smart spending

How to solve 5 common money problems

Debt

Government bailouts of some of the country's largest credit card companies haven't stopped them from boosting interest rates and cutting limits. So how can you make sure you don't fall victim to a debt disaster?

The first step, says Ramsey, is making sure that you stop the flow of red ink.

"Your first goal has to be taking care of necessities in the household before you start reducing debt," says Ramsey. "The second thing we tell people is, don't reduce debt until you've got at least $1,000 saved as a starter emergency fund."

Once those conditions are met, Ramsey suggests listing all your debts from least to greatest, regardless of interest rate, and applying any extra money in your budget to the first debt on your list. While it may not be the most mathematically efficient way to take on your debts, Ramsey believes that the success of tackling the smaller debts will give you the confidence and drive to tackle the rest.

Foreclosure

The Center for Responsible Lending estimates that 2.4 million homes will go into foreclosure in 2009. If you're afraid you're on the way to joining that frighteningly large number, don't wait for the Making Home Affordable program to get rolling.

"If people have already fallen behind or are on the verge of falling behind, the most critical thing they can do is recognize that there is help out there and pick up the phone and either call your servicer directly or call a nonprofit housing counselor to see what options may be available to you," says Josh Furman, director of counseling at the Homeownership Preservation Foundation.

Housing counselors and lenders have lots of options at their disposal to help homeowners hang on. There are temporary measures like forbearances, where you add a little more to payments in the future to make up for a few missed payments in the past. Or there are long-term measures like extending the loan term, lowering interest rates or even forgiving some of the debt.

Furman stresses that even those who think they're beyond help may have options. "Up to the point of receiving a foreclosure notice letter, there's always something that can be done, based on the different circumstances, so please pick up the phone and reach out to the Homeowners Hope Hot line or a reputable nonprofit organization," says Furman. (That number is (888)995-4673.)

Wrecked retirement account

Government attempts to boost investment and stabilize the stock market have seen mixed results. So how can people repair the damage caused to their retirement accounts by this recession on their own?

The answer depends primarily on your age. If you're still years away from retirement, "the paper value of your portfolio is down right now, but it doesn't really have that much meaning to you unless you're distributing some of that money for income," says Steve Pomeranz, a Certified Financial Planner and the host of the weekly public radio program "On the Money."

So what's the advice for those closing in on retirement, or who are already there?

"The problem is, the horse is out of the barn," says Pomeranz. "They're going to have to tighten their belt the best that they can until this whole thing cycles out and the economy picks up again. It may take two or three years, but they're just going to have to try to reduce the amount of distributions from their retirement accounts as much as possible."

If you're uncomfortable about future risks to your portfolio, he says, it may be right for you to redistribute more of your assets into cash and bonds rather than equities. Still, he cautions against getting out of equities altogether.

"Now is the time to say, 'It is what it is, but I still want some equity exposure, because if I'm wrong and the market goes up, I'll participate,'" Pomeranz says.

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