How to thrive in a weak economy

No. 3: Don't let your home become a trap

Experts agree that tough economic times mean homeowners must figure out if they've got the best mortgage deal. Many people have adjustable-rate mortgages that are about to reset higher, causing payments to balloon.

It may be a good idea for these homeowners to refinance to a lower, fixed-rate mortgage that will give them more stability in their month-to-month finances.

Unfortunately, that's easier said than done right now.

The nation's credit crunch and subprime mortgage debacle mean access to loans is fast disappearing, or becoming prohibitively pricey, for borrowers with less-than-sterling credit.

"Interest rates are being more unevenly applied in the marketplace than they have been in recent years," says Keith Gumbinger, vice president of HSH Associates, which tracks mortgage trends nationwide.

If you have good credit and have a FICO score of at least 680, don't squander current opportunities to save.

Recently, mortgage rates have moved up and down like a yo-yo, but try to take advantage of the best rate you can find. Consider spending more on a fixed-rate loan and locking in a super deal rather than selecting an ARM that may cost far more when it resets, says Gumbinger.

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Those with less-than-stellar credit have fewer options. That's especially true of borrowers who took out ARMs to pay for their homes.

"ARMs are strangling people. They are like a B-rated horror movie. If at all possible, get out of them," says Dee Lee, a financial planner and author of "Let's Talk Money."

Consumer groups may help those whose credit is making it difficult to reset. The Homeownership Preservation Foundation has a 24/7 hotline, (888) 995-4673, where you can reach counselors. The Homeowner Crisis Resource Center, (866) 557-2227, also has professionals who can help individuals facing foreclosure.

No. 4: Rework your résumé

When the threat of recession looms, it's smart to pay extra attention to your job.

"Corporations are in a wait-and-see mode when it comes to hiring," says John Challenger, chief executive at Chicago staffing firm Challenger, Gray & Christmas. "Employers are getting more cautious about opening new offices, adding staff."

Working hard can help protect your job, but it may not be enough. In addition, you should be strategic and figure out where you stand. Workers who cost employers money are most likely to be laid off. These include support staff in bureaucratic positions or workers in overstaffed departments.

By contrast, employees who add to a company's revenues are more likely to be viewed as valuable assets. So, try to take on work that no one else can do, or volunteer to head up long-range projects vital to your employer.

Also take note of your boss's performance. If your one ally looks like he or she is at risk of getting bounced out, start forging additional alliances.

"Connect with higher-ups so if your boss leaves, you aren't stuck," Challenger says.

Meanwhile, start networking. It takes time to get a new job, especially if you're already several rungs up the career ladder. Entry-level employees in lower-paid positions need roughly two months to get re-employed. But higher-paid executives generally will spend five months on average to find another position.

No. 5: Reduce your debt and boost savings

It's even more important to get rid of bills and amass extra cash now that the economy is on shaky ground. That's because some assets, such as homes and stocks, that helped bail out Americans in the past few years have now plummeted in value.

Homeowners tapped $1.6 trillion in home equity from 2001 to 2006 to access cash, according to the watchdog group Demos. But that lifeline is frayed.

"You need an emergency fund," Lee says. "Three months is realistic. No frills such as meals out or vacations -- just basics."

Unfortunately, "more low- and moderate-income households don't have adequate savings," says Stephen Brobeck, executive director of Consumer Federation of America.

So start saving. "Most families can find $100 a month," Brobeck says.

This is also the time to eliminate plastic debt. Six out of 10 households don't pay off their entire credit bills from month to month, according to Demos.

Pay off your most expensive credit cards first. While credit card rates may fall, don't count on it, especially if you have a tarnished payment history. A shaky economy can give banks a reason to increase rates.

"Banks are writing in terms that say 'We can change our rates for economic conditions or financial conditions,'" says Linda Sherry, director of national priorities at Consumer Action. "If they're not making profits in other areas, they have to make up that income."

Those who make late payments shoulder any increase in rates.

"At any given time, 5% of the population is delinquent," said Robert Hammer, chief executive of R.K. Hammer, a bank card consulting company. "You'll generally have to pay on time for at least a year before you can start renegotiating lower rates."

However, if a job loss pushed you to fall behind on payments and you have found new employment, don't wait the year.

"Call the company and ask for relief," Hammer says. "You may get it."

This article was reported and written by Leslie Haggin Geary for Bankrate.com.

Published March 28, 2008

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