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If it was just a matter of evaluating the wisdom of using your life insurance to pay off your charge card debt, I would be inclined to tell you that it would probably be a smart move. However, there is a big wrinkle in the whole equation: namely, you stated that your job is ending soon. Normally, I would have counseled you to seriously consider paying off the debt quickly while you can – especially since taking a loan from your whole life insurance policy should have no tax consequences to you. However, the bigger issue is your looming unemployment status.

Use Insurance as a Cash Cushion in the Future

If you don’t find another job or a replacement contract, you will have to consider how you will pay all your normal monthly obligations – housing, food, utilities, transportation, and so forth. I assume you have little to no savings (or some of that likely would have paid the debt already). Unfortunately, it is taking people longer than ever to find jobs. And with 10% unemployment, 1 out of 3 job-hunters has joined the ranks of the “long-term unemployed.” This means they have been out of work for at least six months. So given the current economic environment, and the fact that your credit card debt is carrying an extremely low interest rate right now, I would suggest continuing to pay on that debt as aggressively as you can, but don’t yet tap the cash value of your whole life insurance policy. Keep it untouched for now, as a standby cash cushion that you can access in the future if things get especially tight and you can’t easily replace your income.

The economic crisis that initially began when sub-prime mortgages started unraveling in 2006 and 2007, became a full-scale financial meltdown in 2008, and continues today to have a huge impact on the overall economy, as well as on you and me. At its core: the crisis was about debt. Or “leverage” as they call it on Wall Street. Call it what you want: the simple fact is too many individuals and far too many institutions borrowed way more than they could afford to repay.

A Nation of Debtors

People racked up credit card debt. They bought expensive cars. And, of course, they stretched for that loftiest of goals embodied in the American dream: a home. During the height of the real estate boom, it was common for cab drivers, teachers and others earning $40,000 or so to take out mortgages for $400,000 or more. As long as real estate values kept escalating, the party continued. When the credit cards got maxed out, people simply used the equity in their homes as collateral to get cash from banks. Voila! The credit card bills were paid once again. Consumers could go back to spending. The banks were satisfied because they were getting repaid, and the economy was humming along nicely. Everyone was happy.

But you know the old saying: “What goes up must come down.” So it was with real estate. Starting around early 2007, house prices stopped rising, and people were no longer able to use their homes as piggy banks. All of a sudden when those credit card bills crept up, they couldn’t be paid off by tapping a home equity loan or a home equity line of credit. The first people to be hit were so-called “sub-prime” borrowers, those with less-than-perfect credit ratings. They saw the interest rates on their adjustable-rate mortgages shoot up, often causing their mortgage payments to skyrocket. Scores of borrowers struggled to keep up, but they simply couldn’t. Most had absolutely no savings. Plus, millions of people began receiving pink slips, as corporate America went through a wave of layoffs that endures to this day. Without a job and with no cash reserves, how can you pay your house note and other bills? So many cash-strapped homeowners went 30 days past due on their mortgages. Then those 30-day delinquencies turned into 60 or 90 days. Soon, a cascade of foreclosures rippled through the housing market.

Who Is To Blame for The Financial Crisis?

Needless to say, the consumer was not solely to blame in this whole mess. The financial community definitely played a critical role in creating the problem, and allowing it to persist. Banks were way too lax in extending credit, often making the riskiest loans to borrowers with the worst credit. Banks, brokerages and other investors also made the mistake of buying investments called mortgage-backed securities. These were essentially thousands, or hundreds of thousands of mortgages, all packaged together as one big investment. In the heyday of the real estate boom, mortgage-backed securities were big money makers. After all, their value was tied to the worth of rising home properties. Once the real estate crash happened, however, these investments went belly up. Finally, lenders, regulators and credit rating agencies such as Moody’s and Standard & Poor’s all should have been sounding the alarm bells about rising debt and credit delinquencies. Instead, they failed to accurately envision the very real possibility that a massive wave of consumers – including those with poor and good credit – might not be able to handle their overall crushing level of debt. But that’s precisely what happened in 2007 and 2008.

