RPF0524-Why_You_Shouldnt_Use_Your_401k_Money_To_Pay_off_Credit_Card_Debt_When_Youre_Unemployed
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00:00:30.960 | Welcome to Radical Personal Finance, the show dedicated to providing you with the knowledge, skills, insight and encouragement you need to live a rich and meaningful life now while building a plan for financial freedom in 10 years or less.
00:00:42.240 | My name is Joshua. I am your host. I am your friendly financial philosopher.
00:00:47.360 | I am your fellow financial freedom fighter and your fellow voyager on this incredible and exciting journey we call life with a special emphasis here on Radical Personal Finance on finances, which touches every area of life.
00:01:02.920 | Today, we answer a question from a listener who writes in and says, I'm currently facing a challenge.
00:01:07.960 | I face I have about $10,000 in my 401k and due to unemployment, I have accumulated $6,000 on a credit card debt.
00:01:17.200 | This is a result of my unemployment and also not paying attention at the right time.
00:01:20.840 | I didn't take your advice long ago and so now the question is this, should I take money out of my 401k in order to pay off my credit card?
00:01:29.440 | Is this a good idea?
00:01:31.160 | Well, I'm going to answer this question, of course, for this listener.
00:01:35.480 | And my hope is that in answering for the listener, I'll be able to help this listener. But my hope is also that if you're not in the situation, I can help you to think through this problem so that you can help other people who are in the situation.
00:01:47.600 | Unemployment is very frequently a major, major cause of stress, financial stress especially, and that financial stress can have long-lasting effects.
00:01:57.600 | And so I want to help you to help other people to think through this problem.
00:02:02.720 | The frequent answer that you hear from many people is, "No, don't take money out of your 401k account because you'll incur taxes and penalties and fees."
00:02:11.080 | Well, that may be true, but that's not necessarily my answer.
00:02:14.880 | I want to dispel with that myth right up front.
00:02:18.600 | The most common focus in answering this question that people have is to say, "If you take money from the 401k account, you're going to pay a 10% penalty tax plus your ordinary income tax rates," and that is true.
00:02:30.680 | But I'm not scared of paying a 10% penalty tax if it solves my financial problem.
00:02:36.160 | After all, it wouldn't be infrequent for somebody who's unemployed to actually be in a lower effective tax bracket and actually pay less money in income tax by paying the penalty tax than they would have if they had taken the money as income.
00:02:51.200 | The example would be if somebody is employed, they may be in a 20% effective tax rate environment, which means for every dollar they earn, the government takes 20% of it.
00:03:02.120 | They become unemployed and perhaps they're unemployed for an entire year, resulting in an income of zero.
00:03:09.280 | They're living off their savings.
00:03:11.080 | They have no income.
00:03:11.840 | Well, this puts them into a 0% effective tax bracket.
00:03:15.480 | At this point in time, they could possibly take a distribution from a 401k account and at that point in time, enjoy only paying a 10% penalty tax on the money.
00:03:27.840 | By my estimation, paying 10% taxes on the money is cheaper than paying 20% taxes on the money.
00:03:35.560 | So I'm not scared of a penalty tax just because it's labeled that big scary word "penalty tax."
00:03:42.400 | It's just a tax that needs to be calculated like everything else.
00:03:46.400 | But I do think that usually we should be very slow to take money out of things like 401ks and IRAs, especially if our reason for taking them out is because of unemployment.
00:04:00.480 | The first thing when you're facing a financial problem is to get very clear on the problem.
00:04:06.000 | What is the problem?
00:04:08.080 | What is the actual problem?
00:04:12.760 | This is very difficult for people who are facing emotional stress and turmoil to do effectively.
00:04:17.440 | Usually we need someone else to help us with it.
00:04:21.320 | So I asked this listener, "What is the fundamental problem?
00:04:25.360 | Why do you face the problem?"
00:04:28.720 | Frequently somebody who's experiencing emotional stress will say, "Well, the problem is the credit card debt."
00:04:33.240 | Well, the credit card debt may or may not be a problem.
00:04:35.520 | But in this case, if you pay off the credit card and you continue to be unemployed, you still have a problem.
00:04:42.960 | So you see, unemployment is the problem.
