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I recently, and unexpectedly, lost my job. Because I had summers off (no paychecks either), I've been using my credit cards for most purchases, saving what cash I had saved from the previous year to pay bills (rent/car/etc.).

I am in the middle of interviewing for several positions, and expect to have a job within 30 days. My question is: what to do until then?

My monthly expenses (including credit card minimum payments) are about $3500. Seeing as my credit cards don't have that much room on them, and my bank account is painfully empty, I am left with what feels like the following two options:

  • Take out a new credit card.
  • Ask the bank for a loan.

Now I have no idea how loans work, and am not even sure I could take out a loan so small. But that certainly seems preferable to opening my third credit card, and the high interest rates that entails. So I have several related questions:

  • Are these my only two options?
  • What is my best course of action, trying to minimize future debt?
  • Assuming I receive this $3500, am I better off using the bulk to pay off my credit cards, or should I keep as much cash available as I can?

EDIT: Just a few details I thought might be pertinent:

  • My credit is very good. I've never missed a payment on my credit card or any bills. The last time I checked (roughly 18 months ago), my credit score was a 710 out of 790.

  • The $3500 in expenses covers both items I can use credit or cash for (e.g., groceries), and items I can only use cash for (rent). The split between "cash only" and "either" is approximately 50/50.

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    When you do start you new job, remember to start saving for an emergency fund to cover at least 3-6 months of your expenses, in the event you face a similar situation in the future. – John Bensin Aug 29 '13 at 20:43
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    Yes, that is definitely one lesson I've gotten out of this experience! – Steve D Aug 29 '13 at 20:50
  • Is unemployment an option for possible assistance here? – JB King Aug 29 '13 at 21:06
  • I don't know anything about unemployment actually. I have a 1-hour-per-week teaching gig, would that disqualify me? – Steve D Aug 30 '13 at 5:14
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    Unemployment criteria depends on State law; Federal requirements are that you have lost your job "through no fault of your own" (colloquially, you were "laid off" and not "fired" or "quit/resigned"). Typically, one hour a week is not going to count as having a job (unless you're billing $400 for that hour). If you were working a fast food job at 3/4 time, your wages might count against your assistance amount or even disqualify you, but I can't imagine anyone thinking that a gig teaching guitar or whatever to a kid for $20 even approaches a sustaining income. – KeithS Sep 3 '13 at 20:12
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A traditional bank is not likely to give you a loan if you have no source of income. Credit card application forms also ask for your current income level and may reject you based on not having a job.

You might want to make a list of income and expenses and look closely at which expenses can be reduced or eliminated. Use 6 months of your actual bills to calculate this list. Also make a list of your assets and liabilities. A sheet that lists income/expenses and assets/liabilities is called a Financial Statement. This is the most basic tool you'll need to get your expenses under control.

There are many other options for raising capital to pay for your monthly expenses:

  • Sell off your possessions that you no longer need or can't afford

  • Ask for short term loan help from family and friends

  • Advertise for short term loan help on websites such as Kijiji

  • Start a part-time business doing something that you like and people need. Tutoring, dog-walking, photography, you make the list and pick from it.

  • Look into unemployment insurance. Apply as soon as you are out of work. The folks at the unemployment office are willing to answer all your questions and help you get what you need.

  • Dip into your retirement fund.

To reduce your expenses, here are a few things you may not have considered:

  • If you own your home, make an appointment with your bank to discuss renegotiation of your mortgage payments. The bank will be more interested in helping you before you start missing payments than after. Depending on how much equity you have in your home, you may be able to significantly reduce payments by extending the life of the mortgage. Your banker will be impressed if you can bring them a balance sheet that shows your assets, liabilities, income and expenses.

  • As above, for car payments as well.

  • Call your phone, cable, credit card, and internet service providers and tell them you want to cancel your service. This will immediately connect you to Customer Retention. Let them know that you are having a hard time paying your bill and will either have to negotiate a lower payment or cancel the service. This tactic can significantly reduce your payments.

When you have your new job, there are some things you can do to make sure this doesn't happen again:

  • Set aside 10% of your income in a savings account. Have it automatically deducted from your income at source if you can. 75% of Americans are 4 weeks away from bankruptcy. You can avoid this by forcing yourself to save enough to manage your household finances for 3 - 6 months, a year is better.

