How to Tighten Your Belt in the Consumer Crunch

Americans have shopped through good and bad times. In every quarter except one since 1981, consumer spending has risen over previous years, adjusted for inflation. Easy access to credit has been the main fuel for the spending. Banks and other financial institutions were willing to lend to households in increasing amounts because the risks seemed to be low. But there are times when consumers must tighten their belts and drastically cut expenses.

Difficulty: Moderately Challenging

Instructions

1. Do a thorough analysis of your financial position. See how much money is coming into your household and exactly where it is being spent.

2. Cut expenses. Consumer outlays have outpaced the growth of their income for a long time. You can reduce your cable service to basic cable, get a prepaid cellular phone if you don’t use a lot of minutes monthly, and stop eating out and prepare meals at home to reduce your entertainment expenses.

3. Take fewer trips to the mall. When you're watching your bottom line, leave your credit cards at home and use your debit card or cash instead.

4. Refinance your mortgage if you are stuck in an adjustable rate mortgage and your credit scores are decent. If your scores are low, clean your credit up, pay your mortgage and other bills on time. If you have already fallen behind on your mortgage, call your lender to discuss your options, including modifying your loan.

5. Pay off your credit cards and put your savings on automatic, with weekly or biweekly withdrawals from your checking account or your paycheck directly into a money market mutual fund or a money market account at your bank. Use your credit cards only for emergencies.

6. If you are way in over your head, call a reputable credit counseling firm such as CCCS or, if your situation is dire, then maybe filing for bankruptcy is the best option.

Tips & Warnings

• Use your credit cards only for emergencies.
• Build up your emergency savings for 3 to 6 months of expenses.
• Call your lender if you are experiencing difficulties paying your mortgage.
• There is no easy fix to the consumer crunch. Everyone's situation is different. The bottom line is to watch your spending and live within your means.