00:04:44.680 | That may be or it may be that we need to get deeper and try to figure out what is the cause of the unemployment.
00:04:51.160 | Unemployment can happen for many reasons.
00:04:52.800 | It can happen due to a changing market environment.
00:04:55.080 | It can happen due to something like a health problem.
00:04:58.120 | If you face a sickness or disability of some kind that results in your unemployment, the fundamental problem is the sickness or disability.
00:05:07.920 | And so if you can figure out how to improve that situation, then employment can be the natural consequence of fixing the disability.
00:05:16.080 | And then once you've created employment, then you can solve the financial problem of having the credit card debt.
00:05:23.840 | These are the circumstances that you have to analyze.
00:05:26.720 | And I think it's very important to get clear on the analysis so you know the area of focus.
00:05:32.520 | In general, I would be very slow to ever encourage somebody to take money from a 401(k) account to pay off a credit card debt while they remain unemployed because that doesn't solve the problem.
00:05:43.680 | Let me give you some numbers to go with this.
00:05:48.280 | The listener says that the monthly credit card payment for this $6,000 of credit card debt comes out to be about $70 per month.
00:05:57.280 | By way of example, let's say that the monthly living expenses for this person are $2,500 per month, including the $70 per month.
00:06:07.320 | If you automatically jump to taking money out of the 401(k) and paying off the credit card debt, you go from having $10,000 of cash and $6,000 of debt to having zero debt and $4,000 of cash.
00:06:22.240 | If your monthly living expenses are $2,500 a month now, including the $70 a month credit card payment, now instead of having four months of wiggle room to figure out how to solve the unemployment problem,
00:06:37.280 | by way of spending the $10,000 in the 401(k), you go from four months of wiggle room to 1.6 months of wiggle room.
00:06:45.280 | Because if you paid off the $6,000 of credit card debt, now you only have $4,000 remaining, which pays your monthly bills for 1.6 months.
00:06:54.280 | So paying off the credit card debt doesn't solve the problem of unemployment.
00:06:58.280 | Until you get the income coming in, the most important thing is to hoard cash and hoard capital that can be turned into cash because cash is what is spendable.
00:07:08.280 | So because of this fundamental reality, I think it's unwise to make any choice or make any move of paying off debt until you solve the income problem.
00:07:18.280 | If the income problem is predicated upon something else, for example, a medical problem or perhaps a lack of marketability, you may not have skills needed in the marketplace, then maybe that's a higher priority focus.
00:07:31.280 | I don't think the debt should be the primary focus. Getting employed again should be the primary focus.
00:07:36.280 | Again, let's talk about education for a moment.
00:07:38.280 | Let's say that somebody is in the job force, in the marketplace, but they're unemployed because they're unable to pass the necessary qualifications to get a job.
00:07:47.280 | Well, perhaps there's some job training or educational opportunity available that would cost $3,000 to take the courses, get the certification.
00:07:55.280 | But after taking that, there would be a good chance of being able to get a job making $3,000 per month.
00:08:01.280 | That's what the money should be spent on because if you spend $3,000 on taking the necessary certification program and then you can get the job making $3,000 per month, you've solved the unemployment problem.
00:08:15.280 | So it's much financially safer for you to pay the minimum payments on the credit card and maintain the 401(k) balance as a financial backup.
00:08:24.280 | That's much safer for you than it is for you to clear out the 401(k) in order to pay off the credit card debt.
00:08:31.280 | All you do in that circumstance is lower your cash, which for people in financial constraint is very, very bad.
00:08:43.280 | Now, it is wise, in my opinion, for you to stop borrowing.
00:08:47.280 | Credit cards almost never – I really want to say never, but I try not to make statements that I couldn't defend completely.
00:08:56.280 | So I'll just say credit cards almost never make things better and usually make everything worse.
00:09:05.280 | In my personal life, not one single time have credit cards ever helped me when I was in a financial bind.
00:09:15.280 | You say, "Joshua, why can you say that? How can you say that when after all if I lost my job and I needed to put money on a credit card to live, then that would help me out of the financial bind?"
00:09:25.280 | That's what many people do.
00:09:27.280 | Here's why I say that. Credit cards and credit card borrowing during times of unemployment always make things worse because they delay necessary action.
