Layoffs, loans, help me make the right(ish) call

January 31, 2024 1:20 PM

There might be a layoff in my immediate future (within a month or so) and I am trying to figure out how to be Smart About My Money Situation. If you have experience with debt management and loans, talk to me! More under the fold...

Here are the main points:

- While I have money in retirement accounts, I don't really have any rainy-day savings. Not ideal, but there it is. But I do have great credit.

- I have some credit card debt, for which I'm paying about $500/month overall. I do not have the means to pay much more than the minimum every month.

- There is also some IRS debt, and I suspect I will owe money this year.

I have been considering getting a loan to cover the above debt, but would only do so if the payment for it will be equal to or under what I pay every month already, and at a better APR.

For example, if I owe $10 on all my debts, and a $10 loan would be used to pay those off, would it be a good idea to actually get a loan for $15, and be able to pay those credit cards off and have a bit of extra for other possible costs that come up, and as a bit of padding – *as long as* the payments don't ever go above what I'm paying now? Is it possible to lock in a monthly rate like that with a loan? If so, my thinking is, it would just be replacing the payments I'm already making except at a better rate, right? AND, it seems like I should try and get that loan asap, while I have an income to show.

Maybe these questions are dumb to some, but I would really love some non-judgemental insight and advice. I'm trying to stay positive while preparing for a possible upheaval. If you have experience with personal loans, etc or have other suggestions, I'd love to hear them. What would YOU do, if you were me??

posted by anonymous to Work & Money (7 answers total)

In theory, you can get an unsecured personal loan with a fixed rate. In practice, if you already have significant debt, you may not be able to get a rate much, if at all, lower than you're paying on the cards. (The high credit score (?) may help with this.) It won't cost you anything but time to investigate, though. You should be able to get quotes from multiple providers, but stick to local credit unions and large established financial institutions. NO "CREDIT REPAIR/DEBT CONSOLIDATION" PLACES. Also, remember when doing the math to pay close attention to any fees the institution wants to charge.

However (and this is Not Legal Advice), you should be very careful about misrepresenting your income. For example, putting down an annual income you don't expect to be earning is arguably fraud. Now, if we're talking about a situation where you know your employer is doing layoffs and are just worried that your neck might be on the chopping block, that's one thing. But if you've basically been told in advance you're being let go next month, that's another.

Don't borrow more money than you need to consolidate the debt at a lower rate. You're already in a hole (I'm guessing with that minimum payment you're probably $20K or more in debt) and your income might zero itself out shortly. You really need to do everything you can to trim expenses. If you can roll your credit card debt into a lower-interest loan, that's great. (You might also want to do the math on any zero-interest balance transfer offers you get from other cards...but don't forget to include the [often significant] fees!) Borrowing additional money will reduce or eliminate the savings there, and, if you're like most people (including me), money in hand is money spent. This is the kind of situation that often sends people spiraling financially. You need to be as conservative as you possibly can and be very realistic about your spending habits.

Good luck to you! Move carefully. Don't let capitalism grind your bones to make its bread.
posted by praemunire at 2:04 PM on January 31 [5 favorites]

I used to be a personal finance blogger, but not a debt one. The main thing I really internalised about debt is that the psychological element is more important than the mathematical one. Consolidating your debts will probably make mathematical sense (and if it doesn't, definitely don't do it). But psychologically it's tricky because you then have one mammoth debt to pay off, and that will undoubtedly take years. Be clear about how you ended up in this place (over spending? or chronically low income?) and whether there is anything you can do to prevent it getting worse or happening again. Make clear-eyed and realistic choices and then move forwards.
posted by plonkee at 3:27 PM on January 31 [1 favorite]

stick to local credit unions
Seconding this

I'm in favor of debt consolidation loans as long as you get a better interest rate and that you do actually close at least some of the credit lines you pay off with the loan. Renting cars and some other things can be more difficult without a credit card, so going cold turkey isn't always necessary. It is important to ensure you can manage your minimum payment, but the lower interest rate is a big part of being able to pay that debt down.

I am not in favor of borrowing extra money in case of a possible cash shortage on the horizon. If you have no emergency fund, the one or two credit cards that you keep open can be a short term cash cushion. You should also figure out what severance and/or unemployment you would be getting.
posted by soelo at 6:08 PM on January 31 [2 favorites]

Check to see if you can borrow from your retirement account. I was able to and the interest was lower than I could get anywhere else.
posted by mareli at 7:28 PM on January 31

Check to see if you can borrow from your retirement account.
Also check the terms with regard to termination of employment. You may be required to pay it back in a lump sum when your employment ends, or else face tax penalties, which would make this a poor contingency plan for a layoff.
posted by yuwtze at 8:54 PM on January 31 [6 favorites]

One thing you should consider doing is to start job hunting right away and try to get a much higher-paying job.

I know, I know, this really sounds like "you need to start eating cake!" but hear me out: a LOT of people undervalue their market rate due to a combination of factors which have convinced them that this is all they are worth, and this is all their skills are worth. Anyone who has worked in retail for $12 an hour has the skills to work as an office admin for $25 an hour. Anyone who has worked in the HR department of a PR firm can work in the HR department of a tech company for twice the rate. Making the switch from teaching assistant to nurse's assistant is a huge jump in pay, and though the job is different, the qualifications required are the same. Making the switch from school lunch lady to hospital lunch lady will also give you a similarly huge pay bump, for pretty much the same job and better work environment.

I promise you, you are worth more than you are currently being paid. Well okay that's true for almost anybody in this capitalist dystopia we live in, so let me put it this way: it is very likely that you CAN earn a lot more than you are currently being paid. It's likely that your past employers have eroded your self esteem and convinced you that you can't, but it's likely that you can.

Right now, you're feeling awful about yourself. Beating yourself up about your (supposedly) bad choices and blaming yourself for (supposedly) ruining your financial situation. Your problems are real and they are serious, please don't get me wrong, but dwelling on them at this moment is going to hobble you. It's going to make you think you don't deserve any better.

What if you could use this moment to allow yourself to feel stupidly, heedlessly overconfident about your prospects? What if you spend the whole of next week going APE on Glassdoor and LinkedIn, applying for jobs you never dared apply to before? hell, what if you went to these sites and searched for the exact same type of job you have, except with the word "senior" prefixed to it... and what if you set your desired salary range to at least 1.5 times - or better yet, 2x - what you currently make? What if you don't even consider jobs that pay as little as you currently earn? What if you start feeling entitled to those super high paying jobs? What if you went out and got yourself one?

And then, you could take all the advice on this thread about budgeting your income, living way under your means until your credit card debt is paid off (or better yet, getting a lower rate personal loan on the strength of your higher income to pay off that credit card debt straightaway), sock away some emergency savings, etc. Those things are very important, and they'll all become a whole lot easier if you let yourself dare first.
posted by MiraK at 3:59 PM on February 1 [6 favorites]

I appreciate all of this advice, but special thanks to @Mirak for a perspective that my circular-ruminating brain is really loving, ie this idea that maybe things will actually get *better*. I have been applying to other jobs for a while and have managed to snag some interviews, but no offers. This post helped me to remember to keep my chin up. Thank you.
posted by Molasses808 at 10:01 AM on February 2