You’ve cut spending to the bone, sold excess stuff and hustled every side gig imaginable. But your emergency fund, if it ever existed, is on fumes.
What you do next may determine how fast — or even whether — you recover from the setback of losing your job.
Denial and desperation prompt people to grasp at solutions that could make matters worse, like an ill-considered raid on a retirement fund or a bad loan, says Ellen Siegel, a certified financial planner with Legacy Wealth Management in Miami.
Here’s what to do instead.
Assess your resources
If you’re a homeowner, you may have access to one of the cheapest ways to borrow: a home equity line of credit. Like many advisers, Siegel routinely suggests clients set up a HELOC to supplement even the healthiest emergency fund. The line should be left open and unused; risk your home only in the direst circumstances.
“It’s for ‘The sky is really falling and we can’t eat,”‘ Siegel says.
Tapping unused space on a credit card is another option. Yes, carrying credit card debt at double-digit interest rates is bad. But borrowing from a payday lender at triple-digit rates or inflicting irreversible damage on retirement accounts generally is much worse.
Also, check the public safety net. Visit Benefits.gov to see what’s available.
Triage your bills
Rene Nourse, a CFP with Urban Wealth Management in El Segundo, California, tells her clients to cut their spending hard and fast before they tap savings. As emergency funds dwindle, though, people may have to go beyond bare-bones efforts to decide which bills to pay and which to let slide.
Generally, keeping a roof over your head and the power on are priorities, but the leeway varies.
Some cities make evictions difficult, while others allow landlords to start proceedings to boot tenants as soon as they’re late on the rent. An internet search on “landlord tenant law” in your city can help you understand your rights.
Most utilities, meanwhile, offer “lifeline” services for low-income customers, and many, especially in northern states, aren’t allowed to cut off service in the winter. That lets strapped customers to skip bills for months and then catch up when their tax refunds arrive, notes Jeanne Hogarth , a vice president for the nonprofit Center for Financial Services Innovation in Chicago, which has studied how low- and middle-income families cope with setbacks.
Nourse recommends trying to negotiate lower payments or forbearance with creditors, because skipping a payment on any credit account can damage credit scores.
If missing payments is inevitable, then putting off paying unsecured debts such as credit cards, personal loans and student loans typically is better than blowing off the mortgage or car payment.
Credit card companies usually don’t write off unpaid accounts for five to six months (although try to keep paying the minimums on any account you’re still tapping for living expenses).
Student loans typically must be 270 days overdue before they’re considered in default. But the repo man can come for a car if a payment is even a day late. Federal law generally prohibits mortgage lenders from starting foreclosure proceedings for 120 days after delinquency, although in some states the process can move swiftly from there.