00:09:40.280 | If you run out of money due to unemployment, it's more important for you to figure out how to solve that problem quickly than it is for you to borrow money so that you can put off solving it.
00:09:55.280 | What I have found is every time that I have reverted to credit card spending during times of financial crisis, I was simply delaying the difficult decisions.
00:10:09.280 | I've never solved the fundamental underlying problem.
00:10:14.280 | What's worse is because I didn't solve the underlying problem and because I accumulated credit cards, then I ruined the next months or years of my life because then I now had to go and pay back my debt.
00:10:30.280 | Solving the underlying problem directly means things like finding work to create income.
00:10:36.280 | In my own life, I've often been far too lazy about finding work when I should have really buckled down and gotten busy quicker.
00:10:48.280 | I learned the hard way that inactivity about finding work never helps.
00:10:52.280 | Today, if I lost income and didn't have money, I wouldn't borrow money on credit cards.
00:10:57.280 | I'd immediately go and get a couple of jobs in the gig economy.
00:11:01.280 | I'd deliver sandwiches for Jimmy John's. I'd drive for Uber. I'd take whatever work that I had to to make the basics.
00:11:07.280 | And that's far more productive use of time if I didn't have any savings to create income with work like that than it is for me to borrow money so that I can look for the bigger job.
00:11:18.280 | Solving the problem would mean something like finding and creating a little business, buying and selling something to create cash, figuring out how to drive around and pick up scrap metal or dumpster dive and sell what I find in the dumpster on eBay or whatever I had to do, clean houses, randomly babysit, whatever I had to do.
00:11:36.280 | Those are the ways to bring in cash.
00:11:38.280 | By the way, specifically using entry-level or basic few skills required opportunities here.
00:11:45.280 | It's a different situation if you're wealthy, if you're looking for a high-end six-figure, multi-six-figure job and if you have the savings to get you through.
00:11:53.280 | But solving the problem means creating work.
00:11:56.280 | If I can't make the payments on my – if I can't meet my expenses, I need to quickly negotiate those expenses.
00:12:04.280 | If I can't make my rent payment, then probably it's better for me to quickly admit that to my landlord and say, "I can't make the rent payment.
00:12:13.280 | I'm working on finding job – finding a job or finding work or finding income.
00:12:18.280 | But can we negotiate something?
00:12:20.280 | Can I borrow with you some services of some kind?
00:12:23.280 | Can I paint apartments for you or mow the lawn in exchange for a temporary reduction in rent?"
00:12:28.280 | Or if you see the end is near and you're going to be breaking your lease, it's better to do that proactively as quickly as possible so that you can move out before you get into a contentious situation with the landlord.
00:12:40.280 | If I don't have the money to buy food, it's more important for me to go and apply for food stamps so that I can buy groceries or go visit a local food pantry or tell my friends and family that I'm in need and I need groceries.
00:12:52.280 | It's more important for me to do that than to go and borrow money on the credit card.
00:12:57.280 | If I need to move from an expensive place to a cheap place, if I need to sell my car to downsize to a cheaper car because I've done poor planning to have enough reserves to get me through a hard time, it's better for me to solve those things quickly than to borrow on a credit card.
00:13:16.280 | Every single time in my own personal life that I have used a credit card, it has made things worse because it allowed me to put off the difficult decisions.
00:13:35.280 | Through multiple errors, I have learned this one the hard way and I've seen it played out again and again and again in other people's lives.
00:13:46.280 | When you see as much pain and misery come with using credit cards to get you through unemployment situations as I have, I think you would probably wind up with a position similar to mine.
00:13:58.280 | I'll move my family to a tent in the woods on some federal land, BLM land if necessary, before I'll go into credit card debt because of unemployment.
00:14:10.280 | I'll take a night job sitting at a hotel desk before I'll go into credit card debt.
00:14:16.280 | I'll drive Uber 18 hours a day before I'll go into credit card debt.
00:14:20.280 | It doesn't help.
00:14:23.280 | Briefly, let me explain why I didn't make it an absolute statement.
00:14:30.280 | Why didn't I say for all people, credit cards never help?
00:14:36.280 | The reason is because it has to do with scale.
