Most Americans see unemployment as a problem in our country. This issue encompasses much more than just time without a job; it can also be underemployment, or even a reduction in work hours. In reality a variety of job-related issues can contribute to debt and financial issues. When someone is carrying a lot of debt, employment problems only add to the stress. The last thing you want to be dealing with while trying to become debt-free is suddenly trying to find out how to apply for unemployment.
Plus, when the paychecks slow down or stop coming, the economic reality is that bills will continue to come, regardless of your income. This situation often results in increasing debt as someone or their family struggles to keep up with the cost of living. Unemployment can happen to anyone, and unsecured debt only compounds the problem because of the ongoing bills that need to be paid.
Common Unemployment Issues
For many different reasons, sometimes people find themselves in situations where they need to file for unemployment. Understanding the most common unemployment and underemployment issues can help an individual find solutions to overcome them and avoid debt. Here’s an overview of some of the most common employment-related issues that contribute to debt problems.
Unemployment from Job Loss
Having a consistent paycheck is essential to keeping up with living expenses and staying ahead of debt payments. Sudden unemployment can negatively affect a family’s ability to maintain those necessary payments. Job loss can happen for a variety of reasons, such as layoffs, illness, performance, and business closure. Sometimes, temporary income is available to help through unemployment claims, such as severance pay or state-sponsored assistance. However, these payouts are often less than the salary the employee was previously receiving.
Debt from Overtime Reduction
It’s easy to count on a set income level, with people adjusting their lifestyles based upon the money that’s coming in each month. Even though a reduction in overtime hours doesn’t result in full unemployment, it can have a big impact on the person’s monthly income. If overtime was previously available and you’re now facing a cap on hours worked each week, then it’s easy to slip into a financial situation where you have to spend more than you can bring in.
Debt from Reduction of Hours
Another common problem occurs when an employee’s hours are cut. When things slow down in the workplace, employers sometimes reduce the weekly hours of all employees instead of laying people off. The reduction of hours leads to natural unemployment issues. If an employee can’t meet financial obligations at home, then he or she must look at taking on a second job or quitting in favor of a new full-time job, which can often be difficult to find.
Underemployment vs. Unemployment
This term is used when someone has a job, but the income isn’t sufficient to cover the cost of living. You might be working full-time hours, but your expenses are higher than your income. Alternatively, underemployment can occur when a person has a hard time finding a job that offers full-time hours, thereby settling for a part-time position since it’s better than no income at all. Underemployment is a problem that often leads to debt issues, especially if the income is high enough that it disqualifies the family from receiving assistance through other programs.
Debt from Furlough
Employers might implement mandatory time off work due to internal issues within the company or larger budgetary issues. Instead of resorting to layoffs or pay cuts, a furlough is a temporary alternative. When an employee is furloughed, he or she faces temporary unemployment. The company might offer partial furlough pay, but more often, the employee has to take time off with no pay. The employee still has a job, but won’t be paid for it until the furlough is over. Furloughs and unemployment may sound similar, but there are distinct differences. A layoff means that the employee will not return to work without a new employment agreement in place. On the other hand, a furlough is designed with a specific period after which the employee can return to work.
Temporary Unemployment from Job Seasonality
Some employees face temporary unemployment during certain times of the year. Job seasonality can occur in a variety of industries. For example, construction jobs tend to slow down or come to a halt during the cold winter months. Another example is that of teachers who don’t work during the summer. Even though job seasonality is different from long-term unemployment, it can still lead to debt concerns because of the variable income throughout the year.
Debt from Lack of Sales Commissions
A sales job can offer the upside of increasing income based on performance. While this benefit might seem appealing when someone is working to improve a financial situation, it can be a bit of a shock if the sales commissions are decreased. A drop in commissions means that sales associates have to work harder to earn the same amount of money. While changes to sales commissions don’t always lead to unemployment, it’s common for sales associates to face underemployment problems because of the drop in income.
Spouse Job Loss and Unemployment
Don’t underestimate how much of a change a drop in a spouse’s income can have on the rest of the family. Even if your paycheck is consistent, you might struggle financially if your spouse is facing unemployment problems. It’s common for families to build their monthly expenses around their combined income, which causes financial challenges when a portion of that expected income goes away.
How to Manage Unemployment
Most people face unemployment issues at one time or another and must rely on unemployment benefits. Whether you’re without a job for weeks or months, it’s a time to reassess your budget and financial situation. Sometimes, overhead costs can be minimized to avoid the debt that accumulates. Not only do you need to consider how much money is being spent, but it’s also important to be proactive in increasing income.
The truth is that unemployment can be the “final straw” when a person is carrying a heavy debt load. A reduced income or lack of income makes it a challenge to keep up with minimum payments. As a result, the debt continues to increase due to interest costs, late fees, and other penalties assessed by creditors.
Regardless of your unemployment situation, it’s smart to consider your options for debt repayment. Staying ahead of these balances means that you aren’t one paycheck away from financial ruin. Debt negotiation and debt settlement can simplify the repayment process, making it easier to turn your financial situation around. Being proactive with these strategies is essential so that you have options for the future if unemployment or underemployment occurs.