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Facing a Layoff? Rule #1: Conserve Cash

Q: I am looking at a layoff in the near future, possibly in two to four months. I have paid off all my credit card bills and use them sparingly now. I have several loans, including $25,000 left on my mortgage, plus car, truck, and personal loans that total about $60,000. I have enough savings to pay them off. If I get laid off, is it better to pay off the loans or to use the saving to continue to pay them monthly?

A: When you’re facing a layoff, you should be conserving cash. That means paying the minimums on any debt and looking for other ways to trim expenses as much as possible. Selling one of your vehicles might also be in order.

Try to avoid tapping any retirement savings, since you’re likely to incur penalties and taxes if you do so—plus, you’ll lose all future tax-deferred return that money could have earned. Dip into other savings sparingly, as you may be without a job for awhile.

You need to batten down the hatches because you may be without a job for months. The median length of unemployment in July was nearly 20 weeks, up from 10 weeks in July 2008. A whopping five million people have been without jobs for 27 weeks or more. Given the environment, you should consider any job that will provide income and help you conserve your cash.

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