00:14:40.280 | There have been times and there are people who have substantial assets and substantial incomes who are able to reliably use credit cards as a way of getting them through a temporary shortfall in cash.
00:14:56.280 | I've seen this with high-income earners.
00:14:59.280 | Somebody is earning $150,000 a year.
00:15:02.280 | They're very employable but for whatever reason their company closes down or they get laid off or some temporary thing.
00:15:10.280 | They're very employable but it usually takes a few months to organize another $150,000-a-year job.
00:15:17.280 | Going and getting a job driving for Uber, making $6 an hour doesn't solve their problem.
00:15:23.280 | They may have significant assets.
00:15:26.280 | They may have a half-million-dollar house with hundreds of thousands of dollars of equity in it.
00:15:31.280 | They may have substantial value in cars and they may be in an excellent local employment market but for whatever reason their emergency funds have run out.
00:15:39.280 | But they have plenty of other assets.
00:15:41.280 | Well, in those situations, borrowing $10,000 on a credit card to get you through two months of shortfall while you've tightened up your belt, while you're continuing to get employed again, that's a more reasonable approach.
00:15:54.280 | Now I still discourage it. I think somebody in that situation should have six figures of reserves on hand that they can tap.
00:16:01.280 | But credit cards can serve in that situation as bridge financing.
00:16:06.280 | But that's for the upper 20% of the US American society, not for the bottom 80% because for the bottom 80%, the credit card can lead to a destructive cycle.
00:16:17.280 | It very much comes down to what percentage of my assets am I really using here.
00:16:27.280 | For somebody in the $150,000 annual income with half a million dollars of assets to put $20,000 of debt on a credit card as bridge financing to get them through a temporary shortfall, that will face effectively no problem.
00:16:42.280 | But for somebody in the day-to-day lower income scenario, putting $5,000 on a credit card could be a problem that dogs them for years.
00:16:56.280 | I don't know how to put a harder line than that.
00:16:59.280 | Every time I'm going to discourage somebody from borrowing money on a credit card.
00:17:04.280 | But I have to concede that credit cards can be a source of bridge financing for somebody in that scenario.
00:17:12.280 | But it's still never been helpful to me personally and I'm not playing that game.
00:17:18.280 | So back to this listener.
00:17:20.280 | It is wise for you to see if you can keep the cost of the credit card debt as low as possible.
00:17:28.280 | While you're working on solving the unemployment situation, do your best to keep your borrowing costs as low as possible.
00:17:38.280 | Do your best to move the credit card debt to a 0% credit card offer.
00:17:44.280 | This is often difficult to do if you've accumulated a balance.
00:17:47.280 | But if you're in a situation where you do know that you're going to be going into credit card debt, use that time to apply for a new 0% financing credit card.
00:17:56.280 | At that point in time, make your new purchases with a 0% credit card.
00:18:00.280 | Or if you're trying to surf it and you can qualify for a new 0% credit card, make some of your normal payments that you're making on the new 0% credit card.
00:18:10.280 | Make those on the 0% credit card for new purchases so that you can keep your financing costs as low as possible.
00:18:16.280 | This is often a very difficult game for people who are in the situation to play because you have to state an income amount on your credit card application.
00:18:25.280 | Your income amount is often going to be zero or unknown.
00:18:29.280 | So if you think you're going to be in this situation or if you're in this situation, apply for a credit card as quickly as possible when you're in a situation where you can state a reasonable income honestly.
00:18:39.280 | But always shop for a 0% credit card and see if you can surf the balance over to it.
00:18:44.280 | Be careful.
00:18:45.280 | Be very skeptical about paying balance transfer fees.
00:18:48.280 | But calculate them and be willing to pay them.
00:18:50.280 | But do your best to keep your borrowing costs as low as possible.
00:18:54.280 | Keeping borrowing costs low is not usually exclusive with focusing on earning income or stopping borrowing.
00:19:01.280 | It always helps to keep borrowing costs low.
00:19:03.280 | But there is a great danger and I have seen again and again and again.
00:19:08.280 | The great danger is you have one credit card with $6,000 of balance.
00:19:14.280 | You apply for a new credit card intending to accumulate purchases on that and you say, "Well, the next $6,000 of expenses that I need to make, I'm going to put them on this new credit card while I pay down the old one."
