The Cutting Edge: Managing the Aftermath of a Layoff

Know your options when you've lost your job

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diversitymandisgruntledOnly a month into the new year and employers are axing thousands of jobs almost by the day. On Monday, more than 40,000 jobs were cut from the economy, with Caterpillar cutting 20,000 alone.

For those seeking financial stability after a layoff, aside from unemployment benefits and severance packages, credit cards may also be a means to supplement income. But they should only be used as a last resort.

“It’s difficult to live off of credit cards unless you can see your way out of it,” says Genevia Gee Fulbright, president and certified public accountant at Fulbright & Fulbright. “You don’t want to end up filing for bankruptcy,” she adds.

Cash reserves should always be the first line of defense, says Kevin Davis, a certified financial planner at Consolidated Financial Services.

Other alternatives include taking out a line of credit, and if worse comes to worst, tapping into your 401(k) plan.

You can set up a 72(t) account, which can set up automatic withdrawals from your 401(k) without any penalties, he says.

Here’s how it works: You rollover your 401(k) to an IRA and apply with the IRS for a 72(t). The IRS will set up a distribution method, however, once an income stream is set up, it must continue until age 59 ½ or for a minimum of five years, whichever comes last, which would be a drawback for younger people.

If you really don’t have a choice except to use credit cards, check out these tips on charging wisely:
Compare teaser rates and out-of-work time: If you’re looking for a new card, compare the introductory rates from prospective companies with how long you expect to be out of the workforce.

“If you feel like you can pay the card off in 12 months, do a 0% interest rate [if it is offered],” Davis says. Since the offer only lasts if the balance is paid down by the time the promotional rate ends this may not fit everyone’s needs. If you don’t think the balance can be paid off within the allotted time, opt for a bit of a higher rate that will remain the same so you won’t be surprised by spiraling finance fees once the introductory period is over.

Pay on time: Sure, it’s a given, but does it always happen? One missed or late payment can hike your interest rate to 18% and in some cases even 27%, says Davis. To avoid late payments Davis suggests setup up an automatic payment plan.

Determine necessity: A designer bag or HDTV is not a necessity. Credit cards should only be used to pay for staple items — food, shelter, utilities, etc. “If you lose your job the first thing you should try to do is get your expenses as low as possible. Use credit cards to pay fixed expenses,” Davis says.

Actively manage your debt: Davis recommends using a Microsoft Excel spreadsheet or other software to track your spending. “You need to know you’re building

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  • Peace and Blessings,

    I greet all in the universal salutations of peace, which is the presence of tranquility and absence of chaos.

    These economic trails and tribulations that we are experiencing in various degrees, all are faced with one commonality, the need for cash. Cash Money, not credit, not tapping into saving or IRA’s. If like most Americans, you have below par FICO, cards are maxxed or non existent you are perhaps destined for the foodbank, swap meet, thrift store, or going to the black market or criminal activity. We all know no one wants to be a “criminal” it is usual instigated by poverty’s paradise. So someone has to resort to drastic measures. While not my twist, since I have some skill sets I can put to use to create other revenue streams. Some are not as fortunate and have way more mouths to feed than I do.

    I am thinking long range here. With new energy sources as a must, couldn’t this boost industry and give potential jobs to those who are kicked out the rat race?

    I say make your own lane essentially. President Obama can only do so much for us if we dont do 2 times as much for our ownselves.

    I bid you all success in 2009 and beyond, we can do anything as long as we do it together, as no one makes it with out a little assistance.

    Protect Essential Assets Cars Excluded 🙂