5 errors to avoid in a financial crisis

Facing a financial crisis? It's important to make the right moves.

But sometimes what you don't do can be just as critical, says Harvard Law School professor Elizabeth Warren, co-author of "All Your Worth: The Ultimate Lifetime Money Plan." Here are some of her "don'ts" to keep the situation from getting worse as you right yourself financially:

1. Don't borrow more money. Sounds like a no-brainer, right? But in a money crisis, people tend to do the opposite.

"Some people engage in a shell game with themselves," says Warren. "They pay more down to creditors than they really can afford, leaving themselves with no cash." Then they charge current expenses. "They're caught on a treadmill," she says. If you've hit a financial crisis, stop borrowing.

2. Don't cash out your retirement. "There's a reason that money is protected from your creditors," says Warren. "It's there to protect you when you will not be able to provide for yourself."

No matter what you've signed, you shouldn't feel any obligation to use it for debts. "When the creditors made their bargains with you, they never expected to be able to reach your retirement," says Warren. "Don't give it up voluntarily."

3. Don't take out a home equity loan or second mortgage. "It is so tempting," she says. Here's why it's a bad idea: If you're having trouble meeting the bills, unsecured creditors (such as credit card companies) can't take your home. But if you borrow against it, the new lender can. And if you later decide to file for bankruptcy, the home is usually protected. Unless you've used it as collateral.

4. Don't file for bankruptcy until the crisis is over. "Filing too soon, that is before the crisis is over and the debt hemorrhage has stopped, can leave the person in worse shape," says Warren. "Because the problem continues, the debts mount up and now bankruptcy is not available."

For instance, if you got into the situation because you lost your job, wait until you are securely in a new job and have some assurances of stability before you file. If medical bills are the problem, see if you can wait until the crisis is over and you know you won't be adding new bills to the pile. And if it's a divorce, wait until the papers are signed and you have all your legal bills and know more about your new circumstances.

"Bankruptcy shouldn't be based on the debts you've built up," says Warren. "Bankruptcy should be a strategy to emerge. It isn't about dealing with an immediate problem. It's about making a better future."

5. Don't panic. "You have options," says Warren. But it's really difficult to plan when all you can see are the creditors you have and the dollars you don't.

"People feel very alone when something goes wrong, and they often feel they are the only ones facing a financial crisis," she says. "And they aren't.

"If you tried your best and ended up in a hole, then don't beat yourself up," says Warren. "And don't assume you're the only one who couldn't figure out how to win 100 percent of the time in the great American financial game. This is temporary. You'll come back."

Dana Dratch is a freelance writer based in Atlanta.