00:19:25.280 | But fast forward three, four, five months and now there's a $6,000 balance on both.
00:19:30.280 | And now we're even deeper in the hole.
00:19:32.280 | This is a real problem.
00:19:35.280 | But if you can handle it, keep your borrowing expenses as low as possible.
00:19:41.280 | It is usually unwise for you to take money out of a 401(k) and use it to make credit card payments.
00:19:49.280 | I would almost never do it.
00:19:53.280 | The big reason is that you're taking safe money, the money that's in the 401(k) account, money that's protected from the claims of your creditors, and you're using it to pay an unsecured debt.
00:20:08.280 | Also, it's a real problem that you're taking money that can be turned into cash easily at relatively low cost and you're turning it into money that can't be turned into cash at higher costs.
00:20:22.280 | Let's say that this listener needs to move from the house that they're living in to a cheaper house.
00:20:28.280 | Let's say that that's absolutely going to help their financial situation by lowering their monthly expenses.
00:20:34.280 | The problem is making such a move can be expensive.
00:20:38.280 | And if you study the spending patterns of the lower and middle classes in terms of their income, frequently it's these costs of transition that sink them.
00:20:56.280 | When you move into a new apartment, you have to be able to pay your first month, your last month, and your security deposit frequently.
00:21:04.280 | It may be a great apartment at a great deal, but you still got to come up with cash.
00:21:08.280 | If this particular person still has $10,000 in their 401(k) and they were to decide that transitioning from one place to live to a different place to live would help them financially,
00:21:22.280 | but they needed $3,000 to pay first, last, and security, they could easily get the $3,000 out of the 401(k) and use that to transfer them over to the new apartment.
00:21:34.280 | That would work out in the long run because then they would be able to get their money back from the first, last, and security of the older apartment, etc.
00:21:42.280 | But that's hard to put money on a credit card.
00:21:45.280 | Most landlords are not going to automatically accept a credit card payment.
00:21:50.280 | They're not going to do it because it costs them money, but they're also not going to do it because that's going to be a sign that this tenant may not be financially stable.
00:21:57.280 | It would be an unusual landlord who wants to go ahead and rent to a tenant who's putting the money on a credit card.
00:22:04.280 | That's a problem.
00:22:08.280 | So it's harder to put that $3,000 on a credit card than it is to just take the money from the 401(k).
00:22:14.280 | If you've taken the money from the 401(k), used it to pay off the credit card, now you've eliminated your cash and now you're back in a situation.
00:22:21.280 | You have no income. You have no money.
00:22:24.280 | Now you can't make those transition costs.
00:22:27.280 | You can't rent the truck and move your family across the country.
00:22:31.280 | You can't do it because you don't have money.
00:22:34.280 | It's the lack of access to money that sinks people in this situation.
00:22:40.280 | And so you want to make sure that you always have access to money.
00:22:43.280 | And although credit cards can be used for many expenses, you can swipe it at the grocery store and get groceries,
00:22:49.280 | they're more expensive to turn into money to pay things like a first, last, and security deposit.
00:23:01.280 | So when you take the money from the 401(k) and use it to pay the credit card payment,
00:23:06.280 | you give up money that's easily accessible and use it to pay debt.
00:23:12.280 | But you may need that money that's easily accessible to help you get out of the problem.
00:23:18.280 | You're also, as I said, taking safe money, which means it's protected from bankruptcy claims and the claims of creditors,
00:23:23.280 | and using it to pay an unsecured debt.
00:23:27.280 | I want you to always pay your debts on time.
00:23:33.280 | Another thing that often sinks people is when they can't pay debts on time,
00:23:38.280 | their credit scores go down because they're delinquent borrowers.
00:23:43.280 | And when the credit scores go down, life gets very, very expensive because so many things are tied to credit scores now.
00:23:50.280 | Not only the access to new money, not only the access to new credit cards, which can be very helpful.
00:23:56.280 | If you have a great credit score, you can surf balances all over the place.
00:23:59.280 | If you're careful, you can get them with zero percent trans balance transfer fees.
00:24:03.280 | You can get them with zero interest for 18 months.
00:24:06.280 | You can surf credit card debt.
