How To Deal With A Loss of Income

A loss of income can occur for a variety of reasons whether due to unemployment, redundancy, poor health a relationship breakdown or divorce, but it can be a distressing and difficult experience at a time when as an individual or family unit you may already be considerably stressed. However there are a number of things you can do to address this difficult situation and help stablise your personal finances and get back on track.

1. Make An Insurance Claim

If you are in the fortunate position of having taken out income protection insurance or critical illness cover or mortgage protection insurance then it is now time to dig out your policy and check the terms to find out how to make a claim, as this is an excellent and immediate way to deal with a loss of income. Ensure that you keep accurate records of when you first went off ill and make sure that you have relevant medical evidence covering that period. These insurance schemes will have individual clauses about when you can make a claim. Some allow you to make a claim quite quickly but others may require you to wait for up to 6 months before you can claim. Keep a record of any correspondence you have with the insurance company.

2. Keep Accurate Records

Create a file of any correspondence with medical professionals, if you are ill, or with government benefit agencies or your employer. Keep any written information and also make a record of any telephone conversations, including the date you made it and who you spoke with. Also ensure you record the first date that your employment was terminated or that you were off with illness. This information may prove invaluable in the future if you need to provide accurate dates for insurance or benefits claims and will ensure that you can accurately claim all the entitlements that you are permitted, after suffering your loss of income.

Here is an outline of documents that you may want to include in your file;

Redundancy letter from your employer.

Termination of employment letter from your employer on the grounds of ill health or other reasons.

Insurance company policy schedule and correspondence.

Telephone discussions with insurance representatives, medical professionals or your employer.

Medical Certificates, detailing your Illness

Benefits agency correspondence such as any applications made for job seekers allowance, incapacity benefit, income support, disability living allowance, child tax credits, working tax credits.

3. Talk To Creditors And Reduce Debt Payments

It is important to remember that the more you keep your creditors aware of your circumstances the more likely they are to be willing to work with you to restructure your debts, so this should happen as soon as possible after experiencing a loss of income. Deal with priority debts first, which are debts that would create an immediate negative impact for you if they were not paid, such as mortgage repayments, gas, electricity and water bills - which could lead to disconnection and state taxes, which could lead to imprisonment. Liaise with these creditors in writing, here is a possible structure you could use in your letter;

Include your name/address.

Include your account reference number.

Outline the reasons for your loss of income.

Provide a suggested revised repayment amount in line with what you think you can afford to pay, but be realistic.

Include your contact telephone number for them to call you back.

After dealing with priority debts, you should then start to tackle non priority debts such as loans, credit cards and HPI agreements. Whilst these creditors can still take you to Court for defaulting on your repayments, the immediate repercussions are not as severe as your priority debts.

If you are a home owner and have a mortgage, now may be a good time to activate the holiday clause in your credit agreement which may allow you up to three months without having to meet repayments after your loss of income. Whilst the interest will continue to accumulate on your mortgage loan, it will give you a little more breathing space.

4. Claim Benefit Entitlements

A loss of income means that you may now be entitled to certain state benefits regardless of your income and if you are not claiming them, now may be a good time to do so. Remember that these are not handouts, you will already have paid for them in the taxes that you have already paid and you are therefore entitled to claim them. Speak to your local benefits agency office and make an initial claim, explaining clearly your reason for your loss of income. You can actually do this over the telephone without having to visit the office in the first instance and the benefits agency will then send out a further pre filled form for you to complete with some of the information you provide over the telephone. This speeds up the process significantly. If you are unsure about which benefits you can claims then speak to your local benefits office or go to the Government benefits site at www.dwp.gov.uk

Here’s a brief summary

Job Seekers Allowance - Available to those who are unemployed or who have been made redundant. It is usually paid every fortnight and you will be required to go into the office and sign on regularly to confirm that you are still entitled to it. You are also likely to be required to attend an initial interview with a job advisor and provide evidence of your job applications.

Income Support - This is usually paid to those who are initially self employed and then lose their employment or to those on a low income.

Incapacity Benefit - This is usually paid to those who are employed and then have to stop working either temporarily or long term due to illness. It normally commences after you have been off work for approximately 6 months.

Disability Living Allowance - This is a benefit that can be claimed by those with a diagnosed disability, which prevents them from working or severely impacts their day to day living. There are three levels, Low, Medium and High and you receive a sum for your level of mobility as well as your ability to care for yourself. The more complex your needs the higher your entitlement to benefits.

5. Retirement on the Grounds Of Ill Health

It is worth reading through your employment contract in detail if you are diagnosed with a long term illness as some employers will allow you to retire on the grounds of ill health if you are unable to return to your employment due to significant and ongoing health problems. This effectively brings forward your entitlement to pension benefits, thus providing you with a stable long term income.

6. Relationship Breakdown

If your relationship with your partner suffers an irreparable breakdown then you may be subject to a loss of income as a result of this especially if your partner was the main wage earner. Once again it is worth seeing what you can claim from the state until your financial circumstances improve or seek legal advice about ensuring that your partner or husband/wife provide you with an adequate settlement. Regardless of whether you are married or not you are likely to have common law rights which enables an equal allocation of assets or monies between partners and should cushion the effect of a loss of income that you may have experienced.

Click Here To View All Debt Help Guides

Check out some of our featured money saving tips and guides to help you save money;

Debt Related:

Check out some of our featured money saving tips and guides to help you save money;

Debt Related:

How To Deal With Mortgage Arrears

How To Deal With Gas And Electricity Arrears

How To Deal With Council Tax Arrears

How To Get Out Of Credit Card Debt

How To File For Bankruptcy

Get Out Of Debt Fast - A Step By Step Guide

Save Money On Credit Card Costs