How to survive a bad economy

Fist clutching money

The recession may be ending, but millions of people are still out of work and losing their homes.

Our 6 smart moves for handling tough times can prepare you for whatever challenges you and your family might face.

Smart move 1. Pay down your credit card debt.

You wouldn't go to Grandma's Thanksgiving dinner wearing your tightest clothes. Likewise, you want some breathing room in your credit limits when the economy is heading south.

If you're laid off, the available credit on your cards could be your life raft. But credit cards that charge 18% or more may sink you.

The quickest way to reduce credit card debt is to move it to one of the best credit cards for balance transfers. Those cards charge little or no interest on transfers, allowing most or all of your payments to go toward reducing what you owe. Our balance transfer calculator will help you devise a money-saving plan.

Consolidating your credit card debt with a home equity line of credit, or HELOC, is another option. You not only get a lower interest rate, but the interest on home loans is tax deductible. Use's extensive database to find the best HELOC rates, and then see how much you can save with our debt consolidation calculator.

Remember to take into consideration the fees you'll pay for a balance transfer (usually 3%) or debt consolidation plan.

If neither is an option, the next best thing is to pay off your most expensive cards first. The trick is to make the minimum payment on every account except the one charging the highest interest rate.

Then put as much as you can afford each month toward the high-rate card -- well over the minimum payment. Once it's zeroed-out, attack the balance with the next highest rate. Use our credit card calculator to find the fastest, cheapest way to wipe out your debt.

Smart move 2. Embrace a more frugal lifestyle.

You may think you've already squeezed as much as you can from your monthly budget. Think again.

In the current economy, it's vital to cut corners and save money, just in case you lose your job, suffer an unexpected illness or face a big reset on your adjustable-rate mortgage. Unemployment, divorce and a health crisis are the biggest factors driving people into bankruptcy.

Our step-by-step advice can help you create a personal budget and cut your cost of living.

Spending less can be fun if you make it a personal challenge to save. Enlist a buddy to get the competitive juices going.

Smart move 3. Create an emergency fund -- and an emergency plan.

Put the dollars you're saving at lunchtime into a money market or savings account. If you can build up three to six months of living expenses, you'll have a comfortable cushion in case you lose your job or see overtime hours cut.

You'll also be able to cover unexpected medical bills, repair the car or help a relative -- without running up credit card debt.

You can line up a source of cash even if you're living paycheck to paycheck. Our "4 ways to prepare for a financial emergency" will give you a place to turn if the economy turns on you.

Smart move 4. Postpone buying big-ticket items.

Until the economy starts to pick up again, hold off on buying new appliances, remodeling your home or snagging a sailboat. If your car is paid off, don't trade it in for a new one unless it needs thousands of dollars worth of repairs.

If you really want something, wait a day. Or two. You may find that you can do without it and stay on firmer financial footing.

Smart move 5. Stay the course with your retirement plans.

Keep investing even though the stock market is down -- and could go lower. Our "7 simple rules for a successful 401(k) account" and "6 simple rules for a successful IRA" provide sound advice even if the economy's in the tank.

Above all, don't try to time the market -- you may end up yanking money out of mutual funds that invest in stocks when they're going down and leaping back in when they're going up. That's a sure way to lose money.

According to an analysis by Vanguard, people who bought $10,000 worth of stocks in January 1993 would have had $44,680 by the end of December 2007 if their investment simply tracked the Standard & Poor's 500 Index and the money was in the market the entire time.

But if they missed the market's 10 best days during that time, the account would total only $27,840 -- or $16,840 less.

Smart move 6. Make sure you're worth more than your salary.

Your best bet to survive layoffs and downsizing is to make significant contributions to your company's bottom line. Collecting a big salary without doing much at work is a sure way to end up unemployed.

You don't have to invent a new product or divest underperforming business units to make a difference. Any way to sell more or spend less will do. Go the extra mile to make customers happy. (It costs less to keep customers than to get new ones.) Even small cost savings can be significant if they apply to your entire organization.

You might even want to explore taking part-time work on the side. It could end up being important income if you get a pink slip.

Don't be afraid to advertise your accomplishments. It isn't bragging; it's job security.

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