lines of Credit (HELOCs), allows you to borrow funds against your home’s equity. It is important to remember that home equity loans are secured loans. This means you can risk foreclosure and losing your home if you fail to make payments. It will also be challenging to qualify for these loans when you are unemployed. 

It is crucial to talk to a personal finance expert to understand your options for debt relief when you are struggling financially. An unemployment debt relief expert can give you the best advice on how to get out of debt when you are unemployed. 

A debt relief company will create a personalized debt repayment plan that suits your financial circumstances. In some cases, you can negotiate with lenders to waive penalties and fees, reduce interest rates, and settle your account for good.

4. Consolidate Your Debts

A debt consolidation loan can be very effective if you have multiple debts, but this option is only available if you are employed. 

If you find yourself unemployed and needing relief, it could be worth pursuing a new job first to qualify for debt consolidation loans that will help you condense multiple smaller debts into a larger single loan for easier repayment. It simplifies your debt repayment into one monthly payment and may allow you to reduce your interest rate if you qualify for a lower fixed-rate loan.

Debt consolidation involves applying for a new lower-interest loan or a 0% balance transfer credit card. Once approved, you can use the funds from the debt consolidation loan to pay off your higher-interest debts all at once. 

This can help you spread out your payments over a longer term so you will have lower monthly payments. Having a single payment each month also makes budgeting easier.

You’re Not Alone in Your Unemployment Challenges

Other than unemployment, many job-related issues, such as furloughs, reductions in hours, and underemployment, can contribute to financial issues and debt. 

The problem can be compounded when you lack savings and are in debt. The last thing you want to worry about while applying for unemployment is how to get out of debt.

The reality is that even when your paychecks stop coming, your bills will continue to come. You can struggle to keep up with your monthly cost of living. Regardless of the problems you are facing, you are not alone.

It may be tempting to swipe your credit cards or take out a new loan to deal with your expenses. Credit card debt will only add to your problems. If you are receiving unemployment insurance benefits, it is important to know that overpayment of unemployment benefits is not uncommon. 

From April 2020 to March 2021, states identified $12.9 billion in overpaid unemployment insurance. This also applies to the Pandemic Unemployment Assistance claimants who received benefits through the CARES Act.

Benefit overpayments are usually due to unintentional errors, but some of the other reasons include fraud, inaccurate application, inaccurate wage history, and applying when you are unqualified. It can be nerve-wracking if you have received an overpayment notice from the unemployment office because it means this is just more money you will have to pay back.

What To Do If You’ve Been Told to Pay Back Unemployment Benefits

If you have been told you must pay back all or some of the overpaid unemployment benefits or Pandemic Unemployment Assistance, here’s what you can do.

Repay the Overpayment Balance 

If you have the resources, you can contact the State Department of Labor to pay back the overpaid benefits in full. You can also request to set up a repayment plan for the overpayment amount you owe.

Appeal 

If you think you received the repayment notice in error, you can file an appeal and request a hearing. No collection actions will be taken during the appeal process. Once the overpayment determination has been made on your appeal, you’ll know whether you need to repay the overpayment balance.

Waiver 

Even if the overpayment is legitimate, you can request forgiveness or waiver of PUA. Check the requirements of your state and request an overpayment waiver at the earliest. Waiver requests can also be sent online.

The Bottom Line on Unemployment Debt Relief

Unemployment debt can be a huge burden and a source of stress in your life. The sooner you take steps to repay this debt, the easier it will be to get back to your life. The options and resources listed above are a good starting point. 

Be sure to speak to a professional about the best way to get out of debt based on your financial situation. The last thing you want is to end up with more debt or in deeper financial trouble.