Protect budget from credit crunch

Dear Debt Adviser,
I was laid off from my job for a couple of weeks but returned to work. I have a bank credit card. I called the bank inquiring about all types of economic hardship programs they might have.They told me that they didn't have anything to help me and said the best course of action was to cancel my credit card.

I asked why they were going to cancel and they told me it was for the best interest of the company.I have never missed a payment and I always send in an extra $50 with my payment.I was only inquiring about assistance.Can they cancel my credit card just because I inquired about help?
-- Serita

Dear Serita,
Most cardholder agreements are structured so the credit issuer can cancel the card at its discretion. During a credit crunch, any hint of trouble making payments is likely to cause concern for the card issuer, who may choose to cancel your account.

Past lending practices have led to huge losses, with more expected in the future. As a result, many lenders are justifiably concerned and tightening up credit standards (hence the term "credit crunch") to try to reduce future losses.

If past performance is any indication of what's in store, expect them to over-tighten access to credit just as they over-loosened it before. If your account is canceled, you will be allowed to pay off the balance under your current terms.

If you've relied on credit in the past to fill in temporary gaps in your budget, it is now time to switch tactics. Start an aggressive savings plan. When an unexpected expense crops up, reach into your financial first-aid kit and pull out actual greenbacks and not a plastic card.

To be successful, such a plan should be automatic and painless. I suggest using automatic payroll deduction into a separate emergency account and then allocating half of any future raises, refunds or other windfalls to the account until you have accumulated six to 12 months of living expenses.

If you need help getting started, contact a nonprofit credit counseling agency. The agency can help you set up a budget based on your income that incorporates savings. The good news is that the best agencies offer services for free. The Association of Independent Consumer Credit Counseling Agencies and the National Foundation for Credit Counseling offer lists of qualified agencies.

Contact one of these agencies to learn what assistance is available for credit card accounts (and mortgage or car loans) without tipping your hand to skittish lenders. A third-party credit counseling or housing counseling agency does not need to mention your specific account details when accessing information about assistance.

These professionals have seen it all and are nonjudgmental. Don't be embarrassed about revealing your financial essentials to them.

Seek help early if you're worried about meeting a credit card, car loan or mortgage obligation. Despite well-meaning advice to the contrary, more options are available before a default than after.