Income down? Expenses and stress level up? When the going gets tough, here's how the tough can keep going.

Even in a booming economy, millions of Americans face financial problems that can start with the loss of a job, a death or illness in the family, a divorce or separation, or an inability to control spending and borrowing. But when the economy slows down, as it has recently, many more people may have concerns about their financial well-being.

"Mounting job losses combined with high consumer debt levels are stressing the financial capacity of many households," FDIC financial analysts Robert Burns and Lisa Ryu said in a report issued in early December. Also, stock market losses and reduced yields on CDs (certificates of deposit) and bonds are part of the problem, especially for senior citizens who rely on this income for living expenses. And, if you live paycheck-to-paycheck, it's hard to build a rainy-day fund to weather a financial setback.

What can you do to protect yourself and your family if you're having financial troubles... or if you simply want to be better prepared financially? FDIC Consumer News offers the following tips and information, much of which can be good advice for anyone at any time.

1  Review your priorities... and your spending. Start with a look at your monthly expenses. Remember that your family's welfare comes first, so make sure to continue the payments on your home, utility bills and insurance. Also make sure you have enough insurance to protect your family—disability insurance to replace lost income during a serious illness, life insurance in case a wage earner dies, and health insurance to cover big medical bills. Next look at where you can consider cutting back. Possibilities include: restaurant meals, entertainment (including expensive ball games and "premium" TV channels), and costly Internet and phone services you really don't need or use. You can decide to give up some expenses temporarily, and you may find you really didn't need them anyway.

2  Be smart about borrowing money. Interest payments on credit cards, home mortgages and other loans are an expense, so think about what you can do to keep these and other borrowing costs down. Among the strategies to consider:

   Pay off your highest-rate loans (usually your credit card or department store charge card) with funds from your lowest-yielding savings and investments. If you have several credit cards, target the one with the highest interest rate, pay it off, and then move to the card with the next highest rate. As you pay off card balances, consider keeping just one or two cards (the ones with the best combination of rates, fees and features to suit your needs).

   "Try to pay all or as much as possible of your credit card bill each month, so you can avoid high interest charges," says Jane Schuchardt, the national program leader for consumer financial education at the U.S. Department of Agriculture's Cooperative Extension Service. "But if all you can manage is to send in the minimum payment, make this a priority."

   Be sure to get your credit card and other loan payments in by the due date to avoid late charges and black marks on your record. If your payments become more than 30 days past due, your lender may report this delinquency to credit bureaus. This information can remain in your credit file for seven years and make it more difficult or more costly to obtain credit.

   If you're having serious debt problems, think twice before using your credit card for new purchases. Instead, consider paying with cash, a check or a debit card (which deducts funds automatically from your bank account). And remember that when you use your credit card to get a cash advance from an ATM, that's considered a loan, and you will incur interest charges immediately, and maybe even transaction fees.

   Review interest rates and terms of existing loans to see if you can do better. For example, find out if your credit cards offer a "full" grace period (25 days or more of interest-free purchases) or if you are being charged interest immediately on new purchases. Ask your credit card issuer about a reduced interest rate, a more favorable grace period, or other features that can cut your costs. If you're not satisfied with the answer, shop for a better deal. Refinancing your home mortgage at a significantly lower interest rate also can greatly reduce your monthly payments, but you've got to shop around and consider the impact of loan origination fees and other costs. Many people also don't think about refinancing an auto loan or a student loan, but those can be other places to cut monthly payments.

   As the ads say, if you have equity (ownership) in your home you can get a home equity loan to pay off credit card debt, consolidate several existing high-rate loans into one new loan with a lower rate, or raise cash in an emergency. Your interest payments on home equity loans also may be tax-deductible. But because your home is the collateral backing the loan, if you can't make the monthly payments, you could lose your house. Shop for the best deal and know all the costs before you agree to anything. Here's another tip: With a home equity line of credit, which enables you to borrow up to the credit limit whenever you want, you'll get the best interest rate and loan terms if you apply when your finances are in good shape, not if you're out of work or having debt problems.

