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Finding Debt Relief After a Loss of Income or Lost Wages » Find Debt Relief » Finding Debt Relief After a Loss of Income or Lost Wages



Losing your income can be devastating. When you calculate your monthly expenses, it’s easy to transition into panic mode. Although this is a difficult hump to get over, you are not alone.

In April 2020, unemployment was a staggering 14.7% (23 million Americans)—the highest we’ve seen since the Great Depression. That is over four times the 3.6% unemployment rate in April 2019.

While unemployment rates are now back to pre-pandemic numbers — 3.7% as of May 2023 —6.1 million Americans are still out of work.

How do you navigate a loss of income so it doesn’t have catastrophic effects on your finances long-term?  Here are some strategies you can try whether your loss of income is temporary or permanent.

How to get over losing money

Job loss affects everyone in different ways, but it’s normal to feel sad and stressed about it.

As John Schmoll, founder of the personal finance blog Frugal Rules explains, “Experiencing a loss of income can be a stressful time, especially if you’re dealing with debt or other extenuating circumstances.”

The pandemic can be classified as an extenuating circumstance and it’s taking a toll on the mental health of millions of Americans. Recent Yale research that explored how the pandemic affects our brains supports this.

They found the pandemic exacerbated stressors like financial insecurity for 44-66 million disadvantaged Americans. What are the consequences of this? Impairment to the prefrontal cortex—the part of the brain used to make decisions, regulate emotions, and control impulses.

Additionally, job loss can have short and long-term effects on your health. Research shows it may lead to a myriad of mental health challenges like complicated grief, anxiety, and depression. Over a prolonged period, job loss can contribute to more severe issues such as heart attack, stroke, or heart disease.

Make sure to take care of your emotional state when your income changes drastically. Schmoll advises taking things one day at a time as losing income can be an emotional experience. “Spend time with friends or look for other ways to benefit your mental health as that will help you both in the short and long-term.”

Financial strategies for dealing with a loss of income

Of the 9.8 million Americans currently unemployed, 2.1 million are experiencing temporary layoffs. Another 3.5 million are permanently unemployed, putting them back at square one. Regardless of which category you fall into, here is how you can adjust to your reduced income.

Temporary loss of income

During the pandemic, millions of Americans experienced a temporary job loss or slashed wages. A survey on household debt during the pandemic found since March 2020, about half of all U.S. adults live in a household that has lost some employment income.

What is a temporary loss of income? An example is being furloughed—when employees must take an unpaid break from work or have reduced hours. Companies often do this to cut back on spending and furloughs can last up to six months. Another example is getting reduced hours as a contract worker.

So, how can you navigate a temporary job loss and ensure it doesn’t lead to long-term damage to your finances?

Apply for unemployment insurance payments

File a claim for unemployment insurance (a form of income protection insurance) via the internet or telephone. If eligible, you could receive temporary monetary assistance until you resume work. Every state has a different insurance program (differences in benefit amount, length of time, and requirements), so find out what yours are. It could take two weeks or more before your benefits kick in.

Notify your lenders

One of the first things you should do when your wages decrease is to speak to your lenders. Bola Sokunbi, Certified Financial Education Instructor and founder of Clever Girl Finance advises letting them know your situation and asking if they can reduce or temporarily suspend your payments.

According to Sokunbi, “Many providers are waiving things like late fees or transferring accounts into collections and they are accommodating delayed payments and payment plans.”

Doing this should give you some wiggle room financially and ensure you have enough to pay for your most pressing financial needs without falling too far behind.

Mortgage lenders

If you have a mortgage, staying up to date with payments is critical. In a worst-case scenario, missed payments can lead to foreclosure which isn’t something any homeowner wants.

According to a GoBankingRates survey, 46% of Americans missed one or more rent or mortgage payments, while over 25% missed more than one because of Covid-19. However, foreclosure moratoria and forbearance programs have helped many avoid losing their homes.

