Case Study: How Bob & Karen dealt with unemployment and debt

• Amanda Gillam
• 21st January, 2019
• Income & Work

So, this is a real tale. A tale that’s probably repeated across the UK thousands of times each year, but a tale worth telling as we can all learn from it. What happened to them could happen to any one of us and could do so with little or no notice.

Bob and Karen (names changed) are real friends of mine. They live in the North West, are aged in their early fifties and have one teenage child. They are a close and loving family who work hard and play hard. But Bob’s reached that tricky age when it comes to finding work. A few years ago he was restructured out of his job and then spent 12 months finding another one. One thing you can’t accuse Bob of is not being resilient, but even for him 12 months out of work when you have a family to support and a mortgage to pay was the most stressful thing imaginable, even with a reasonably good redundancy payment.

But finally Bob found a new job with a similar salary. The fact that while being unemployed the family had been a bit casual about cutting costs could be forgotten. Savings could be restocked and all would be right with the world. Except that dream only lasted 18 months. He lost his job once more in the summer of 2017. You can imagine the feeling of failure and fear that swept over him. He had to tell Karen of their plight once more.

Unemployment 2.0

Bob knew precisely what he needed to do to find work and was probably wiser about how long it might take. He had received a redundancy payment which gave the family some leeway. In fact considering how short a period he’d been employed for it was quite generous. But what the family had not done during his brief employment was increase their savings once more. This time they were starting the job search with less of a buffer.

After 6 months of job hunting Bob and Karen estimated they could survive financially for a few more month. But still they didn’t cut their costs. By May last year they were in dire straits and finally they started heeding the advice me and other family members were giving them! And just in time.

Unemployment and the Family Finances

So, this is the specific advice I gave Bob and Karen. You could argue that it’s applicable to anyone in their financial situation – no job, no income and household costs that have to be met.

Get the Numbers on the table

Bizarrely they never talked to each other about the money situation. Karen would always say that that was Bob’s responsibility. She had no idea what the family finances looked like. For her ignorance was bliss. And Bob’s a proud man who feels he needs to fix things and to not burden his wife with the problem. But as the old saying goes “a problem shared is a problem halved”, or at least there’s the chance of confronting the problem together.

We finally got them to:

• Identify how much they spend each month and on what
• List their debts (both secured debt like their mortgage, and unsecured like their credit cards and store credit)

Cutting Household Costs

Bob and Karen were “told” to slash their monthly costs to the bone – removing from their spending all those things that they really didn’t need to spend money on (e.g. Sky subscriptions, gym memberships, etc) and switching their “have to’s” to cheaper alternatives:

• Food – what they bought and where they bought it from
  • how to cut your food costs by 50%
• Energy – reduced the amount they used and changed their supplier to get a better price
  • home energy efficiency tips
  • how to switch to a cheaper supplier
• Mobile phone contracts – stopped chasing the latest phones and went sim-only
  • sim only taking the market by storm
• Entertainment and socialising – spent with great care.

It’s worth noting that the average British household spends nearly two thirds of it’s income just running the home. 45% of take-home pay goes no paying the mortgage or the rent! But with the average household net income being £27,600 p.a. this means that households are doing well to save the £100 per month on average that they do. But even this does not create much of an emergency fund should the worst happen.

Dealing with Existing Debts

The last thing to do in this situation when you owe money is to stick your head in the ground. Do this and you’ll wreck your credit rating and potentially suffer the loss of any asset secured on the debt (e.g. house). So, we got Bob and Karen to confront their debts and got them to talk to those to whom they owed money. The advice I gave them was this:

• Contact your lenders/creditors – be honest and tell them your situation. These days lenders must act with forbearance (i.e. be tolerant) and if you are honest with them they are for more likely to want to help you. It is likely to be much better to renegotiate a less burdensome repayment plan than fail to meet a payment on your current terms. Missing payments will harm credit ratings and continued could trigger court proceedings.
• You will have more creditors than you realise – potentially anything where you’re paying in arrears, or have some form of contractual commitment over time e.g. mortgage, credit card companies, items bought on store credit, utility companies, mobile phone contracts, local council (council tax), etc.
• Free advice is available – take it!
  • https://www.moneyadviceservice.org.uk/en/tools/debt-advice-locator
  • https://www.stepchange.org/Howwecanhelpyou/Debtadvice.aspx
  • https://www.nationaldebtline.org/

Developing an Income stream

Finding a new well paid job was Bob’s “job number one”, but there would have come a time when either he or Karen would have had to swallow their pride and take a temporary job (at least) that could have helped keep the wolves from the door. As it happens it never quite got to that, but stacking shelves at the local supermarket was floated at least once. But of course in the UK we’re fortunate enough to have a benefits system that is a backstop – one that gives you a breathing space while you find proper employment.

What Bob and Karen actually did was this:

• Met with their local Citizens Advice centre to set them straight on what benefits they could claim
• Checked the Government’s benefits website too

Having cut their costs to the bone and established what benefits they could claim Bob and Karen knew what gap there was that needed to be filled with some form of work, at least in the short term.

Getting back to Work

Obviously Bob’s was looking for a “traditional” job that he believed fitted his experience and status. The tough call here is that having turned 50 find work was only going to get harder and the issues he’s faced at interview (e.g. short time in the previous job) were going to continue to come his way. I felt he needed to look at other options in parallel with looking for the job he really wanted. Other options that still took advantage of his skills and experience were as follows:

• Interim management – doing a similar job on a short/medium term basis while still hunting for the preferred one
• Freelancing
• Consultancy
• Part-time work

In Bob’s case he also needed to completely re-engineer his CV to help “hide” gaps in it:

• https://thecareerexperts.com/jobseekers/resume-writing/compensating-for-employment-gaps/
• https://www.monster.com/career-advice/article/resume-dilemma-employment-gaps
• Make it achievement focused

Karen began to look at various forms of part-time work that included shop assistant, postman, and Uber driver. But she wanted to make sure that her work would not impact on looking after her teenage child. Flexibility was the key.

Another income option they seriously considered for a while was letting the spare room in their house. It could have brought in around £500/month, and under the Government’s “Rent a Room” scheme the first £7500 of any such income is tax free.

How did it all turn out?

Well, having been unemployed for 12 months and having applied and been interviewed for numerous jobs finally Bob landed one. Relief all around. But to get the job Bob has had to take a backward step that means he isn’t earning what he did before. So now Karen has to work to help balance the books. It’s changed family dynamics and it’s changed some priorities. Hopefully they’re not letting their spending get out of control and are saving properly into an emergency fund in case the unthinkable happens and Bob’s job should disappear once more.