If you’re worried about losing your job or have been made redundant, how can you protect your finances?

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A couple of weekends ago I received a flurry of questions about redundancy and debt. I spoke to Stepchange, the debt advice charity, and they confirmed they’d seen a rise in redundancy and unemployment related debt problems. With unemployment currently standing at around 2½ million people and forecast to increase further in the coming months, I thought it would be useful to write a guide to how to prepare for redundancy and what to do if you lose your job.

Redundancy – your rights

There are rules around who can be made redundant and strict procedures that your employer should follow. There’s a really good guide to redundancy on the Citizens Advice website. You can find advice if you live in England, Scotland, Wales or Northern Ireland.

SAVVY TIP: I’ve written more about your rights if you’re made redundant elsewhere in this section.

Preparing for losing your job

Although redundancy is something many of us fear, preparing for it may feel rather like tempting fate. However, it’s worth getting to know your finances and doing what you can to reduce your debts.

  • Have a look at your income and expenditure. Make sure you’re fully aware of your priorities, advises Stepchange. Ask yourself: what would you have to continue paying if you were made redundant. And what might you be able to make reduced payments towards?

SAVVY TIP: Priority payments include things like rent or mortgage, gas and electricity, child support and court fines. There’s a full list in my article getting started paying off your debts.

  • Check your insurance policies: If you have a PPI (payment protection insurance) policy, now is the time to dig it out and check the small print. I’m not a fan of PPI because the policies have lots of exclusions. But if you’ve been paying for a PPI policy you may as well get some benefit from it (but you can’t take out a PPI policy once you know or suspect you’ll be made redundant).

SAVVY TIP: Most PPI policies only pay the minimum amount on debts like credit cards (they don’t clear the whole balance) and it’s normally only for 12 or 24 months.

If you’ve lost your job

Don’t panic. It’s easy to say and hard to do – especially if you’re in shock. But you’ll need a clear head to make the best of your finances.

  • Open an account at another bank. If you have an overdraft, credit card debts or a loan with your bank, consider opening an account with another bank, says debt charity Stepchange. The advantage is that any money you pay into this account won’t be used to reduce your debts.

SAVVY TIP: Banks have the right to take money from other accounts you have with them if you’re in debt through something called ‘the right of set off’. By having all your accounts with the same bank you have far less control over what happens to any money you receive.

  • Make a claim for benefits. There are two types of jobseeker’s allowance (and information about them on the GOV.uk website), one that’s means tested and one that isn’t. As long as you weren’t self-employed, you should receive ‘contributions based JSA’ for six months. Even if you’re not entitled to benefits on day one it’s worth getting your claim in early rather than waiting.

SAVVY TIP: For example, you may be entitled to support for mortgage interest payments (these kick in after 39 weeks but the clock only starts ticking from the date you make a claim). The page I’ve linked to is on the Gov.UK website.

  • Get your insurance claim in early. If you have a payment protection policy, claim as soon as you can as these often have a waiting period.
  • Get debt advice sooner rather than later. If you’ve been paid redundancy money it may be tempting to use it to keep up payments on things like loans and credit cards. But that may not be the best option.

SAVVY TIP: The danger is that you could use up most of your redundancy money and be left with little to live on. And still have payments to make. Talk to a debt advice charity such as Stepchange, National Debtline or Citizens Advice.

  • Speak to your mortgage lender early. These days mortgage lenders are treating people who’ve lost their jobs much better (not least because they were put under pressure by the previous government). They may offer you a payment holiday or the chance to convert your repayment mortgage to interest only.

Related articles:

What are your rights if you’re made redundant

What to look for if you’re buying an income protection policy to pay out if you’re too ill to work

Getting to grips with a budget

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