A guide to sensible borrowing to cover periods of unemployment

April 27, 2020

If like many people in the Philippines, you have suddenly found yourself without a means of generating an income because you have been redundant, you may be struggling to think of ways to make ends meet. In these turbulent times, whole industries are collapsing under the social and economic pressures that have been unleashed by the coronavirus and everybody from managing directors to entry level workers are beginning to feel the effects. Borrowing money from lenders when unemployed is not usually recommended, but providing you do this carefully, there is no reason you cannot see loan providers as a means of short-term support while you look for alternative employment. Here’s Asteria’s guide on how to borrow sensibly to cover periods of unemployment.

Understand what the money is going to be used for

This should be your first step when considering borrowing from a lender in the Philippines to cover periods of unemployment. Have a realistic budget that covers food, bills, medical costs, and all of your other essentials and check this meticulously before you decide on the amount you are going to request. During difficult times, anything nonessential should be way down your list of priorities, and you may even need to go without a few things until you are able to secure some work. When you have broken down the cost of living into all of the essential things you need to pay, try to estimate how long you think the situation is likely to last. We appreciate this may be more difficult at the moment, due to the uncertainty created by the viral outbreak, but keep a close eye on the news to stay informed so you can make the most education guess.

Have a separate emergency fund

If you are in the unfortunate position of not having a regular income, you may also find that you are unable to secure credit easily, too. This means that when emergencies happen, it can be difficult to find the money to pay for them. Many of us are very reliant on credit cards to cover the cost of things like dental emergencies, medical treatment, damage to property and unexpected costs that can be incurred during times of global uncertainty. To combat this, we recommend using some of your loan as small emergency fund that you do not touch until you absolutely need it. Sending the money straight to a savings account is a good idea, but if you do not have one, you can also use a separate bank account that you do not use regularly. The amount you need will depend on your personal circumstances but try to envisage a few worst-case scenarios so you can get an idea of what you will need. Even if you cannot afford to put away very much, having a little bit to fall back on can be extremely helpful.

Retraining and personal development

This is something many people overlook when borrowing to deal with a period of unemployment. Though it is obviously important to take care of the absolute basics first, using some of your loan to help you increase your chances of finding employment could be a good move. Paying for online courses, new work clothes or even a few sessions with a professional career development coach can be an extremely effective way of making the money you have borrowed work for you. Always be realistic about how much benefit you expect to see from expenditures like this but do not be afraid to use some of your personal loan or salary loan to sharpen your skills, or even learn some new ones. When you land your next job and you realise that you can suddenly afford a few little extras, you will thank yourself for having the presence of mind to invest in yourself.

Make Sure You Borrow Enough

Though borrowing much more than you can realistically afford to pay back is definitely something that should be avoided, so is making multiple applications for loans in a short period of time. Lenders use credit checking agencies to find out how many times you have approached other businesses to secure finance and if they see that you have taken out a loan recently, you are unlikely to be offered a competitive rate of interest. They may even turn you down if they consider you a high-risk customer. This is why it is so important to budget properly and borrow the right amount. If you envisage your period of unemployment to last for around 3 months, make sure you borrow a little more, to ensure you are not left with nothing if it ends up lasting a little longer. Any excess money can always be used towards repayments and providing you are responsible and do not spend it on things you do not really need, there’s nothing to stop you paying off what you have borrowed relatively comfortably.

Look at all of your other alternatives first

Personal loans and even salary loans are not really designed to be used as a source of income. Though they can be extremely helpful in times of need, you should always consider other means of income before you choose this as a potential option. Even combining things like savings, income from side businesses or the sale of unwanted household items with a smaller loan amount could be an option. The key is to think creatively and to make sure that you have exhausted all other possible avenues of income before you decide to make an application for credit. Doing this means that you can enjoy peace of mind and avoid feeling as if you have put yourself in to an unmanageable situation.

Summary

The key to responsible borrowing is planning and measured, realistic thinking. Even if you are without work at the moment, you will need to do everything you can to secure a means of income so you can manage the repayments of anything you borrow. Providing you do this, using loans as a way of dealing with periods of unemployment can be an effective way to ensure you have everything you need to keep going.