   A reverse mortgage is another type of home equity loan for people age 62 or older, and it, too, comes with certain risks and rewards. With a reverse mortgage, a lender will pay you money (which is why it's called a reverse mortgage) in a lump sum, monthly advances,

There are resources in the government, in the private sector, and even in your circle of family and friends, that you can turn to for help.

through a line of credit, or a combination of those options. The money can be used for any purpose, and the principal and interest typically become due when you move, sell your house or die, or at the end of a specified loan term. But remember, the loan eventually must be repaid, so you will be reducing your equity in the home's value, perhaps substantially, after you add in the interest costs. The fees and interest charges can be high, so shop around. Because your home is valuable to you and your heirs, consult with your family as well as an attorney or another trusted advisor before agreeing to a reverse mortgage. "Understanding your rights and responsibilities is the best way to minimize the risk of borrowing against your home," says Susan Boenau of the FDIC's consumer affairs division in Washington.

Update: New Law to Make It Easier to Obtain and Correct Your Credit Reports In an important development, Congress in November 2003 passed a new law that can help you ensure the accuracy of your credit information and monitor your credit files for signs you may be a victim of identity theft. The law will enable you to obtain a free copy of your credit report once a year from each of the three major credit bureaus; this provision will take effect over a period of nine months, beginning December 1, 2004, in western states and moving east with completion scheduled for September 1, 2005. Nationwide as of December 1, 2004, you’ll have the right to learn your credit scores, which are designed to help predict how likely you are to repay a loan or make payments on time. As of that same date, merchants also must notify you if they plan to report negative information about you to a credit bureau. The Federal Trade Commission (www.ftc.gov) and the Federal Reserve Board (www.federalreserve.gov) have issued rules to put the new law into effect.

   Obtain a copy of your credit report about once a year and make sure it accurately reflects your credit history. That way you can provide missing details or fix inaccurate information before you apply for your next loan. A copy of your credit report is available free in some states or for a small fee in others. Call any of the three nationwide credit bureaus at these toll-free numbers: Equifax at (800) 685-1111, Experian at (888) 397-3742, and TransUnion at (800) 888-4213. Many experts suggest that you request copies from all three companies because content may vary significantly.

3 Commit to a savings program. If you follow our previous suggestions for reducing outlays, you should have more money available to build an emergency savings fund in your bank or brokerage account that you can tap if you lose your job or have major, unforeseen expenses. It may take time, but many experts say you should try to build a rainy-day fund equal to three to six months of living expenses, to get you through a difficult period without having to take out a loan or borrow from your retirement savings. If necessary, temporarily cut back on your savings for long-term goals (such as retirement) until you've built up your short-term emergency savings.

How can you build an emergency savings fund if you're struggling to make ends meet? Consider a simple, tried-and-true system often called "pay yourself first." Each month, before you pay your bills, write out a check to be deposited into a savings account, even if it's for as little as $20 or $30. Or, arrange with your bank to automatically transfer each month a certain amount from your checking account to a savings account.

4 Know when and where to ask for help. If you think you've got a serious debt problem, it's in your best interest to address it immediately. You may be able to solve your problems on your own by doing some research at your local library or on the Internet. But many people may need to turn to others for assistance. A knowledgeable friend or relative may be able to suggest solutions for your problems or direct you elsewhere. Your employer may have an arrangement with financial counselors as part of your employee benefits. Or, you can go to a credit counseling service that, at little or no cost, can help you get out of debt. It's easy to find a service—many are listed in the Yellow Pages or on the Internet. The important thing is to find a reputable outfit that charges reasonable fees. (Be aware that there are questionable operators or even credit repair scams, as described under Point #5 ("Beware of Scams") in this article.) Perhaps your attorney, accountant or some other trusted professional can refer you to a reliable credit counselor.

The FDIC can't recommend or endorse individual credit counseling services. We strongly advise you, though, to ask questions before signing any agreement. Among the questions to ask: What does your service involve? What are the fees? What are the qualifications of the credit counselors? Why will I be better off if I use your service? How much input will I have in working out the details of any program to improve my financial situation? Any reputable credit counselor should be willing to answer these and any other questions.

Suppose your debt problems are so serious that you'll have trouble making payments on your credit cards or other loans. Then, it's generally recommended that you (or maybe your credit counselor or another representative) contact your lenders to explain why you're having problems—especially any circumstances beyond your control—and ask about getting some flexibility. For example, a lender may agree, permanently or temporarily, to reduce your interest rate, monthly payments or other changes, especially if you've had a good record in the past. Why would a lender renegotiate a loan, even if it may mean not getting back all that you owe? "A lender would rather get something rather than nothing, and not have to go through the cost of paying a debt collector," says Janet Kincaid, a Senior Consumer Affairs Officer in the FDIC's Kansas City office. "But for the most part, banks and other lenders want to work with you and see you succeed financially. They want you to be a good customer for a long, long time."

