How to Survive Losing Your Job

Being laid off is never pleasant, but there are things you can do to relieve the sting.
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Worries about job loss always seem to accompany a sinking economy. Will you know how to survive financially if you're next in line for a pink slip?

Last week, the U.S. Department of Labor reported that unemployment increased to 5.5% from 5% in May, representing a fifth consecutive month of job loss. The economy lost a total of 49,000 jobs last month alone.

The trend doesn't appear to be slowing, based on the flurry of recent layoff announcements.

Borders

(BGP)

recently announced its plans to cut 275 corporate jobs, while

Ford

(F) - Get Report

will reportedly cut 15% of its salaried work force.

UAL's

(UAUA)

United Airlines announced plans to permanently ground Ted, its budget airline, and lay off many of its workers.

If you're among the unlucky crowd that isn't expecting a paycheck this week, you certainly have a problem.

Hopefully, you've saved an emergency fund to alleviate your cash flow problems. But if you're among the estimated 76 million Americans who don't have savings outside of retirement funds, taking serious preventive measures can help spare you financial catastrophe.

Here are some guidelines:

Don't Tell Off Your Boss

Venting your anger may feel good, but your employer may then refuse to give you a reference, says Gail Cunningham, spokeswoman for the Silver Springs, Md.-based National Foundation for Credit Counseling (NFCC), a non-profit organization that promotes financial responsibility. That could add months to your job search and further drain your finances.

Instead, use your company as a resource -- particularly if it offers placement assistance, job retraining, or if you can negotiate a more favorable severance package.

File for Unemployment Benefits

Yes, the thought may be humiliating, but you'll need the extra cash flow.

"It won't equal your salary, but it's better than nothing," says Ted Toal, a financial planner with Triton Wealth Management in Annapolis, Md.

Spend Only the Bare Minimum -- Even if Credit Is Available

Financial planning experts recommend reducing your expenses, instead of trying to finance your lifestyle using credit cards. You'll rack up unnecessary debt, or you may ultimately need the credit if your search continues longer than you expect.

"Most people aren't aware of how they're spending money. Quit the extra goodies," says Brett Wilder, president and CEO of Financial Management Group, Inc., a Cincinnati-based financial planning firm.

"That will produce -- for most people -- a surprising amount of money that has been leaking out of their financial picture," he says.

Cunningham of NFCC says the ultimate goal is to continue to pay your creditors. But if choices become necessary, consider the expenses that will stabilize your home life, such as the rent or mortgage, utilities, child care, insurance premiums, health care, food and gas, she says.

Make Mental Health a Budget Priority

"You may need mental health cheerleading. If you get into a depression, you may not job hunt optimally," says Cicily Maton, a financial planner with Chicago-based Aequus Wealth Management Resources.

Spend your money on a therapist or career counselor if you feel you need one, she says.

Contact Your Creditors -- Before You're in the Hole

Perhaps you're embarrassed about telling creditors that you're unemployed. But you'll feel worse if you make that call

after

you're months behind on your payments.

You may be able to negotiate temporary interest-only payment schedules with your lenders, says Wilder.

"The worst thing to do is to get behind on your mortgage or any debt. That's when you run into the mentality of collections, and you're characterized as a deadbeat," he says.

Inventory Your Assets

No one wants to think about selling off possessions, but cashing in on your family's third car or recreational vehicle may ultimately be preferable to falling behind on your mortgage.

Resist the urge, however, to tap into your retirement accounts. If you're under 59 1/2, you'll pay income tax and a 10% penalty.

Wilder says you may net only $60,000 after withdrawing $100,000 from a 401(k) -- and you won't have the funds for retirement.

"It's the last thing you want to do," he says.

Don't Forget Health Insurance

You're in good shape if a spouse's employer will continue your medical coverage. But if not, you need affordable coverage. A medical crisis in addition to job loss can easily drive an uninsured family into bankruptcy.

Companies with 20 or more employees are legally required to offer continuing group health benefits (known as COBRA) to terminated employees for up to 18 months, but at their own expense. Premiums could be steep, particularly for family coverage.

"If I got the slightest whiff that my job was going to be discontinued, I'd start searching for independent insurance so I wouldn't be forced into paying into COBRA," says Cunningham of NFCC.

Another option is a policy with a high deductible that covers catastrophic events, says Toal. The premiums will be lower, but you'll have to pay for many more ordinary medical expenses out-of-pocket.

Focus on a Potential Upside

Job loss can be devastating, but you could emerge from the process with a more rewarding career than the one you left.

"It's hard to make an 'I quit' decision, but once an employer makes it on your behalf, you can use the process to get to another point in life," says Maton. "People who love what they do are generally financially happy people."

Suzanne Barlyn is a writer in Washington Crossing, Pa.