  • If you own your own home, take out a line of credit against it based on the available equity. Your bank can help you with that. It won't cost you anything as long as you don't use it. This is emergency money; do not use it for vacations or car repairs. There will always be little emergencies in life, this line of credit is not for that.

  • Pay off your credit cards and loans, most expensive rate first. Use 10% of your income to do this. When the first one is paid off, use the 10% plus the interest you are now saving to pay off the next most expensive card/loan.

  • Create a budget you can stick to. You can find a great budget calculator here: http://www.gailvazoxlade.com/resources/interactive_budget_worksheet.html

Note I have no affiliation with the above-mentioned site, and have a great respect for this woman's ability to teach people about how to handle money.

  • Normally it's not good to post a link in your first answer (it can be interpreted as spam), but since this is a great answer, I'll just note that you should disclose any affiliation with the site, just to put over-eager editors like myself at ease. Like I said, though, great answer, so welcome to money.SE! Stick around! – John Bensin Aug 30 '13 at 20:35
  • The advice here was really helpful, thank you. Some things didn't apply to my particular situation (e.g., the part-time work), but all of it is great overall advice. Thanks again! And that's a great budget site, too. – Steve D Aug 31 '13 at 2:59
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The first thing I would try is to take out a loan from a local credit union. If you don't know of any that you're eligible for, start looking at the National Credit Union Administration's Credit Union Locator. You should be able to get a good rate since your credit is so good.

If for whatever reason you can't get the credit union loan, I would open another credit card. Try hard to get the loan though, because using a credit card will most likely be significantly more expensive.

If you can't cover your cash-only expenses with cash you already have, make sure that you can get cash from the card. For example, one of my cards regularly sends me checks that I could write to myself to get cash, but be careful with this strategy. Usually the interest is much higher than normal purchases.

Either way, until you've paid off this emergency debt and built up an emergency fund of 3-6 months of expenses, cut your expenses as much as possible. This Experian article has some good tips:

  • Renegotiate Your Cell Phone Plan
  • Cut Your Cable Bill Or Drop It Entirely
  • Save Money on Your Auto and Renters/Home Insurance
  • Get a Good Workout for Less
  • Try to Lower Your Rent
  • "take out a loan from a local credit union," with no income? Unlikely to be granted. – WetlabStudent Mar 3 '15 at 18:08
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This is just a partial answer, but I believe the following observations are relevant:

  1. If you get a job in 1 month, it may take 2 months before you see the first paycheck
  2. There are some things that you really don't want to pay late, and some that may not have too many consequences. Just think: what is the impact of paying your creditcard 2 weeks late, and what is the impact of paying your utilities 2 weeks late? Company policies vary, but where I live you will just get a warning if you pay your utilities 1 or 2 months late for the first time.
  3. Keep any cash/buying power that you have or get. Only pay what you really have to untill you received 1 or 2 paychecks. On the long term this could be very expensive (you pay high interest) but on the short term it will help you get some room to breathe.
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What is my best course of action, trying to minimize future debt?

Minimizing expenses is the best thing you can do. The first step to financial independence is making do with less.

Assuming I receive this $3500, am I better off using the bulk to pay off my credit cards, or should I keep as much cash available as I can?

This would depend on the interest rate that is associated with the credit cards and the $3500. If the $3500 has a higher interest rate than your credit cards, then do not use any of it to pay your credit cards. Paying back the money you borrow hurts but it's the interest rate that does you in. If the interest rate for the $3500 is lower than the credit card interest, then placing some of it on the credit cards may be a wise course of action. But this depends on how long you are out of work. If you could be out of work for an extended period of time, I would recommend holding on to all of the funds.

Note on saving
I know this goes against the grain, but I would actually not recommend saving several months worth of funds (maybe one month though). Most employers offer some type of retirement savings account (401(k), Thrift Savings Plan, etc.). I contribute 5% to this fund instead of putting the money in savings. This is an especially effective strategy if your employer offers matching contributions such as mine. Because the divedends for a savings account are so low, it is not a wise place to store your money in the long run. If I had placed my Thrift Savings Plan contributions in a standard savings account, I would now be $12,000 poorer. In addition to this, most long term investment accounts allow you to withdraw the money early in case of emergency, such as being without work. (I also find it too temping to have huge amounts of funds on hand).

  • Your note on saving is nuts. You should save both for emergencies and retirement (it isn't either or). Many retirement accounts hit you with massive fees if you make early withdraws. This is terrible advice. – WetlabStudent Mar 3 '15 at 18:13

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