Protect yourself in a financial crisis

Ten good ways to go about it NEW YORK — Bank foreclosures. A volatile job market. The rollercoaster Dow. This may be the worst financial crisis since the Great Depression, but we can do more than wait for the federal government to bail us out. Here are 10 things you can do right now: Be smart about home equity. Do not use a home-equity loan as an emergency fund, your personal bank, or a short-term investment strategy, said Mike Peterson, spokesman for the American Credit Foundation. He said going further into debt because of an emergency situation only makes things worse. Plus, most home-equity loans include clauses that could reduce or eliminate the line of credit, he said. “Home equity loans still require at least an interest payment every month,” said Peterson. “Again, adding to the stress.” Have an emergency fund Financial experts recommend three to six months of living expenses in a savings account. This gives you instant access to funds, so you won’t have to go further into debt to handle an emergency situation, said Peterson. Know the risks There is no such thing as risk-free investing, said Jared Bernstein, author of “Crunch: Why Do I Feel So Squeezed? (And Other Unsolved Economic Mysteries).” Don’t make an investment that if it goes bad you can’t afford to deal with the fallout, he said. “That doesn’t mean you shouldn’t invest,” he said. “It means that you should invest with a real appreciation for what could happen if your investment doesn’t work out.” This is a good time to make sure your portfolio is not more aggressive than it should be given your age and goals, said Mike Busch, a certified financial planner in Dallas. Meet with your planner to make sure that you are still on track, he said. Continue to invest in the 401(k) Continue to put money into your 401(k), said Busch. Low share prices mean you can buy more, he said. If you know you are going to need the money, move it into a money market fund, where it’s not going to rise or drop too much, said Karen Schaeffer, certified financial planner in Rockville, Md. Get out of debt Stop charging, said Gail Cunningham, spokesperson for the National Foundation for Credit Counseling. She said people spend 20 percent less when they use cash or a debit card. Call the card issuers and see if they will negotiate a lower interest rate, she said. On existing balances, make sure you pay at least the minimum, on time and don’t miss a payment or go over the credit limit, she said, thus incurring more fees. In today’s environment, it may be hard to shop around for a lower interest credit card, she said. Make sure you read the fine print; switching to a lower-interest card often carries transfer fees and once you are approved, the credit line may not absorb all of the debt you are transferring, said Ben Woolsey, director of marketing and consumer research, for CreditCards.com. Cunningham suggests either attacking the debt with the most harm — the one with the largest balance and the highest interest rate — while paying the minimum payments on the other cards, or knocking off the smallest debt first to motivate you that you can do it. Consider a part-time job Dedicate all money from the part-time job to paying down debt, said Cunningham. “As burdensome as that sounds, consumers find that the freedom from knowing they are becoming debt free is greater than the burden of second job,” she said. Keep working Rethink whether you need to retire right now, said Schaeffer. Being able to earn a living is a huge asset, she said. Reduce expenses Write down income and spending for 30 days, said Cunningham. She said 30 percent of take-home should go to housing (not counting utilities) and 20 percent to satisfying debt, including a car payment. She said then look for areas where you can cut back. Review your cell phone plan, she said. Research bundling cable, Internet and phone into one package to see if it’s cheaper. Remember to look at automatic payments for things like gym memberships that you never use, she said. Harrine Freeman, personal finance expert and author of “How to Get Out of Debt,” said small changes, such as skipping Starbucks in the morning, packing your lunch and buying in bulk, really add up. Don’t be afraid to ask for help If you are having trouble making mortgage payments, see if you can negotiate a mortgage loan modification with your lender, said Bernstein. If you have an adjustable rate mortgage, call your lender and ask when your mortgage will be reset and what will that mean in terms of monthly payments, he said. Don’t freak out Don’t pay too much attention to the daily swings in the stock market, said Bernstein. Try to take a somewhat longer view of where the economy is and where it’s headed, he said. “These are difficult times, no question about it,” he said. “But we will get through it and come out the other side.”