What to do after boss hands you a pink slip

PERSONAL FINANCE

October 14, 2001|By EILEEN AMBROSE

BUSINESSES have lots of pleasant-sounding phrases to describe firing workers. But whether you're "downsized," "right-sized" or "sent back out into the economy," the loss of a paycheck is the same.

With more than 1 million job cuts announced this year, and hundreds of thousands more expected in the coming months, plenty of people are feeling the pinch of lost income.

Penny Layne of Annapolis saw her finances quickly take a turn for the worse shortly after September's terrorist attacks when she lost her 4 1/2 -month-old job as a US Airways flight attendant.

Layne, 36, said the airline provides 60 days of health coverage, and she expects to receive $72 a week in unemployment benefits beginning this month. An illness last year largely depleted her savings, she said.

Her roommates, fellow flight attendants, also lost their jobs and have moved. That leaves Layne shouldering next month's $1,300 rent alone, and she and her roommates must pay another month's rent for breaking their lease.

Bills are mounting. "It has snowballed. Every single day I have gotten a phone call about something," she said. One day it's a warning from her lawyer not to miss a child-support payment, and the next it's a water bill notice.

"It's overwhelming," she said.

In the past quarter, job seekers took an average of three months to find work, up from two months in the prior quarter. If you're one of those out of work, experts offer advice on managing finances without a paycheck:

File immediately for unemployment benefits because it may take weeks for them to kick in. In Maryland, it takes about three weeks to start receiving a check, and benefits last up to 26 weeks.

Next, take a financial inventory, starting with expenses. Separate the basics, such as food, utilities and rent, from those items that can be cut to save money.

"Figure out what is absolutely crucial and what is not. No matter what you think, Starbucks is not crucial," said Mark Waldman, a financial planner with Securities America Inc. in Falls Church, Va.

Layne said she has discovered she can get by with a lot less. She sold off some furniture and appliances, and no longer eats once a day at restaurants. "I can eat cheaply. Ramen noodles are always on sale," she said.

Health insurance, however, is a necessity, but often an expense unemployed workers drop because it can be pricey, experts said.

That can be a costly mistake. "As tempting as it might be, an illness, disability or accident can prove financially devastating," said Steve Plewes, president of Advisors Financial Group in Gaithersburg.

If you worked at a company with 20 or more employees, federal law allows you to continue your health coverage under the employer's plan for up to 18 months. It won't be cheap because you'll be picking up the premium previously paid by the employer, plus an administrative fee.

A possible alternative for those married is to be added to a spouse's workplace plan, which may be cheaper, said Karen Dumont, owner of Dumont Financial Services in Cleveland.

Some insurers also offer temporary medical coverage. And in Maryland, health insurers getting hospital discounts must hold an open enrollment twice a year to allow consumers to sign up no matter their health status.

After weighing the cost of the necessities, look at your sources of funds, including savings and checking accounts, certificates of deposit, stocks and mutual funds.

Those with permanent or cash-value life insurance may be able to borrow against the cash built up in the policy, experts said.

Homeowners who have established a home equity line of credit can tap that if needed, experts said. The interest on loans of up to $100,000 is tax-deductible, too.

If you didn't set up a line of credit before losing your job, you may not qualify for one because lenders like to make sure borrowers have some way to repay the loan. If you have a working spouse, however, you may qualify.

Investors can also sell stocks or mutual funds held outside retirement plans. By selling appreciated securities along with some losers, investors can reduce the capital gains tax bite.

Some people may be given a few months to exercise stock options after losing their job, which can also be a source of cash, Plewes said.

Though tempting, avoid drawing money out of 401(k)s or other such tax-deferred retirement accounts, experts say.

"401(k) money is expensive to get," Waldman said. You'll pay income taxes on withdrawals, and generally workers younger than 59 1/2 must pay a 10 percent penalty.

Contact creditors if it looks like you are going to have trouble paying bills. "Most lenders are willing to work with you if you tell them there's a problem," Waldman said.

Capital One cut Layne's credit-card interest rate by 4 percentage points after she called the issuer about her situation, she said.

If you have credit-card debt, continue with the minimum payment or more to avoid penalties, and don't add to the balance.

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