Gas, Groceries on Credit: A Slippery Slope

In anticipation of a long economic slump, many consumers have scaled back their spending. But the increasing cost of daily necessities, such as gas and groceries, is closing the gap between income and expenses. With no place left to make cuts, many Americans are resorting to credit cards to make ends meet. Though the use of plastic may work in the short-term, experts caution against viewing credit cards as a long-term solution to cash-flow problems.

If rising prices are just now starting to affect you, figure out how much you're spending on necessities today, attempt to anticipate any reductions in income, and revise your budget accordingly. You also should plan for further price increases. What would you do if, say, gas went up another dollar or groceries cost you an additional $75 per month?

If you're already seeing your credit card debt climb, consider getting one-on-one help from a professional at your credit union. Another avenue is the National Foundation for Credit Counseling. Visit nfcc.org for a listing of nonprofit agencies throughout the U.S.

Likewise, if there is any possibility you could default on your mortgage, talk to a mortgage specialist at your financial institution.

In addition to losing your home, defaulting on your mortgage could cause your credit card interest rates to jump. And you will most likely pay much higher interest rates on future credit, if you can get credit at all. Since a foreclosure appears on your credit report for seven years, the repercussions of your mortgage default could plague you long after an economic recovery is complete.

If you're still on track financially, be proactive. Avoid future money troubles by establishing or augmenting an emergency fund. Use direct deposit and automatic transfers from checking to make sure you always "pay yourself first." Then tap savings, rather than credit cards, when you need help making ends meet.

Don't wait until you're in deep trouble to ask for a financial checkup. The earlier you ask for a review, the better the outcome.

Copyright 2008 Credit Union National Association Inc. Information subject to change without notice. For use with members of a single credit union. All other rights reserved.