10/15/2012 02:32 pm ET Updated Dec 15, 2012

How I Help the Newly Unemployed

Every other Monday, I teach a money management class in Atlanta to people who have just lost their jobs and applied for unemployment compensation. Many people attending this class are in their 40's and 50's and have never been unemployed. They are scared, confused and concerned about how they will keep their house and pay their bills on $1,200 a month.

While the national unemployment rate has improved, dropping to 7.8 percent in September, an estimated 12 million persons are still unemployed. Managing your finances during unemployment is critical. The search for a new job can take months, and even when you find a new job, it may pay less than your previous one.

If you have recently lost your job, here are five tips about how to best manage your money during your job search:

Immediately determine critical expenses; separate your "needs" from your "wants."

Cut all unnecessary expenses, from gym memberships to telephone land lines. Think monthly, not weekly when developing your spending plan. Most of your bills are due monthly, including unemployment checks. Save all of your checks and then determine how to spend on housing, utilities, transportation, food and medical costs.

Don't panic; some people quickly want to dip into their 401(k) to avoid going into debt.

A 49-year-old homeowner with 12 years remaining on his mortgage told me that he could pay off his mortgage with the savings in his 401k. I advised him to continue making regular monthly payments on the home since the payoff would have taken 85 percent of his 401(k) savings and the amount needed for homeowners insurance and property taxes would not be covered with current unemployment pay.

Don't ignore creditors. Develop an action plan for current creditors and pay the minimum amount on credit cards, if possible.

One of my clients at CredAbility ignored all of the telephone calls from his creditors because he didn't have the funds to pay his bills. He became discouraged when the calls from collection agencies increased. I advised him to answer all of the calls and write down the names, address and telephone number and the original creditors' information. Anyone in this situation should write a formal letter to explain their current situation and keep a copy for their records. The communication will prove beneficial if the account becomes a judgment or future arrangement can be made once they return back to work.

Keep your credit clean.

The search for a new job can take months. Take special care to protect your credit since having good credit is a requirement for several jobs. Failing to manage your finances during unemployment could affect your credit report and hurt your chances of landing a new job. Pull your credit reports from Equifax, Experian and TransUnion to check for any errors and make corrections, if necessary. You can get a free credit report from each credit bureau by going to

Don't be afraid to ask for help.

During the past four years, a lot of new government programs have been developed related to mortgages, student loans and credit cards. If you own a home, contact HUD or HUD-approved counseling agencies to find out about the Making Home Affordable programs and the Department of Education for student loan consolidations, deferments or default status. United Way can refer people to local resources to save money on utilities and other services.