Resolving your own credit crisis

-- Linda Stern is a freelance writer. Any opinions in the column are solely those of Ms. Stern. You acn email her at lindastern@aol.com --

By Linda Stern

WASHINGTON (Reuters) - Washington may be taking care of Wall Street, but consumers with a personal credit crisis are on their own.

Their problems can take many forms. Some homeowners still are saddled with a mortgage they can't afford to keep current. Others are shopping for new loans but finding them hard to come by. "The increasing stresses in the system are starting to restrict access of credit even for good-credit borrowers," says Keith Gumbinger of HSH Associates, which monitors the U.S. mortgage and housing markets.

Money for college, cars, home improvements, small businesses and miscellaneous expenses has gotten harder to come by. But, there is a scrap of a silver lining: The current economic climate is holding interest rates low, and they could go lower. That buys everyone time to fix their own debt profile.

Here's how.

-- If you're a homeowner in trouble, get help. The climate is good for renegotiating your mortgage if you got stuck with a costly loan and the value of your house is diminishing fast. The banks don't really want to foreclose now, and there is political and governmental pressure on them to help you work it out. Call your mortgage company and the attorney general's office in your own state to see if any local programs have been negotiated with your mortgage company. (For example, Countrywide Financial Corp., has just reached a settlement with 11 states that requires it to help troubled borrowers stay in their homes.) Find out if you qualify for help under the federal Hope for Homeowners workout program at www.hud.gov/.

-- If you've been making timely mortgage payments on a lousy loan, you are in a good position to refinance that loan. Mortgage loans are out there and affordable for folks with a good credit score, and if you've been paying on time for a couple of years, your score is likely to be good. As a first step you could try to renegotiate for a better deal, such as a fixed-rate loan, with your current lender, but don't expect them to help. Comparison shop at your neighborhood bank, with a local mortgage broker and at online lending sites like eloan.com, to see if you can get a better loan. If you can lock in a good rate now, that might be worth spending some money on closing costs.

-- If you are house hunting. Buy a copy of your credit score at myfico.com, get free copies of your credit reports at annualcreditreport.com, and then start lining up a loan first. Start building cash for your downpayment of at least 5 percent; you won't be able to get a mortgage without one under new rules. Conventional wisdom holds that you should consider a variable-rate mortgage, but this is a good environment for seeking a fixed-rate loan. The average 30-year loan is priced at 5.8 percent now, according to bankrate.com. That's less than the prevailing rate for variable loans. And, while rates may fall a bit in the short term, they may well rise significantly after that. The combination of big government debt and all of the extra money the Federal Reserve is creating for bailouts could result in a bout of rate-raising inflation.

-- If you're foundering under too much credit card debt. With a good credit record, you can still get a solid zero-interest balance transfer offer. Consider putting all of your credit card debt on that card. Then make paying it off your highest budget priority. If you've got debts on a variety of cards and can't consolidate it or don't want to, pay minimums on all of the cards every month and pay extra on the card with the highest rate, until you've gotten that balance down to zero.

-- If you're looking for cash to finance a car, college or that business idea. The loans are still out there but they are harder to get and cost more than they used to. If you need to borrow money for college, check the Education Department's own website at ed.gov/finaid, where the feds are making private loans. If you're in the market for a car, check rates at your credit union or a big auto lender, like Capital (www.capitalone.com/autoloans/). That's because the car dealers are not offering such sweet financing deals now. You could line up a loan first, and then go shopping for the car.

Business loans are the hardest to come by, if you don't already have a good relationship with your bank. Look at alternatives such as tapping your home equity line or borrowing from a relative (do the paperwork at www.virginmoneyus.com). Try not to borrow from your own 401(k) account now; it's important to keep that money invested for the day -- whenever it comes -- that the market starts to recover.

(editing by Gunna Dickson)