Carrying steep finance charges for Game Boys and pashminas is rarely a good idea, but it's an especially bad one if a slowing economy makes you more susceptible to losing your job or even just having your hours cut or bonus reduced. "Debt makes a family vulnerable to any other economic problem," says Harvard's Elizabeth Warren.
The obvious precaution: pay down whatever household debt you can—Americans owe $915 billion on their credit cards—and avoid piling on more. It's a particularly good idea to resist the temptation during the holidays to open a bunch of store charge cards. Those offers for 10% off your first purchase usually aren't worth it. Store cards typically come with a high interest rate and low credit limit, and a survey by the website LivingWithBadCredit.com found that 67% of people who opened a store card last Christmas are still paying off the balance.
Should your debts get out of hand, a tough new bankruptcy law makes a return to solvency costlier. Kevin Mabone, a social-development director in Miramar, Fla., went through the experience and doesn't care to repeat it: "Our motto is, If we can't afford it now, we just won't buy it."
That may be the height of financial maturity, but the irony is that if too many people adopt that attitude, the economy suffers. "If everyone pulls in their belts, we'll find ourselves in recession more quickly," says Berkeley's Robert Reich. "But for the individual, it's very wise."
—With reporting by Siobhan Morrissey/Miami