How to get your finances in order for the Great Resignation

Pay down any high-interest credit card debt before quitting your job. But if that’s not possible, consider applying for a balance transfer card to give yourself some leeway. Typically a balance transfer card comes with a 0% APR offer ranging from six months to nearly two years on the debt you transfer to the card.

Your monthly payments during the promotional period go entirely towards your principal balance, which can help knock out your debt faster and you won’t pile any hefty finance charges on top of what you already owe.

You may also want to consider downgrading credit cards with expensive annual fees for cards with no annual fees. Call your issuer to see if this is an option but be aware not every issuer or every card is available for a product change.

—Robin Saks Frankel

When you’re making a major decision like whether to leave your job, it’s important to look at your financial picture both in terms of savings and budgeting.

If you’re moving seamlessly from one job to the next, you’re less likely to tap emergency funds or other savings. However, if you decide to go into business for yourself or quit your current job before your next job is in hand, you’re going to need funding.

If you have an emergency fund, assess what you have on hand compared to what you may need for this transition.

If you have a personal or household budget in place, now’s the time to go over it line by line. If you don’t, creating a simple budget will help guide your decision-making. Avoid common budgeting mistakes, like underestimating your financial needs around a job change.

Take a look at your spending habits and regular expenses, and make a plan to cut unnecessary spending and save money.

—Daphne Foreman

COBRA health insurance is a must-know option for people quitting their jobs. Under a law called the “Consolidated Omnibus Budget Reconciliation Act,” you have the right to continue the health insurance you had at the job you just left. You can buy up to 18 months of your workplace health plan (in some cases 36 months).

COBRA can be a crucial bridge until you decide to get a new job, qualify for Medicare or buy your own health plan. But brace yourself for sticker shock: You may have to pay 100% of the plan costs plus another 2% in administrative fees. If your employer previously subsidized your health insurance, you may be surprised at the monthly bill.

You may also leave behind life insurance that you had through work. Workplace life insurance is often the only life insurance that people have. Even if you jump to a new job that offers life insurance, it’s far better to have your own.

—Amy Danise

If you’re lucky enough to have a 401(k) account, it’s a loose end you’ll need to tie up when you leave your job.

While it might be tempting to take the money and run, that should be a last resort for nearly all retirement savers. If you’re younger than 59 ½, you’ll owe income tax on the entire balance.

If you’re younger than 55, you may also be charged a penalty equal to 10% of the amount by the IRS. And cashing out your retirement would leave you without the funds you’ll need in your golden years.

Consider which one of these strategies makes the most sense for your situation.

Keep Your 401(k) With Your Old Employer

When you get a new job and 401(k), you might find your old plan offers better investment options than your new plan. That’s an argument for leaving it right where it is.

Most companies let former employees maintain their 401(k) accounts, even after accepting a new job. 

Roll Your Old 401(k) Balance Into Your New Employer’s Plan

If you’ve found a new job that offers a 401(k), ask HR whether your new plan accepts rollovers from another 401(k) account.

Not all employers permit 401(k) rollovers, and some companies require new employees to work for a set period of time before they can enroll in the 401(k) plan.

Roll Your Old 401(k) Balance Into an IRA

Maybe your new employer doesn’t offer a 401(k) plan, or perhaps you want to go into business for yourself. Either way, rolling over your old 401(k) balance into an IRA is your go-to strategy.

—Ben Curry

If quitting your job will affect your ability to pay your mortgage, you have some options to ease the financial burden of your mortgage between jobs, including tapping your equity and refinancing into a lower interest rate.

If you have equity, doing a cash-out refinance may help you lower your interest rate (and monthly payment) and give you access to cash for emergencies. However, you’ll also have to pay closing costs—which can be 2% to 5% of the total loan amount—so make sure the benefit outweighs the price tag.

Refinancing into a longer-term mortgage can lower payments—but you’ll pay more interest over the long term.

Qualifying for any type of refinancing can be tricky, if not totally impossible without a job, so consider applying while you’re still employed.

Folks who will likely have long-term or permanent income reduction could qualify for a loan modification. Talk to your lender before you quit your job, so you know exactly what assistance is available to you.

Finally, if you’re paying private mortgage insurance, find out how many more payments you need to make before you can get rid of it. Some borrowers might be able to prove that their home value has increased enough to eliminate the PMI requirement.

While you probably aren’t planning to buy a house during a career break, you’re highly unlikely to be approved for a mortgage if you don’t have a job. Lenders want to know you have the means and willingness to repay your loan when they’re qualifying you for a mortgage, which is where credit scores, proof of employment and bank statements come in.

—Natalie Campisi

Unless you have a secondary source of income, we don’t recommend getting a personal loan without a job, because you may find it difficult to make your monthly payments.

If you miss a payment or default on your loan, you’ll be on the hook for late fees, and you can take a serious hit to your credit, making it harder to qualify for future loans or credit accounts. If you need to add a source of income to help manage an existing personal loan, consider a side hustle.

If you quit your job and hope that you can get a personal loan to tide your finances over, you may be out of luck. Common personal loan requirements include minimum income levels and debt-to-income (DTI) ratios—which measure how much of an applicant’s income goes toward existing monthly debts.

Decreasing your monthly income can put you above the minimum thresholds set by lenders—and you may not qualify for a personal loan.

—Jordan Tarver

If you plan on quitting your job to start a new business or focus on growing your side hustle, you may find it challenging to get a business loan. New businesses typically don’t meet all the qualification requirements.

For example, you’ll need to meet an annual revenue requirement and provide business bank statements as verification. Also, most lenders require your business to have been in operation for at least one to two years.

However, if you leave your job and don’t yet qualify for traditional business loans, you can look toward credit cards for startups and new businesses.

These typically rely heavily on your personal credit score for qualification—a minimum score of 670 is a good rule of thumb but remember: the lower your score, the higher your interest rate is likely to be.

—Jordan Tarver

Leaving your job can have unintended consequences for your student loans. If you’re on an income-driven repayment plan, any change in your income could raise or lower your loan payments accordingly. Similarly, some types of loan forgiveness are tied to your job.

Those who qualify for Public Service Loan Forgiveness (PSLF) or Teacher Loan Forgiveness may lose their eligibility if they leave their jobs prematurely.

And with federal student loan payments set to resume after January 31, 2022, borrowers who’ve enjoyed the nearly two-year pause may be left scrambling to cover the added expense.

—Alicia Hahn