Last Updated: September 1, 2010

Promptly File for Unemployment Insurance

Not all workers are entitled to unemployment insurance. To help qualify, you'll want your employer to confirm you were laid off instead of resigning or being fired for cause.

Handle Severance Package with Care

Your employer may offer a severance package, probably before you are dismissed. This package typically extends salary and perhaps benefits for a certain dollar amount or period of time.

• Don't Sign Until You Take It Home: Most experts recommend that you get any offer in writing and don't sign it immediately. Take it home and review it closely.
• Review Your Employee Handbook: See what benefits are promised to departing employees. Make sure the company pays you for unused vacation or compensation time.

Maintain Health Insurance

Incurring major medical bills without insurance would be financially disastrous. Consider these options:

• See if your former employer will continue coverage for you.
• Convert benefits under the employers' group plan to coverage under an individual policy.
• Switch to a working spouse's plan. Typically, you have 30 days to make this change because job loss is considered a "qualifying event" that allows the change outside of the open enrollment period.
• Obtain private regular coverage.
• Continue employer group coverage through Consolidated Omnibus Budget Reconciliation Act (COBRA).

Continue Life & Disability Insurance

You may be able to convert a group term life insurance or disability policy at work to individual coverage. You'll have to pay the premiums but it's important to continue these types of insurance.

Develop an Emergency Spending Plan

Establish a spending plan or revise an existing plan.

• Start with Sources of Income: What can you realistically count on for the coming months? Sources might include severance pay, unemployment benefits (which are taxable), funds from a cash emergency account, a working spouse's income or perhaps temporary work.
• Avoid Dipping into Your Retirement Funds: A job loss usually is temporary, while your eventual retirement may last 20 or even 30 years. Pulling out tax-deferred funds to pay for today's bills is shortsighted for several reasons unless you've exhausted all reasonable alternatives.
• List Expenses: List expenses in order of priority: mortgage or rent, groceries, utilities, car payments, transportation, insurance premiums, clothing and so on, down to the least important discretionary items.
• Talk to Your Family: Tell any children or other family members who depend on you financially how the job loss will affect family spending. Ask them for budgeting suggestions.
• Consider Government or Private Assistance: After reducing expenses, you may find that you still don't have enough financial resources for subsistence. You may qualify for help from government or private agencies to tide you over until you find sufficient work.

Make Retirement Plan Decisions

Losing a job will likely force you to make some crucial decisions regarding any retirement account you had at your former employer, such as a 401(k) plan, 403(b) or other qualified plan.

• Cash Out: You may still need to cash out some or all of your funds to help pay for living expenses during this difficult time. But as noted earlier, taxes and penalties could reduce much of that withdrawal and you're draining your future nest egg.
• Roll It Over: If you can't stay in the existing plan, consider rolling the assets into an INdividual Retirement Account (IRA) to prevent taxation and allow continued tax-deferred earning. You can later roll the assets into a new employer's plan if so desired.
• Stay in the Plan: You won't be able to contribute to the plan any longer, but you won't face any income tax or penalties on withdrawals. Second, you may not need to immediately pay off any outstanding loans, though most companies will probably still require it. Third, plan assets are protected from creditors under federal law, while not all states fully protect IRA assets from creditors.

Avoid Short-term Investment Decisions

In tough times, the temptation is to become more conservative with investments. Some movement into more liquid assets and cash may be called for. This certainly isn't the time to take fliers on some hot stock in hopes of generating a quick profit to help make up for lost income.

When Debt Becomes a Burden

You may find debts accumulating faster than you can pay them off, particularly if you are out of work for an extended time. Here are some steps to help alleviate that burden:

• Try to further reduce expenses.
• Don't accumulate any additional debt if possible. Minimize or avoid using credit cards.
• Contact creditors to see if you can reduce or defer payments briefly, extend the payment period or refinance.
• Consolidate debts — carefully. Don't transfer lower-interest debt to a higher-interest consolidation loan.
• Consider tapping the equity in your home to pay off credit cards and cars, since the rates may be lower and the interest paid is usually deductible.
• Avoid filing for bankruptcy. Filing for bankruptcy should be viewed as a last resort.