"I Was Just Laid Off and Have $15,000 in Debt! What should I Do?"
- Jayson M. Thornton, CFP
- 2 days ago
- 3 min read
Updated: 50 minutes ago
Jayson Thornton, CFP is an award-winning Financial Advisor and host of Pocket Watching with JT, a financial advice podcast and YouTube channel. Below he answers a recent question from a subscriber:
Michael from Michigan asks: "I was just laid off due to my company shutting down operations during the government crisis. My monthly expenses are $4,000, and I have a severance package that will last about two months. I have $1,500 in my savings account and $15,000 in various high-interest debts. Should I use my severance money to pay off some debt, or is there a better move?"
JT: Your Crisis is a Wake-Up Call!
Michael, I salute you for confronting this financial crisis head-on. You've been hit with an unexpected detour, and you need a new plan right now. You are in a high-stakes emergency, and the first thing you need to do is STOP. Stop worrying about paying off that debt, and definitely stop letting fear drive your decisions.
You mentioned the government crisis and the layoff, but as I teach on the show, an insane person does not change based on conditions. This is not the time for excuses; it's the time for actionable steps from the Pocket Watcher's Seven (7) Money Rules. Your first move is to secure your foundation, which means focusing on Steps 1 and 2.
Step 1 & 2: Emergency First, Debt Second 🛡️
The biggest threat to you right now is not the $15,000 in debt; it's the fact that you are one month away from being completely broke. You have $1,500 in savings, and your expenses are $4,000 a month. Your severance is a blessing, but it is not a debt payoff fund—it is your Survival Fuel.
Here is the Pocket Watcher's immediate action plan:
Stop Debt Payments, Except Minimums: You must stop putting any extra money toward that $15,000 in debt immediately. Only pay the minimum required amount to keep the accounts current.
Redirect Everything to Savings: Your total, unrelenting focus must be on Step 2: Emergency Savings. You need a Guardrail to stop this unexpected unemployment from spiraling you into more debt.
Build a 1-Month Survival Fund ASAP: Your first goal is to build a one-month emergency fund. Since your monthly essential bills are $4,000, you need to turn your current $1,500 savings, plus every spare dollar from your severance, into at least $4,000 as fast as possible. This money is your Debt Spiral Guardrail.
Do NOT Pay Debt with Severance: Using your severance money to pay off debt would be an act of financial insanity. That money is the only thing protecting you from an unexpected expense, like a car repair, forcing you to use those high-interest credit cards again. You must fill your safety net before you attack the debt.
Keep it Safe and Liquid: Keep this essential emergency money in a High-Yield Savings Account (HYSA), separate from your daily checking account, where it is safe and easy to reach but not tempting.
Step 3: Find Your "Want Money" and Cut the Fat 🔪
Now, let's talk about Step 1: Budgeting. The emergency you're facing forces you into a temporary Pawn-50/50 starter budget. Your entire purpose in this phase is to gain clarity and control over your cash flow, not just restriction.
You must find your "Want Money"—the discretionary spending on non-necessities that can become your Survival Fuel.
List Everything: List all your income (severance) and every single expense from the last month. I mean the $4 coffee and the takeout meal.
Find Your Leak: Your $4,000 in expenses is non-negotiable right now, but you need to act like Maria, who found $500 a month just on takeout. You need your own Maria moment. Go through that budget and ruthlessly cut down until you can't cut anymore.
Your Guardrail (Emergency Savings) and finding your "Want Money" (Budgeting) are the twin pillars that will stabilize your life while you look for a new job. Once you have a job and a fully funded 3 to 6-month emergency fund, then we move to Step 3: Debt Planning and kill those money monsters.
You are in control, Michael. Financial freedom is not about making one big transaction. It's about building new money habits, and watching your pockets. Your next step is to go to www.PocketWatcher.net and follow the Pocket Watcher 7 Money Rules!
About
Jayson Thornton, CFP is the founder of Thornton Financial and host of Pocket Watching with JT where he answers your financial questions. To learn more or submit a finance question go to www.PocketWatcher.net
For press inquiries, contact Jayson Thornton, CFP at PocketWatcherJT@gmail.com or 314-776-9076.