Some forms of temporary relief you may have access to if you’re struggling to pay your mortgage include:

  • Forbearance: Monthly payments are temporarily reduced or suspended.
  • Mortgage reinstatement: Rolling missed mortgage payments, fees, and interest from lender into a single lump sum.
  • Repayment plan: Working with your lender to come up with a repayment plan for missed payments, while you continue monthly payments.
  • Reduced monthly interest rates
  • Halted interest payments 

Also, consider refinancing to a more affordable mortgage. To avoid paying more in the long run, factor in that you’ll likely need to pay closing costs again—often 1%-2% of the home price.

To apply for any mortgage assistance, you’ll need information about your financial situation. Examples include recent payment stubs, profit-and-loss statements (for self-employed), bank statements, utility bills, and an unemployment letter. You can find a more comprehensive list of items on


If you can’t pay your rent, communicate with your landlord and see if they’ll give you some flexibility. If they do, put the agreement in writing and keep track of all payments you make.

You can also see if you’re eligible for the National Eviction Moratorium, which protects people from eviction through June 30, 2021. However, there are conditions, and some include:

  • You’ve attempted to get government assistance to pay rent
  • You can’t pay rent due to loss of income, robust medical bill, or loss of work
  • You’re in danger of homelessness or living in closed quarters if you were evicted

If you qualify, fill out a form and give it to your landlord.

Another option is seeking legal help from a local legal aid program or housing advocate like Housing Opportunities Made Equal. These resources will be even more helpful if you end up in court over an eviction.

Loan providers

When you miss payments on personal loans, it can cause your credit to tumble. Avoid this by calling your lender and telling them your situation as daunting as it may be. They may also defer payments for a few months, forgive fees, temporarily reduce payments, or work out a repayment plan with you.

Credit card companies

Consumer Finance advises calling your credit card company and letting them know you can’t afford to keep up with payments. They may agree to lower or defer your monthly minimum payments; waive or refund late fees; reduce your interest rate; or establish a repayment plan to accommodate your reduced income.

Some information you should prepare to provide is how much you can afford to pay, how long you need to get back on track, and when you think you can restart normal payments.

Understand employee obligations

If you had employer-provided health benefits that you no longer qualify to receive, see if you can continue receiving them for an extended period under the Consolidated Omnibus Budget Reconciliation Act (COBRA). This act gives workers and family members who lose health benefits the option to continue group health benefits for limited periods if they lose their job, their hours are reduced, or other life events occur. Act quickly after you lose your benefits. You have 60 days to sign up for COBRA.

Scale back on spending

Once you’ve notified your lenders about your loss of income, see where you can cut back on spending, so your money stretches further. See what category takes most of your money and look for ways to reduce spending.

For example, the 2019 Consumer Expenditures Report tells us that year, Americans spent $4,643 on food at home. However, according to the USDA, in 2019 an annual thrifty food plan for a 19-50-year-old costs around $2,231, meaning many could spend at least $2,412 less on food.

Kathryn Gignac, mom blogger at Mommy Kat and Kids advises meal planning to save money in this department. “It’s the best way to reduce your current grocery budget since you can plan budget meals your family enjoys.” 

Permanent loss of income

Getting laid off often requires more long-term financial solutions. You should still do the things suggested above, but you may also want to consider some of the following.

Create a new budget

When you lose your income permanently, you may need to create a new budget. Start by seeing what your fixed expenses are and how you can reduce them.

“It might be time to shop around for a cheaper cell phone plan or car insurance plan,” advises Allison Baggerly, entrepreneur and founder of Inspired Budget, a personal finance blog geared towards women.

When writing out your new budget, the entrepreneur also advises prioritizing housing, utilities, and food, while making debt payments and miscellaneous spending secondary priorities.

That said, don’t be so frugal that you completely deprive yourself as this can lead to impulse spending. Gignac says individuals should put guilt-free money aside to avoid this.

