Q. I'm 48, just lost my job, and soon will have no income. I get two weeks of pay and two weeks of vacation time; then nothing other than my wife's part-time job as a bank teller. We have three children _ 14, 13 and 9. Thankfully, my wife gets benefits. We are paying about $3,300 per month on our $168,000 mortgage, $48,000 home-equity loan, and $26,000 in credit card debt. At what point do I contact the mortgage and credit card companies, or should I claim bankruptcy? All I can fall back on is a traditional IRA with $52,000 and $13,800 in a 401(k).

_ T.L., Chicago

A: Forget bankruptcy.

That should be a last resort, and you seem to be a long way from needing a last resort.

You have more options than you realize. First, the basics: Make sure your family has health insurance. It sounds like that's possible through your wife's job. People without a working spouse can also receive health coverage by using COBRA, a federal provision that lets you go to the benefits office at your former job and buy health insurance at a rate lower than you'd probably find on your own.

Also, file for unemployment immediately so you receive your first check as quickly as possible. You don't have to wait until your four weeks of pay run out, because there's usually a delay of a few weeks after you file. The checks won't replace your old pay, but will help. Perhaps your wife can increase her hours too.

Look at it as a short-term solution. And between the two of you, maybe you can juggle schedules so you won't face day-care costs.

Meanwhile, let former co-workers and people you have met through work know how to reach you in case they have a job idea for you. Churches might have support groups and you can find job resources throughout the country through JobsMinistry.com. The United Way in your community may also support job counseling services, and don't forget state and local government, perhaps through labor or human services departments.

When you are looking for work, leave your IRA and 401(k) untouched. You are relatively close to retirement. You will need the savings you have amassed, and they have a cushy place in your 401(k) and IRA _ protected from taxes so they can grow.

If you leave the money invested and earn 7 percent on average each year for the next 20, you would have about $254,625 in savings. That means that when you retire you will be able to remove $10,185 the first year and increase the amount slightly to cover the costs of inflation each year afterward.

But if you removed $20,000 from your savings now, you would have only about $177,230 in 20 years, enough for only $7,090 in living expenses. (The rule of thumb is to remove only 4 percent of your savings the first year you retire, and then increase the withdrawal only a little each year to keep up with inflation.)

You have another issue to face. If you remove money from your IRA and 401(k) now, Uncle Sam will punish you with taxes and perhaps a penalty. In some situations, such as a job loss, penalties on IRAs can be waived, but taxes aren't.

If you ever face bankruptcy, you will be glad you didn't touch your retirement savings: 401(k) funds are safe in bankruptcy. You wouldn't want to dip into the 401(k) to pay bills.

Next, assure yourself that you will be able to handle your bills for a while, and to do some prioritizing so you don't get into trouble with your finances.

It's essential to know how much income you will have, what your necessary expenses will be, and subtract expenses from income. You may also be surprised to see what you are able to cut out so your expenses aren't as bad as you think.

You can receive a clear view of your expenses and track your spending by using budgeting software such as Quicken or Money, or at free online sites such as Wesabe.com or Mint.com. Some, such as Wesabe, will alert you if you are spending more on anything than you have determined is safe.

Many people don't like to go through the budgeting process because they don't want to feel like they are punishing themselves. But it can also give you a sense of control _ a feeling that you will keep yourself safe despite the temporary setback.

The idea is to spot expenses you can eliminate without pain, maybe cutting out one of the family's cell phones, reducing free minutes, or eliminating long-distance service on a home phone if you have a cell phone. Perhaps you could keep cable TV but cut back on service.

"Think of free entertainment like going to Lake Michigan with the family," said Michael Rubin, author of "Beyond Paycheck to Paycheck: A Conversation About Income, Wealth and the Steps in Between."
Do not call your credit card companies and confess your problems, he said. Instead, call and tell them you've been a reliable customer and would like a lower interest rate because competitors are offering enticing rates.

Lower rates could help you avoid adding sizable debt in the future. Tap your home-equity line of credit if need be for necessities. If you can't keep up with payments, call the credit card companies, tell them your problems, and ask for smaller payments.

Make sure you distinguish between necessities and expenses you incur as a habit. And prioritize. You should stay up to date with mortgage payments, utilities, your phone for job hunting, food and health insurance. Uncle Sam will also want your taxes, but your wife can add dependents to her W-4 so she brings more money home.

Some bills can wait. You can try to negotiate with doctors, hospitals and private schools, for example.

If your children are in private schools, you can seek financial aid. And if you are paying off federal student loans, you have the right _ because of a job loss _ to delay payments. Contact the lender.

Source: MCT