A survival guide for the unemployed

Some things to keep in mind:

• If you're about to fall behind on an essential bill, such as a car or mortgage payment, contact your lender. You may qualify for temporarily reduced payments or a more formal "workout" or refinance, but you have to ask.

• If you have student loans, contact your lender for a deferment or forbearance. Many lenders will allow you to suspend payments during unemployment, but contact yours for details and applications.

• If your kids are in private school, discuss your options with the administration. Policies vary, but the school may be willing to discount tuition or set up a payment plan. If your unemployment lasts long enough, public school may be your only option, but you can at least explore your options for keeping your child in school until the end of the semester.

Conserve your cash. Paying down debt is generally a good idea -- until you've lost your job. Then cash becomes king.

If you've been making extra payments on your mortgage or student loans, redirect that money into savings. Negotiate with your credit card companies to get a lower rate (see "Get a better deal -- with a threat") or use balance-transfer offers to move your debt to a card with a better rate. Pay the minimums on your debt and get deferments on any loans that offer them. Most utilities and telephone companies offer "lifeline" or low-cost service for people with low incomes; check their Web sites to see if you qualify.

Don't tap your retirement funds if you can avoid it. It can be tempting to raid these pots of money, but the financial repercussions are so serious that you should avoid such withdrawals if at all possible.

Not only will you lose one-third to one-half of the withdrawal to taxes and penalties, but you lose forever the tax-deferred returns you could have earned. A $10,000 withdrawal now from your individual retirement account or 401(k) means $109,000 less for your retirement, assuming the money would grow at an average 8% annual rate for 30 years.

It's an especially bad idea to use retirement money to pay credit card bills. In a worst-case scenario, your credit card debt can be wiped out in bankruptcy court, while your retirement funds would be protected from creditors.

You also should be cautious about raiding retirement funds to pay for a mortgage on a house you may not be able to afford. If you're worried you'll lose your house, contact a HUD-approved housing counselor to review and discuss your options.

Use your home equity with caution. Setting up a home equity line of credit can be a smart precaution while you still have a job, if you're disciplined enough to use it only in case of emergencies. As with retirement funds, home equity is protected in bankruptcy court, so money from your home shouldn't be used to pay unsecured debts until you're back on your feet -- if then.

Raise cash. Use some of your new free time to organize a garage sale or sell items on Craigslist or eBay. Consider renting out a room in your home. Review all of your assets and your skills to determine which might be used to produce income. Good with tools? Take on a few odd jobs. (See "20 ways to make $100 more a month.")

Investigate businesses you can start at minimal cost, such as detailing cars, housesitting, dog walking, errand running or working as a driver or companion for the elderly. Be wary, though, of any business or franchise opportunity that requires a big upfront investment. Some of these so-called opportunities are scams; others are poor risks that depend on the desperate.

Identify emergency sources of aid. If your unemployment stretches on, you should know where the food banks are and familiarize yourself with how to qualify for food stamps or other government aid. Family and friends may be able to help as well.

Consider volunteering. You've lost your job, you're scared, and you're scrambling to find another paycheck. Who needs to waste time with unpaid work? You do, Collamer said.

A volunteer job can give you a sense of purpose as well as remind you that there are others worse off. Collamer remembers speaking to a job-support group in which one member survived a year of unemployment largely by volunteering with a paramedic group.

"It makes you feel good, and it can strategically be a good idea," Collamer said. "You never know who you're going to meet or who you might impress."

10 signs a layoff might be imminent

• A hiring freeze is implemented.

• Salary increases, performance reviews, training sessions and promotions are deferred.

• Rules regarding travel, especially "non-essential" travel, are made more restrictive.

• Corporate earnings have been flat or declining.

• The expense reimbursement process requires more approvals and oversight.

• The whole human-resources department is burning the midnight oil.

• Top brass is spending an inordinate amount of time in closed-door meetings.

• Key executives (and their assistants) are making a lot of confidential phone calls.

• A merger has recently taken place resulting in duplication of positions.

• The rumor mill is in overdrive.

Source: "The Layoff Survival Guide" by Nancy Collamer

Liz Pulliam Weston's new book, "Easy Money: How to Simplify Your Finances and Get What You Want Out of Life," is now available. Columns by Weston, the Web's most-read personal-finance writer and winner of the 2007 Clarion Award for online journalism, appear every Monday and Thursday, exclusively on MSN Money. She also answers reader questions on the Your Money message board.

Updated March 29, 2008

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