“Even if it’s as little as $7 a week, having a bit of money to spend on treats for the kids or a movie rental to watch together can help ensure you don’t break down and abandon your budget and payment plans,” she states.

Employer benefits

Ensure you’ve accessed all financial resources from your employer once your job has been terminated. Examples include:

  • Last paycheck: If you haven’t received your last paycheck and your regular payment period has passed, contact the Department of Labor’s Wage and Hour Division or the state labor department for help.
  • Severance payment: While employers aren’t required to offer severance pay—an amount offered when your employment is terminated, see if it’s something you’re entitled to. You can check your contract or ask your employer directly if you’re unsure. If you are eligible and never received severance payment, contact EBSA.
  • Pay for unused PTO hours. Many employers have a policy that gives you extra pay for unused PTO (personal time off). Check your former employer’s policy and make sure you get everything that’s owed to you.

Credit counseling

Non-profit credit counseling is an option if you need money management and financial advice.  It can give you the tools and resources that can help you manage your income. They can also help you navigate any growing debt you have and provide solutions for managing it.

Debt consolidation loan

If you have at least some household income but can’t afford all your individual bills, you may want to try a debt consolidation loan — when you combine all of your loans into a single one and make one payment for them each month. You can also do so using a balance transfer credit card. Debt consolidation eases you of the stress that comes with trying to remember different payment dates and can reduce your total monthly payments.

Debt settlement

If your debt is at the point of no return, debt settlement may be the best option for you. This is when you agree to pay off a lump sum of the debt you owe, and the lender forgives the rest. Look at your budget and decide how much you can afford to pay upfront before starting the negotiation process.

Note, you can ask your debt collectors to remove negative marks from your credit report or report your account as “paid in full”, but there’s no guarantee they’ll agree.

Whatever your agreement, get it in writing so everyone holds up their end of the bargain.

Mortgage options

It may be better to explore your mortgage options if you can’t keep up with payments long-term.

Some include:

  • Mortgage loan modification: Changes terms of your mortgage loan, such as interest rate, loan balance, or term.
  • Short sale: When you sell your house for less than what you owe so you can clear your mortgage balance. You can also stay in the home until the sale is complete.
  • Deed in lieu of foreclosure: Give the ownership of your property to the owner of the mortgage, thus freeing you from the loan and payments.

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Lost wages assistance programs

Several government programs can help with bills while you’re unemployed. See which you’re eligible for and be prepared to show proof of lost income.

  • Temporary Assistance for Needy Families (TANF): Temporary financial assistance for families who can’t provide basic needs for their children.
  • Low Income Home Energy Assistance Program (LIHEAP): Help with home energy bills, energy crises, and energy-related home repairs.
  • Supplemental Nutrition Assistance Program (SNAP): Monthly benefits also known as “food stamps” for low-income households that assist with buying food.
  • Supplemental Security Income (SSI): Provides cash for older, blind, and disabled people without income.
  • Lifeline: Help paying for your telephone service
  • Medicaid: Affordable health insurance for low-income families
  • Medicare: Affordable health insurance for 65s and over
  • Health insurance marketplace: Comparably lower-cost health coverage

Improving your earning potential

Think about what skills you can utilize to generate income. Don’t be afraid to do something outside of your comfort zone until you regain your balance. As Sokunbi explains, “It’s OK to temporarily work at a job below your skillset if you need the money right now.”

This could mean looking for side hustles like food delivery, teaching English, or helping people walk their dogs. Also, reach out to your network and let them know you’re looking for opportunities. “It’s important to put yourself out there to try and increase your income,” says Schmoll.

Another idea is to take free courses online that help you develop skills that could improve your earning potential. For example, you could learn how to do graphic design, take a copywriting course, or learn the basics of social media marketing.

No amount is too small, as an extra $100 a week or month can go into your savings, towards basic necessities, or on paying down debt.

Losing your income can bring about feelings of hopelessness, but remember lost wages are temporary—you can get back on your feet.

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