By Jeremy Simon
Published: June 29, 2007

Getting laid off from a job can leave you in a tough financial situation pretty quick. But even when times are tough, it is very important to make sure you don't end up with bad credit.

In addition to increasing your costs on borrowed money, bad credit can also make it harder to get a new job. The reason is that more and more employers consider a job applicant's credit history when making a hiring decision.

One of the first things to do when you lose your job is to cut expenses as much as possible. Take a good, hard look at what you spend each month and figure out what is necessary and what isn't.

In addition, some advisors recommend actually using credit cards in the short term instead of cash as a way to keep much-needed cash on hand. For such cases, credit cards should be used for necessities, like living expenses.

This advice may be somewhat surprising, since it is usually recommended that consumers not pay for essentials with plastic. But when you are out of work, paying with credit enables you to protect the bulk of your much-needed cash while continuing to make minimum credit card payments for longer, which can protect your credit rating.

The reason for this is that you don't want to run out of cash, since having to get cash advances can be very expensive and can also make you seem more risky to lenders.

Keep in mind that the strategy of using credit cards when you are unemployed should just be a short-term solution. Once you find a new job and start to earn money, you will want to attack your credit card debt ASAP.

Another strategy to employ when you lose you job is to clean up your credit report as much as possible by disputing any inaccurate or outdated items. Since good credit can help you land a job and keep down borrowing costs, a clean credit report is especially important when you are out of work.

In terms of letting credit card issuers and other lenders know about your job loss, it makes sense to wait until you are actually unable to make payments. If you get to this point, ask creditors for a hardship program that will allow you to make lower payments, generally for only three to six months.

Should you be unable to make payments even under a hardship program, or if you cannot get enrolled in one, then you should inform lenders that you cannot make payments until you find work.

Either consider finding a reputable credit counseling agency, or write your creditors to let them know you will resume making monthly payments as required in your cardholder's agreement once you get out of your tough situation.

Since it's always better to be prepared ahead of time, even if it doesn't seem like a job loss is in your future, try to keep savings on hand for about six months of living expenses and don't carry large balances on your credit cards.