Getting Into Debt Because of a Drop in Income
If you have become unemployed due to illness, accident, redundancy, or simply through losing a job then any loss of income will be a strain. Debts from a loss of income can soon build up and the resulting stress can have a direct effect on other areas of your life such as family and social relationships. There are ways to take some of the strain from mounting debts, and there are precautions that can be implemented in case of future loss of income.
Insurance PoliciesThere are a number of different insurance policies that can be used as a safeguard against future loss if income. Although payment protection insurance (PPI) has been under fire lately and is under investigation from the Office of Fair Trading, it can have its uses. If you have taken any form of credit or loan you will usually be offered PPI as part of the agreement.
With PPI you basically pay a premium every month that guarantees coverage of your payments should loss of income occur. PPI is being investigated due to the fact that the premiums paid by the customer are usually too much for the cover given out. Many people will take PPI and never use the cover, but if loss of income does occur due to illness, redundancy or unemployment, then this insurance policy will usually cover credit payments for around a year.
Income Protection InsuranceAnother form of insurance policy is income protection insurance (IP). With IP, sometimes called permanent health insurance, you are guaranteed payment no matter what the reason is for your loss of income. IP seems to be a better option than PPI as with some IP policies there is no limit on how long you will receive payments for; they can last until you are 60. The benefits with IP can be around three times higher than those paid by PPI, although you will have to wait 13 weeks until IP pays out.
Always Read the Small PrintIf you are buying one of these insurance policies make sure to read the small print carefully. Shop around to see which deals are best compared to the premiums you will pay and always take financial advice. Don’t buy PPI policies from the same provider that you are obtaining credit from; you will find much cheaper policies from an independent insurance provider.
Contact your CreditorsAs soon as you become unemployed you should contact all of your creditors and fully explain the situation. If you do not have any form of insurance to cover repayments then you should negotiate a new repayment schedule. Most reputable lenders understand that this sort of situation is part of lending, and as long as you pay something each month there should not be a problem.
Seek Financial HelpDebts from a loss of income can mount up easily and interest on these debts can soon become a big problem. If you do not feel you can negotiate with your creditors yourself then contact a credit counselling service or a Citizens Advice office. They will be able to contact your creditors on your behalf and should be able to get interest stopped, repayments lowered, and length of repayments extended.
Do not wait until bills have accumulated until you seek financial help or contact your creditors. The longer bills accumulate the more interest and non payment penalties will be applied. Creditors will look favourably on people who contact them and arrange an alternative payment schedule. Taking control of your debts will also relieve stress; unemployment is a stressful enough time without any added strain.
Government HelpAs soon as you become unemployed check with your local government office regarding the benefits you can claim for. In many cases you can receive financial help with rent, council tax, child benefits and unemployment benefits. In most cases this is money you are entitled to and it is the reason you have been paying tax and national insurance contributions for years. Make sure you apply for everything you are entitled to as soon as possible as in most cases these payments cannot be back dated.
If you are suffering with debts from a loss of income then do not panic; many other people have went through the same thing and it is not an uncommon situation. Taking control of your finances as soon as possible will be one less thing for you to worry about. Make sure that priority debts such as mortgage and energy suppliers are paid first, and always make sure your creditors are aware of your current situation.