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May 11, 2023 | By: Dianna Hendriks

Navigating Your Finances During a Lay-Off

Budgeting | Debt Management | Layoffs

Navigating through the world after losing your job can be scary. There are uncertainties and questions that come along with adjusting to a new lifestyle. Figuring out what to do can seem daunting, but when you’re equipped with the right tools and support, you’ll come out stronger and find new growth in these next steps. 

At Credit Canada, we understand that you may be carrying some extra weight on your shoulders, so we've outlined strategies to help alleviate some of that stress.

Adjusting to Unemployment

If you’ve recently lost your job, the first thing we recommend you do is take a deep breath. A lay-off comes with a lot of emotions and it may take some time to process these new changes in your life. It’s important to prioritize your own well-being and remember that there are tactics and support systems available to help you get back on your feet in between jobs.

Next, set aside some time to sit down and take an in-depth look at your current financial situation, including any loans, car payments, credit card bills, and any other ongoing expenses. 

Even if this task is a bit intimidating, it’s a necessary step to first understand your current situation so that you can put together a plan to get through until a new opportunity comes along. The good news is that the unemployment rate in Canada remains low at 5%. This means there will be options when you’re ready to begin applying for new roles. 

Once you’re ready to start your job search, we recommend that you approach the process as if it were a full-time job. That way, you’ll improve your chances of landing an interview. When applying for a new position, use job search platforms like LinkedIn or Indeed. You might also want to ask friends and family if they know of any open positions or opportunities for networking.

7 Tips to Manage Your Finances During Unemployment

Adjusting to a reduced income is one of the biggest challenges when you’re in between jobs. The sooner you take action to re-evaluate your finances, the more secure you’ll be with your money. Here are some strategies to help you with personal finance management while you look for a new position.  

1. Apply For Unemployment Benefits

The first step to taking control of your finances is to enroll in employment insurance benefits. You might be eligible to receive up to $650 each week depending on your insurable weekly earnings from your previous job. 

You can apply for benefits immediately after you stop working, regardless of when you receive the letter of unemployment from your workplace. If you’ve lost your job and are actively seeking work, Employment Insurance (EI) is a valuable resource to help keep you on your feet. 

To qualify for these benefits, you must submit your claim during the first four weeks of unemployment. Keep in mind that EI benefits are applicable for people who have been laid off by their employer and have not voluntarily left their jobs. 

2. Rethink Your Budget

Since your income has changed, you’ll have to create a new budget plan. Budget planners are excellent tools to help you redesign your budget to ensure you’re allocating money to where it is most needed. While it may seem daunting, taking a good, honest look at your expenses can help you develop a strong plan to help you move forward. When managing finances, a budget calculator can also help by figuring out where to cut some expenses.

In an ideal situation, you would have been able to save about three months of rent or mortgage payments in a savings account. This is a good rule of thumb that we recommend for our clients as a safety net when they need it. It might feel uncomfortable to dip into your savings, but if you have it, don’t be afraid to use it! Figure out how long your savings will last before you need to seek out additional financial support. 

You can also look back at your last bank statement to find spending patterns that can be adjusted. For example, instead of buying coffee every morning, brew a cup at home - making many small changes can make a big impact. Think about categorizing your expenses as fixed and variable, or household and living. Household and fixed expenses typically cannot be negotiated. However, variable and living expenses can be adjusted. 

3. Prioritize Essential Expenses

When your financial situation changes, it can be difficult to adjust your spending habits. To help minimize unnecessary spending, determine what is essential and what you can live without. Fixed expenses are going to be those that you and your family need to get by on a daily basis, such as food, mortgage and rent payments, transportation, and utility bills. These are the expenses that you’ll want to move to the top of the list.

Non-essential or variable expenses are the ones that can be eliminated, such as eating at restaurants or personal shopping. This can be a big adjustment, to shift your mindset from purchasing things you want to focusing only on those things that you need. Changing your perspective and cutting back on these nice-to-haves can help you save money in the long run. 

In addition, look for opportunities to minimize your fixed expenses. For example, temporarily suspending a subscription service or a membership and using those funds to cover your essential expenses could help you better balance your budget. You may also want to consider making a phone call to your cell phone or insurance providers to see if there are opportunities to lower your monthly payments either temporarily or permanently.

4. Adjust Your Credit Card Payments

Try adjusting your monthly credit card payments to only the minimum required amount. If you’ve made it a habit to pay off your credit card in full each month (which is an excellent strategy), this may be a time to consider paying a lower, or even the minimum, amount until you get back on your feet. By paying your minimum monthly payments you can maintain your credit score while conserving your cash flow.

5. Consider a Repayment Assistance Plan

If you have student loans, you might be eligible for Repayment Assistance Plan (RAP). If you are struggling to pay off your loan, this is an excellent source to help minimize some of your payments. Depending on your income level, you might be approved for reduced payments to help chip away at some of your debt at a rate that you can afford.

You can apply for RAP at any time while paying off your student loans. Just keep in mind that you must reapply every six months to keep your loan repayments at a reduced level. With RAP in place, the government will help with any unpaid interest on the federal portion of your loan as long as it is not covered by your reduced payment. 

6. Modify Your Mortgage Payments

Do you have monthly mortgage payments? It might be a good option to defer your mortgage payments for a short time. That way, you’ll be able to focus on getting back on your feet without another large payment deadline approaching. 

This can help you save money while sorting through your current financial situation. Meanwhile, the unemployment benefits and deferred payments plan can help you buy yourself some time which you can use to focus on your job search. Be sure to speak with your mortgage broker to see if you qualify for mortgage deferment. 

7. Join the Gig Economy

Part-time work can help supplement your income while you figure out your next move. There are all kinds of freelance and part-time opportunities available, thanks to gig economy work. For example, if you have a vehicle that you own, you might consider joining a ridesharing app (like Uber or Lyft) or delivering groceries on demand.

This is an excellent opportunity to develop your skills or try something new. Plus, taking on a temporary position can help provide you with a steady stream of income until you find a new full-time position. You might even get lucky and turn a part-time job into a full-time gig. 

Managing Your Debt

When learning how to manage your debt after you’ve been laid off, make sure you have a plan to tackle your debt. Just like using minimum payments for credit card debt, try using a similar strategy for other debts as well. This might extend your timeline to pay off debt, but for the time being, only paying the minimum amount can be a great way to help while you figure out your finances during a layoff. If you are struggling to find the best way to pay off your debt without impacting your long-term goals too much, don’t be afraid to ask for help. 

Seeking the assistance of an experienced credit counsellor can help you take control of your debt. With a certified credit counsellor on your side, you can determine if creating a debt management plan or trying to settle your debt will benefit you during this time. 

Keep in mind that debt settlement, or asking your bank to forgive some of your debts, will likely impact your credit score. However, it can be a powerful strategy to manage your finances while your income is low. 

In case you find yourself struggling, Credit Canada has counselling services to help you manage your new budget. You’ll be able to take charge of your finances and be prepared for what comes next. Contact us today to speak to one of our certified credit counsellors. It’s confidential, non-judgemental and 100% free!

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