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Redundancy or loss of income and debt

A loss of income through redundancy, however temporary, can dramatically affect people financially as well as emotionally.

Losing your job can force a lifestyle change on you; where common compromises include cutting out expensive luxuries such as family holidays, cutting down on costly takeaways and nights out and being much more careful when it comes to spending money on housekeeping, clothes and petrol. However this is generally easier said than done because as we all know, many people find drastic changes in income difficult to cope with, and debts can soon mount up.

A reluctance or inability to give up life’s little luxuries after redundancy can be a major factor in placing people in a position from which they feel they just can’t recover.

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How debt gets worse after redundancy

There are a number of reasons why debts can occur after a sudden loss of income due to redundancy, such as:

  • Being unable to make repayments on existing debts (e.g. credit cards & loans).
  • Not having enough money to pay for general living costs (food, mortgage/rent, travel costs etc).
  • Loss of income can cause depression and other related illnesses, which are often linked to poor financial management.
Have a look at our Debt and Redundancy Guide for more information on this. 

If you aren’t able to find other work soon after redundancy, then you may need to enlist some expert financial advice such as that offered by PayPlan in order to avoid falling into a level of debt that you can’t afford to repay. PayPlan offers free advice on how to manage your income and expenditure to everyone who contacts us; this is particularly helpful if you’ve experienced redundancy recently, as we can advise on some of the financial mistakes that people in that situation have been prone to, such as using credit to pay off existing debts.

Using credit to repay debts after redundancy

Trying to maintain your lifestyle after a loss or reduction in income due to redundancy can make it very difficult for the repayments to be met on your existing unsecured and secured debts. Using credit to make repayments on existing debt is sometimes perceived as being the only solution.

After redundancy then naturally your regular income is minimal, but taking out extra credit often leads to your debts increasing because of the diminished ability to make repayments. A common term used in this scenario is “robbing Peter to pay Paul”; and PayPlan can help prevent this by providing free advice to clients and then helping them to address their debts by recommending debt solutions such as Debt Management Plans and Individual Voluntary Arrangements, or even (in extreme cases) bankruptcy.

People who have been made redundant and who receive a redundancy payment may be able to use that redundancy payment to make what is known as a ‘full and final settlement’. This may clear the full balance (or just a proportion of it) in order to finally settle the debt, and this can make the situation more manageable and reduce the need to borrow more. See what PayPlan can do for you if you are struggling to make the repayments on existing debts.

Assess priority debts after redundancy

General living costs can also be affected dramatically if a loss of income due to redundancy is experienced. This can result in the perceived increased need for credit cards, loans and overdrafts to pay for the basic costs of living, although this of course is a false economy that can lead people easily into the so-called ‘credit trap’; clearly the last thing you need after redundancy. After a traumatic episode such as redundancy, people often also experience an inability to prioritise their debts. 

When you’re experiencing a situation involving unmanageable debt, it’s often tempting to pay the creditor who hassles you the most. But this isn’t necessarily a suitable strategy for coping with your debts; you need to prioritise your debts and understand the possible effects of not paying priority debts.

Failure to pay priority debts after redundancy

Failure to pay priority bills before low priority debts can have serious consequences. For example failing to pay a mortgage will result in mortgage arrears and can lead to house repossession, while failure to pay your council tax will ultimately result in a Court Summons and can even result in a prison sentence. If you wish to avoid these serious outcomes then ensure you communicate with your mortgage provider and local council regularly. Continued failure to pay any debt can lead to serious consequences.

For example failure to pay a credit card bill could result in the credit card company issuing a County Court Judgment (CCJ) which stays on your credit file for six years. This is undoubtedly undesirable, but not as serious as having your family home repossessed for failing to pay your mortgage or being given a prison sentence for not paying your council tax. But don’t panic. PayPlan can help you to re-assess your monthly income and expenditure and advise you what debt solutions could help you achieve debt freedom.

Redundancy? Act sooner rather than later

Alternatively, speak to your mortgage provider to discuss any assistance they can provide. Mortgage providers have a duty of care to ensure all customers are treated fairly when facing payment difficulties and will be able to discuss the available options with you. Loss of income or redundancy can often leave families feeling they have no alternative but to use the credit facilities available to them to get by from month to month.

In many cases they feel this is the only way they can feed themselves and their family, but it isn’t necessarily the case. If you have recently been a victim of redundancy or have lost your income there are ways to help. Consider a benefits check-up or view our money saving tips section to help prevent debts accumulating. You should seek advice as soon as your financial situation changes. Contact PayPlan to see how we can help.

Redundancy – What can you do next?

As a next step, contact Payplan for free & immediate advice on redundancy, or any debt solutions appropriate to your needs.
For immediate and free debt advice please call PayPlan free on 0800 316 1833 or use our Debt Help Form to submit your debt problem online.

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Excellent, professional, friendly and empathetic service. PayPlan have given us our lives back!
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