Money’s a big worry when you’ve been made redundant or lost your job – and nothing gets you down like debt. Even if you’ve had a decent redundancy payout, keeping up repayments could put a real strain on your finances. Here are some simple steps to keep on top of things.
Step 1 – Make a list of all your debts
Mortgage, car loan, credit cards, store cards, other loans, arrears on Council Tax or utility bills. List all of your debts, including the ones you’d like to conveniently forget about. They’ll all need to be tackled at some stage, so you need to start off with a clear picture of where you stand.
Make a list of all your debts, including the outstanding balances and how much you pay each month.
Step 2 – Claim on insurance
“I had a few sleepless nights worrying about paying off my credit card bill when I was made redundant. Then I found out that the payment protection insurance I’d taken out had it covered. Talk about a big relief!” – Lisa
• Mortgage payment protection insurance (MPPI) will cover your mortgage repayments when you’re not earning for a limited period
• Payment protection insurance (PPI) will cover some or all of your loan or card repayments for up to 12 or 24 months
• Short-term income protection insurance will replace a proportion of your income for up to 12 or 24 months
Check for any mortgage payment protection insurance (MPPI), payment protection insurance (PPI) or short-term income protection (STIP) insurance you may have previously taken out, and make a claim
In the past, because of the way payment protection policies were sold, you may not realise that you have this cover. Ask your lender whether your mortgage, loan or credit card is covered by insurance.
If you have insurance and your claim is refused, you may have been mis-sold the policy and could be eligible to claim compensation.
Step 3 – Prioritise your remaining debts
Losing your job can easily tip you over from a situation where you were managing your repayments into one where they’re starting to feel out of control.
Start by being clear which of your debts are priority.
Priority debts Things like your mortgage, your rent and any tax or utility bills are classed as priority debts. Fail to pay these debts and you could lose your home or be evicted, have your electricity or gas cut off, or have essential items (such as your car) repossessed.
Things like credit card bills, unsecured loans, bank overdrafts and catalogue debts are classed as non-priority debts. The consequences for non-payment of these aren’t quite as great. The companies you owe can’t take your home, for example. At the worst, you could be taken to court and ordered to pay an amount that is judged to be affordable from the income that you have.
Always give priority to your mortgage or rent and household bills. Your credit card company may be quicker to remind you of a missed payment, but don’t be tempted to take risks with the roof over your head.
Step 4 – Work out your budget
Get a clear idea of what you’ve got coming in and what’s going out. The amount that’s left after paying for your household bills, your living expenses, plus repayments and interest on anything you owe is what’s available to start paying off your debts more quickly.
Step 5 – Start paying off your debts
On top of what’s left at the end of each month, you can also use redundancy pay or savings to pay off some of your debt. Start with priority debts first.
Consider keeping back some of your redundancy pay to top up your income while you’re not working or to meet unexpected bills.
Article Reproduced from The Money Advice Service