When working your way out of debt, life doesn’t simply just stop and wait for you to complete the process. It will still continue on and often throw extra curveballs along the way, almost as if its goal is to take you off track from your goals.
One of those curveballs that life tends to throw is a job layoff. Whether it’s an economic downturn, or a company downsizing, or something else, many people working the Baby Steps program are faced with this obstacle. I know this very well because we faced a job layoff while in Baby Step 2.
If you’ve read our story, you know that late in 2017 I was let go from my job due to a company downsizing. We lost a substantial portion of our income and almost derailed our plan to get out of debt. However, we were able to figure things out and managed to complete our debt snowball in a timely manner.
Looking back, we perhaps could have prepared a bit differently. If the 2019 version of me was coaching the 2017 version of me, here is the advice I would have offered.
First, I would ask what the chances of a layoff are. Oftentimes, we can see something coming down the pike. Whether it’s due to slower sales, poor financial management, or loss of a major customer, employee layoffs are often somewhat predictable months out.
When I was in my job in 2017, I began feeling leery of things in July of that year. I saw that things were slowing down, and began to feel on edge about the future. The 2019 version of me would have asked the 2017 version of me what I thought the chances of a layoff were.
In July, I maybe would have said the chance was about 30%. In August and September, 40%. Come November, I would have estimated that the likelihood was at least 50%, if not slightly higher.
I would have told myself in 2017 that with those odds, it’s time to pause the snowball and go into what I call storm mode. When there is a hardship on the horizon, and it seems like it’s going to hit, it is a wise choice to prepare for that. Just as many folks along the east coast prepare when hurricanes approach their region, we must take appropriate precautions when there is trouble potentially heading our way/
In storm mode, the debt snowball is put on pause, and only minimum payments are made on the debts. The extra money that was going towards the smallest debts then goes directly into savings and sits there in anticipation of the storm.
The outcome can end one of two ways: The storm can hit, or it can not hit.
If the storm hits, that money that has been thrown into savings is then used to pay the four walls before anything else: food, utilities, housing, and transportation. Even if some creditors do not get paid, there is no compromising on these most basic necessities.
If the storm does not hit, and the danger of a layoff passes over, that cash you threw into the savings account can then be withdrawn, applied to the smallest debts, and the snowball resumed.
Sometimes, it’s hard to determine if it’s the right choice to enter storm mode or to continue with the snowball. If you’re not sure, let’s set up a time to sit down and talk about your concerns and what you can do to prepare for a potential storm.