Preparing for a Layoff (or other Cash Squeeze) from the WSJ

Take Seven Steps So You Survive A Cash Crunch

By BRETT ARENDSApril 12, 2008; Page B1

No one wants to get caught in a cash crunch. Look at what happened to Bear Stearns.
Investors can't go running to the Fed.
Sometimes all it can take is a surprise bill, or a sudden loss of a job, to put your family's liquidity in peril. And these are treacherous times. The economy is rocky. Employers are cutting jobs. And some investments -- including home values -- are turning wobbly just when you may need them most.
The Federal Reserve, alas, isn't going to bail you out if you get hit by a liquidity crisis.
So where can you turn? If you're worried, check out your emergency lines of credit now, before there's a crisis.
Here are the seven habits of highly liquid people.

1. Refinance your mortgage over 30 years. Just switching your remaining debt from, say, a 20-year schedule will slash your monthly outflows by nearly a fifth. Borrowing against your home is the cheapest form of consumer debt.

2. Set up a home-equity line of credit. They're usually cheap to arrange, and you can draw on it when you need it. Right now, rates are as low as 5.25%.

3. Get a free float from a new credit card. Some still offer zero-percent interest on balances transferred from your current card. As always with the credit-card sharks: Watch out or they'll find a way to sock you with fees anyway.

4. Get your money back early from the IRS. Most Americans prepay too much tax, and the average refund is nearly $2,500. File a new W-4 with your employer to cut your monthly withholding. You have to estimate your likely bill in good faith. If you end up prepaying too little, you can make it up by Dec. 31. If you don't, you will have to pay 7% or so in penalties. The rate fluctuates, but it's a lot cheaper than an unsecured loan.

5. Set up unsecured financing sources now, while you don't need them. Ask your bank for an overdraft facility, of course. And apply for some emergency credit cards. Yes, the rates are usurious, so don't use them unless you have to. But someday you may have to.

6. Check out how to borrow from your 401(k) retirement plan. Most plans allow this, though the rules vary. The limits are often 50% of your balance, up to $50,000. It can take anywhere from a few days to a few weeks to get the money. Note: You may end up paying taxes, plus a 10% penalty, if you don't repay the money when you leave your employer, or within a specified period. It is usually five years. Check the rules ahead of time.

7. And, most obvious: Start saving. Most middle-class families can save thousands a year just by paring back on discretionary bills. This is a good time to slash those bills to the bone.
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