The time to go to your lender and ask for a renegotiation of your loans is before your credit cards are cancelled, your loans are turned over to a collection agency, your credit record is severely damaged, or you face the prospect of bankruptcy. But be aware that there are potential risks in asking your lender for a break. "Many credit card agreements enable the lender to raise your interest rate or even close your account if the lender has reason to believe you may not be able to pay the debt," says Joni Creamean, a Senior Consumer Affairs Specialist with the FDIC in Kansas City. "Some lenders automatically close your credit card account or won't authorize new charges if they're notified that you've enrolled in a credit counseling program." Because of these and other potential pitfalls, Creamean says, your best bet may be to explore your options and, if you choose credit counseling, make sure to use a reputable organization you believe will best represent you in negotiations with your lenders.

5 Beware of scams. Unfortunately, con artists are always around, but they can be especially dangerous during uncertain times. Why? Because people who are worried about jobs, investments or retirement savings are more likely to be taken in by attractive-sounding financial offers that, in reality, are frauds. Sadly, elderly people often are the intended victims, in part because they have special concerns about running out of money for necessities. Among the financial frauds that tend to flourish during tough economic times:

   Bogus offers of "easy credit" and "guaranteed loans" for people with credit problems. Swindlers will collect money up-front in exchange for nothing at all, for credit cards or loans that have big strings attached, or for basic services you could do on your own.

   Promises to erase a bad credit history for a fee. Don't fall for this scam. Under the Fair Credit Reporting Act, accurate information about your accounts can stay on your credit report for up to seven years, and a bankruptcy can be reported for 10 years. "A bad credit history can only be repaired by steady and consistent on-time payments," says FDIC fraud investigator Gene Seitz. "Nobody can legally 'erase' bad credit overnight."

   Guarantees of easy money from investments or business opportunities typically are based on false or exaggerated claims. Much or all of the money you're asked to send will likely be lost. (For more about investment scams, see this related article.) In general, be careful with any unsolicited offer. While legitimate companies do use "cold calls" to reach new customers, be very skeptical if the offer is for a "tremendous" deal from an unfamiliar company, and never provide your Social Security, checking account or credit card number in response to an unsolicited call or letter.

Final Thoughts

You've known all along that it's smart to control your spending, to save money for a rainy day, and to be on guard against financial scams. But knowing and doing are two different things. We hope we've given you new insights and new incentives for doing what you need to do to protect yourself and your family from tough times. We also want you to know that you don't have to cope with financial problems and dilemmas alone—there are resources in the government, in the private sector, and even in your circle of family and friends, that you can turn to for help. "It isn't enough to be aware that financial emergencies can happen," says the FDIC's Kincaid. "You've got to be proactive, too."

Six Warning Signs of a Financial Problem

More than 20 percent of your monthly net income is going to pay back credit cards and other loans (excluding a mortgage).    You're borrowing money to make payments on loans you already have.    You're frequently at, near or over the limit on your credit cards.    You're only paying the minimum required on your credit card bill.    You're paying bills late or putting off visits to the doctor because you don't think you have enough money.    You're working overtime or a second job just to cover food, housing and other living expenses.

Government Agencies That Can Help

The FDIC and other federal regulators of depository institutions offer publications, Internet sties, staff and other resources that can answer questions about saving and borrowing money and your rights as a consumer. For phone numbers, addresses and Web sites, see "For More Information" The Federal Trade Commission works to prevent fraudulent or deceptive business practices and provides consumer information about buying and borrowing. To file a complaint or to get free information, call toll-free (877) FTC-HELP—(877) 382-4357—or fill out a form on the FTC's Web site Other consumer information from the federal government is available free. The Federal Consumer Information Center in Pueblo, Colorado, offers a wide assortment of consumer publications, including the popular "Consumer Action Handbooks" Call toll-free at (888) 8-PUEBLO, which is (888) 878-3256, or go to Federal Consumer Information Center, Pueblo, Colorado to read or order these publications. Check out FirstGov for Consumers, another U.S. government Web site offering online consumer information form federal agencies, including the FDIC. Another resource is the Cooperative Extension Service, a partnership between the U.S. Department of Agriculture and state and county governments that teaches personal finance skills through publications, Web sites and workshops. Contact the Cooperative Extension Service in the county government listings in your phone book phone book or go to the Cooperative Extension Service Web site. Your state government also may offer assistance and information to people having financial or legal problems. Contact your state's Attorney General's office of consumer protection office as listed in your phone book or other directories, or visit your state's official Web site.