Temporary work is a reality for a significant number of Americans, who, in turn, can find it difficult to plan for the future when their livelihoods are interrupted by the end of a contract every few months or years.
According to the U.S. Bureau of Labor Statistics, as of 2023, 6.9 million Americans were temporary workers. This does not include freelance workers or those involved in the gig economy.
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Suppose you’re in this boat. At 32, you have a temporary job, some credit card debt you really want to pay off, but no new job prospects once your contract finishes at the end of the year. What should you focus on — your debt or your savings? Here, we break down what to do — and why.
The scenario
So, you make $2,500 per month at your temporary job. Your minimum expenses total $2,000, and you are currently paying down $5,000 of credit card debt at the rate of $400 per month. Your emergency fund stands at $3,500, and you figure that if you continue to try to pay down your credit card debt, you would only be able to add about $500 more to your emergency savings before the end of your contract.
If you keep on this track, you could eliminate your debt in just over a year. However, with a job that ends in a few months, you’ll need a fund to keep you going until you find a new one. With expenses totaling $2,000, and a projected emergency fund of just $4,000, by the end of the year you’ll need to be faster-than-average on the job hunt.
According to FlexJobs, it takes an average of 3 to 6 months to find a new position once you begin job hunting.
In this case, it’s likely best to make the minimum payments on your credit cards and focus on saving for when you’re between jobs next year. You should also begin your search and focus on networking towards the end of your contract to ensure you start your period of temporary unemployment on the right track.
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Prioritize your emergency fund
According to Dave Ramsey’s Baby Steps formula for building wealth, the most important thing is to have a solid emergency fund in place as a first step.
Though you already have an emergency fund, you’ll likely have to use it, and it will be depleted quickly. When you find a new job, you’ll need to prioritize rebuilding it so that you don’t end up with more debt than you have right now.
Assuming you can shift some of your debt payments to savings, you could end up with nearly $2,000 more in just six months, which is another month of worry-free job hunting in the new year.
Dealing with debt
Debt is a fact for the average person, with 46% of Americans reporting that they expect to retire with debt.
Credit card debt can come with a very high interest rate, which, in the long term, can eat away at the value of any money you manage to save by compounding the amount you owe.
Ramsey encourages the average full-time worker with credit card debt to establish a small $1,000 emergency fund, and then tackle their highest-interest cards using the snowball method.
That is, focus on using the largest amount of your debt repayment budget on your credit card with the smallest balance. When that card is paid off, shift those funds to the next credit card, and so forth, until all debts are paid. Then, that payment can be allocated to your emergency fund, so that you eventually have a healthy six months of savings to cushion you against the end of a future contract — or any curveballs life throws your way.
Similarly, a Bankrate report cautions that living without an emergency fund can be a slippery slope to more credit card debt. Even if you’re aggressively paying off your cards, a setback like car trouble or a health emergency can mean you end up further in debt. In this way, debt becomes a revolving door. With an emergency fund, you could help break the cycle of borrowing.
If you’re very debt-focused, you may want to consider a debt-consolidation loan, or a credit card balance transfer — once you’re back in a steady job and can focus on paying down your debt again.
“Utilizing zero-percent balance transfer offers can jumpstart your debt repayment efforts by insulating you from high interest rates,” says Greg McBride, chief financial analyst for Bankrate, “and facilitating quicker progress on paying down credit card debt.”
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
