Credit Crisis: What to Do, What Not to Do

With the nation in a credit crisis, the financial environment is completely different than it was two years ago. Consumers need guidelines to help them understand how to adjust their money habits. Here are five things you should and five things you should not do with your money during the credit crisis.

Five Things You Should Do During the Crisis

1. Set a budget. Without a budget to guide your spending, it’s hard to control where your money goes. You don’t have to become a thrifty spender just because you set a budget. Rather, you become a smart spender because you’ve decided ahead of time where your money’s going to go.
   
   
2. Build an emergency fund. When an emergency arises, you need to have the funds to cover it. Otherwise, you’ll have to use your credit card or take out a loan, neither of which is a desirable solution. You should have an emergency fund that amounts to at least three months of your living expenses. This will help you pay living expenses in an emergency or unfortunate job loss.
   
   
3. Work on your credit score. Your credit score is arguably the most important number of your life. Having a good credit score will take you a long way. Order your most recent credit score from the three credit bureaus - Equifax, Experian, and TransUnion - to see where you stand. If you don’t have a good credit score, take some time to improve it.
   
   
4. Pay your mortgage first. It’s tough deciding between your mortgage and other bills. Think about it like this: if you don’t pay your mortgage, your credit will be hurt and you risk losing your home. If you don’t pay your credit cards your credit will be hurt, but you still have a place to stay. Even though it’s a choice between the lesser of two evils, it’s still important to make the right choice.
   
   
5. Pay off your debt. Credit crisis or not, the less debt you have the better. Once you’ve made a budget, you can better determine what you’re able to spend paying off your debt.

Five Things You Shouldn’t Do During the Crisis

1. Fall behind on your bills. Delinquent bill payments hurt worse during a credit crisis because the lending standards have gotten even tighter. A single late payment could cause your interest rates to go up and your credit limits to drop. If you’re on the market for a new job, missed payments could cost you the position.
   
   
2. Go another day without checking your credit report. Considering they’re free, there’s no reason you shouldn’t get a copy of your credit report. Your credit report contains information that determines your credit score. It’s also a way to detect identity theft. The Federal Trade Commission has instructions on ordering your free credit report.
   
   
3. Count on credit cards and loans to get you through. It’s not a good idea to depend on credit cards and loans to pay your regular bills. It’s an even worse idea to think it’s going to work during a credit crisis when access to credit is severely limited.
   
   
4. Live outside your means. This is another habit you should keep beyond the credit crisis. Spending more money than you make is the quickest way to get yourself deep in debt. Use a budget to decide how much you’re able to spend each month and keep your spending within those limits.
   
   
5. Ignore billing statement inserts. Credit card issuers are notoriously increasing interest rates and decreasing credit limits. If you have the habit of throwing away inserts that come with your credit card billing statement, you could miss out on the notification that the terms of your credit card are changing.

It’s impossible to predict how long the credit crisis will last. It could be a few months or even a few years. Developing smart money habits will ensure you survive the credit crisis without going bankrupt.