Facing redundancy while dealing with debt is a tough situation and it can be hard to determine next steps. Read on for our guide to what you should do if you find yourself in this situation and how we could help
Understand your redundancy rights
Whether you receive the news out of nowhere or after a long consultation process, redundancy almost always comes as a shock. Making employees redundant is usually pursued by companies who need to reduce their workforce, save money, or are entering administration and is a type of dismissal. Even so, it must be carried out in a fair and legal way – and you have redundancy rights.
Depending on the length of time you’ve worked for your employer, you must be given a paid notice period. If you’ve been there for over a month, this should be at least one week, but once you’ve put in over two years’ service, you should receive one week notice per year. Your employer might not ask you to work the notice period, but they must still pay you. You should also receive any outstanding holiday pay.
If you’ve been working for the company for more than two years, you might also be entitled to redundancy pay (double-check your contract) and should be given a reasonable amount of paid time off to look for a new job.
Take stock of your financial situation
As soon as you find out that you could be facing redundancy, act quickly. The more you can do to prepare in advance, the easier it will be to stay on top of your financial situation if you do lose your job. Take time to review all your debts and make a list including both the outstanding balance and minimum monthly payment so you know exactly how much you owe overall and each month.
Once you receive notice of redundancy, it’s a good idea to contact your creditors and let them know. They will be able to explain the different payment options available to you and may be able to offer additional help if you start struggling to repay your debts.
Request a payment break
Depending on your financial circumstances, you may wish to ask your creditors for a payment break if you get made redundant. While it might be tempting to use your redundancy pay to clear any outstanding debt, it could be more pragmatic to use these funds to cover only your essential bills as you can never know how long it might take to find a new job. Instead, your creditors may agree to grant you a short payment holiday or suspend interest and charges for a period. If you do choose to have a payment break, the payments missed will usually be treated as arrears and so interest and charges may still be added.
Take Breathing Space
Breathing Space is a government-backed programme that offers people in debt up to 60 days without any added interest, charges, or debt recovery action being taken. While you must still make your debt repayments during those 60 days, knowing that you won’t be receiving letters from bailiffs or facing an escalating interest bill could provide you the space you need to get your finances in order and focus on your job search. Even so, keep in mind that you can only enter Breathing Space once in any calendar year.
Make a budget
No matter whether you already have a budget in place or you’re thinking about making one for the first time, budgeting is an important step to take if you’re in debt and facing redundancy. Understanding how much you need to have to cover your essential living costs and minimum debt repayments is essential.
Once you’ve calculated this figure, look for ways to reduce your spending. This might mean cutting down on non-essentials, choosing cheaper alternatives to your favourite products, or making larger changes such as looking for a property with a lower rent.
Try to avoid getting into more debt after redundancy. While opening a new credit card to pay for essentials might seem like a good short-term solution, this approach can make your overall financial situation worse and cause additional stress when the new debts need to be repaid.
Apply for benefits
Finding ways to increase your income during your redundancy can help ease the pressure of getting a new job straightaway and allow for some flexibility in your budget. Check whether you’re entitled to apply for any benefits. There are several different options to investigate in the UK including Universal Credit, Council Tax reductions, Housing Benefit (if you’re a renter), Jobseeker’s Allowance, and Employment and Support Allowance (ESA) if you can’t work due to illness.
Prioritise your debts
When you have limited income and a variety of different debts, it’s important to prioritise. Focus on those that could lead to severe consequences if left unpaid. Known as priority debts, these typically include mortgage or rent payments, Council Tax, utilities, court orders (such as CCJs), and any debts secured on your property. These debts should always be paid first, with any additional funds used to cover bills like your credit card, personal loan, or store card.
Seek debt advice
If you already have a debt management solution in place or are looking for additional support, contacting an expert debt professional during your redundancy could help. An independent adviser could help you adjust your repayments if you’re currently in an IVA or DMP and negotiate new deals with your creditors. If you’re in need of a new debt solution, your adviser can talk you through the different options available and help you find the way forward that’s right for you and your post-redundancy budget.
Facing redundancy and worried about repaying your debts? Our friendly team of experts is here to help. Give us a call on 0161 8260 585 or send a message here