00:24:09.280 | If it's a reasonable amount and your credit score is high, you can surf it very consistently.
00:24:13.280 | But if your credit score goes down, all of a sudden, all of that goes away.
00:24:18.280 | Your rental payments will often go up.
00:24:20.280 | If you're renting from someone who checks your credit score, often you'll be renting at a higher rate.
00:24:24.280 | Your car insurance payments will go up because your credit score is used to influence your car payments.
00:24:30.280 | So you want to make sure that you are current just practically to keep your credit score high and morally because you've borrowed money from someone and you've agreed to pay them.
00:24:42.280 | To not pay them as agreed would be a form of theft.
00:24:46.280 | So you don't want to compound things by becoming a thief.
00:24:52.280 | But the law protects your 401(k) money whereas your credit card creditor is an unsecured creditor.
00:25:06.280 | They are lending you money with no collateral, which means that if you have to stop making payments, they are the first ones that you want to stop making.
00:25:18.280 | It's more important to you, it should be more important to you if you have the choice, to pay your landlord than to pay your credit card.
00:25:27.280 | Because your landlord can evict you from the apartment due to nonpayment, your credit card company really can't do much to you in the short term.
00:25:37.280 | And even in the long term, they really can't do much to you if your money is in the 401(k) account.
00:25:43.280 | So from a safety perspective, don't take secure safe money from a 401(k) and use it to pay a credit card.
00:25:50.280 | Pay the credit card a little at a time.
00:25:53.280 | If it comes down to pay the minimum payments, what I mean is I would take out enough money to pay the minimum payments for a few months if I thought I would be able to get employed.
00:26:01.280 | But I wouldn't take out the balance and use it to pay off the balance.
00:26:06.280 | You'd be taking financial reserves, using them to pay off a debt that could be pushed into the future.
00:26:11.280 | And then that's when we get back to the financial calculation of paying that 10% penalty tax.
00:26:18.280 | Because now we've got to calculate that in.
00:26:23.280 | So in conclusion, my answer is almost never would I take money out of a 401(k) account to pay off a credit card.
00:26:36.280 | So you should be very slow to pursue that route.
00:26:40.280 | The real answer is identify the fundamental problem.
00:26:44.280 | For somebody who's unemployed, the problem is unemployment.
00:26:49.280 | Or if there's a fundamental underlying cause to unemployment, the problem is that cause.
00:26:55.280 | And so solve that problem first.
00:26:58.280 | While you're solving that problem, take whatever financial steps you need to take to stop borrowing and figure out how to live.
00:27:09.280 | Like I said, if you need to stop paying rent, move.
00:27:12.280 | Move in with friends. Move in with family.
00:27:14.280 | Figure out how to stop paying rent.
00:27:16.280 | If you need to sell your stuff so that you can afford to move instead of hiring a moving truck, put it on Craigslist.
00:27:21.280 | Facebook Marketplace is better than Craigslist these days.
00:27:24.280 | Put it all and have a giant moving sale.
00:27:26.280 | Sell all your stuff out of your apartment so you don't have to rent a moving truck.
00:27:29.280 | And so you can move in with your friends and family.
00:27:32.280 | If you don't have friends and family, go to Walmart, buy a tent, pitch a tent on some piece of land somewhere.
00:27:38.280 | Ask a friend for their backyard or go and find some Bureau of Land Management free camping land.
00:27:43.280 | Pitch a tent in the wilderness so that you don't wind up underemployed and hopefully have access to a job.
00:27:50.280 | I'm using that as a serious suggestion but also as a metaphor.
00:27:54.280 | Figure out what you need to do to cut your living expenses to zero.
00:27:57.280 | If you don't have any furniture, if you sell all your furniture online, you don't have any storage costs, and you don't have much stuff,
00:28:05.280 | you can usually find a way to live with friends and family rent-free for a period of time while they see that you're working hard to get employed.
00:28:12.280 | It's much better to do that than to wind up three months from now owing $4,500 in credit card debt on apartment rent that you didn't have the money for.
00:28:23.280 | So work on solving that problem and take whatever financial steps you need to do quickly.
00:28:28.280 | Go and apply for food stamps quickly.
00:28:30.280 | Go to the local food pantry. Get food from the local food pantry quickly.
