Hard times call for hard money choices

If you're going to borrow from an individual, draw up formal loan papers to clarify terms and clear up potential misunderstandings. For advice in how to do that, see "Borrowing from family."

Often, family members prefer to give the money as a gift with no promise of repayment.  Parents or grandparents may enjoy doling out inheritance money while they're still alive. In so doing, they can avoid estate taxes while seeing how their heirs use it, says Bill Schultheis, investment adviser and principal at Soundmark Wealth Management in Kirkland, Wash. In 2009, individual benefactors can give up to $13,000 a year as a gift -- married couples, twice that -- without a penalty. Larger gifts could incur gift taxes.

Money to avoid

• Do not dip into your retirement accounts.  If you do, you'll face taxes that would otherwise be deferred until retirement and substantial penalties for early withdrawal.  Plus, you will need that money when you get older.

"401(k)'s and IRAs give you creditor protection," Blayney says. "So if you're on your way to bankruptcy, remember that those assets are protected."

• Avoid payday-advance or tax-refund anticipation loans. They carry very high interest rates for money that's yours anyway.
• Don't be tempted by a reverse mortgage unless you're a senior citizen who has paid off most of your mortgage and you want to remain in your home and have no heirs to leave it to. The extra cash is generally not taxable, but look out for high hidden fees.

However you do it, taking charge of your financial situation can be as comforting as it is necessary.  Still, for some, the best comfort may be recognizing that tough times don't last forever.