00:28:33.280 | Go to beans and rice right away quickly.
00:28:36.280 | You could, as long as you don't have any significant health issue, which some people do,
00:28:42.280 | but a normal average healthy person could survive and live with a full belly for under $100 a month of groceries in the United States of America.
00:28:54.280 | It's possible.
00:28:56.280 | And you could get all of that for free.
00:28:58.280 | You can get utility assistance. You can get all kinds of assistance from friends, family, government programs, church programs.
00:29:05.280 | It's all over the place.
00:29:08.280 | So use those resources. Don't borrow money.
00:29:11.280 | Once you solve the problem of the unemployment and have the income, then we go back and work on the next problem.
00:29:19.280 | First thing I would do in those circumstances is build up some reserves, a few thousand dollars, because you never know when that job may go away again.
00:29:27.280 | Build up a thousand, a couple thousand, $3,000 of reserves, and then start cracking at that credit card debt.
00:29:33.280 | Because what happens is that credit card debt then becomes a significant financial problem, and then it becomes something to solve.
00:29:45.280 | I hope thinking through this is helpful if you're in the situation.
00:29:48.280 | I hope thinking through this is helpful if you're helping someone else.
00:29:50.280 | And I hope that by thinking through this, you'll be motivated the next time you face a financial shortfall to avoid putting yourself in this situation.
00:30:00.280 | I hate credit cards because of this effect.
00:30:06.280 | They make it so easy for us to put off the hard decisions.
00:30:11.280 | And every time I put off a hard decision, I've come to regret it.
00:30:17.280 | Whether that's financial, and I've been there, done that, when it comes to money, borrowing money on a credit card because it seems like the right solution, it gives me easy access to money.
00:30:27.280 | Or whether it's relational, putting off a hard conversation with somebody, putting off the hard conversation with an employee or with an employer, with a friend, with a family member, whatever the cause is, putting it off doesn't help.
00:30:41.280 | It's a very rare problem that can be helped by putting it off.
00:30:47.280 | So I hope that this encourages you to not go into credit card debt the next time that you get unemployed.
00:30:53.280 | Friends, there will come a day when you will be laid off.
00:30:57.280 | If it hasn't happened to you yet, it will.
00:31:00.280 | Statistically, the biggest emergency that you and I will face is going to be a layoff.
00:31:09.280 | It will happen to you no matter who you are, no matter what level you're on.
00:31:15.280 | You better be prepared because layoffs ruin lives for people who are not prepared.
00:31:23.280 | Plan accordingly.
00:31:26.280 | Thank you for listening to today's show, You Radical You.
00:31:29.280 | Before you go, I have one question for you.
00:31:32.280 | Was there an idea in today's show that helped you?
00:31:35.280 | Were you inspired?
00:31:36.280 | Were you motivated?
00:31:37.280 | Did you get an idea on how you can earn more or spend less money or invest more wisely or perhaps protect yourself from catastrophe and insulate yourself from financial disaster or just improve your life and your lifestyle?
00:31:50.280 | Well, if so, I have three requests for you.
00:31:52.280 | Number one, take action.
00:31:55.280 | Listening doesn't improve your life.
00:31:58.280 | Doing, however, can revolutionize your life.
00:32:01.280 | Number two, take the idea or concept that you learned from me and go and teach somebody else.
00:32:08.280 | If you want to really learn something, go and teach it to others.
00:32:12.280 | That ripple effect of you to someone else will systematically transform your life and the lives of all those around you.
00:32:19.280 | Number three, if you thought there was financial value in what you just heard, I'd ask you to come by and pay for it at RadicalPersonalFinance.com/patron.
00:32:28.280 | Now, however much you want to pay, that's up to you.
00:32:31.280 | But if the show is worth a dollar a month, come by RadicalPersonalFinance.com/patron and sign up to support the show at a dollar a month.
00:32:37.280 | If the show is worth $20 a month to you, I'd be happy to have your $20.
00:32:41.280 | Hey, if it's $1,000 a month, write me a check.
00:32:45.280 | Don't send it to me on Patreon, but I'd be happy to have that as well.
00:32:48.280 | RadicalPersonalFinance.com/patron is where you can do that.
00:32:51.280 | Thank you.