Once homeowners began defaulting on their mortgages, and fewer people paid their credit card bills, student loans and other debts, banks started to feel the sting. The money that banks had relied upon – the money that consumers borrowed and were supposed to repay – simply wasn’t there. Before long, the financial crisis spread from individuals to institutions. In the financial world, it’s common for banks to lend money to each other at low interest rates. Usually, these are very short term loans; they typically get repaid as quickly as 24-hours, or about as long as one month. But by 2008, banks became leery of lending to each other, for two primary reasons. First, banks wanted to hoard their cash to protect themselves against future losses. Second, and most important, banks were terrified of making big loans in an uncertain environment. They feared that other banking institutions might fail to honor their debts, just like consumers did. Adding to the fear and worry, nobody knew exactly how many bad loans banks had made, or how many investments they had in toxic sub-prime mortgage debt. So just like that, the credit markets came to a grinding halt. Nobody was lending money to anybody. Period.

The Credit Crunch Reaches a Tipping Point

It was one thing for a consumer credit crunch to take place, as it did during the summer and fall of 2007, when it was terribly difficult to get a mortgage loan. But when the credit crunch spread in 2008 to banks being unwilling or unable to make loans to each other, well that was another story. That corporate credit crunch proved to be too much stress on the system. The spread of the credit crunch to the corporate market – where even banks themselves couldn’t get a loan – marked a critical tipping point and the height of the financial crisis. In January 2008, Countrywide Financial Corp. just managed to avert complete disaster, by selling itself for $4 billion in stock to Bank of America. Without that deal, many feared that Countrywide, which had been suffering under the weight of bad mortgage loans, would have certainly collapsed.

Wall Street Implodes

Before long, however, the fallout from the credit crunch and soured mortgage loans could not be contained. There was carnage on Wall Street, as centuries-old institutions failed or got bought out – some of them seemingly overnight. In a matter of months, three of America’s top five investment firms went under. Bear Stearns collapsed in March 2008, and was sold to JP Morgan Chase for the bargain-basement price of just $2 a share, a deal that valued Bear Stearns at less than $240 million. (That $2 per share price was later raised to $10 a share. But even that was small potatoes, since earlier in 2008 Bear Stearns’ stock had traded at $80 a share, and Bear Stearns had been worth $20 billion). Then in September 2008, two other major events rocked Wall Street. Lehman Brothers went bankrupt, after federal authorities refused to rescue the company. Soon after, Bank of America purchased the once-mighty brokerage house Merrill Lynch for about $50 billion in stock – less than half what Merrill was worth the prior year.

The U.S. Government Steps In to Prevent a Systemic Banking Failure

At the peak of the crisis, when it appeared the entire financial system was on the verge of collapsing, the U.S. government got actively involved, stepping in with massive efforts to provide stability. Banks were allowed to borrow money easily, and at cheap rates, directly from the government. The government took over mortgage companies Fannie Mae and Freddie Mac, as well as insurance giant American International Group Inc. (AIG). Also, the government began more closely scrutinizing the health of banks and other financial institutions. This led the federal Office of Thrift Supervision in September 2008 to shut down the 119-year-old Washington Mutual Inc., which had been America’s largest savings and loan. Once again, JP Morgan Chase was a shrewd buyer, snapping up WaMu’s banking assets for a mere $1.9 billion. By October 2008, Congress passed a gigantic $700 billion financial rescue package, officially called the Emergency Economic Stabilization Act of 2008, to bail out Wall Street and to encourage banks to start making loans again. If all this wasn’t enough, the U.S. Federal Reserve and other government entities also launched coordinated fiscal and policy actions with governments around the globe to stop the growing financial crisis from being felt worldwide. Commenting on the government’s unprecedented role in shoring up some financial institutions, former Federal Reserve Chairman Alan Greenspan said in an ABC interview: “This is a once in a half-century, probably once-in-a-century type of event.”

The Credit Crunch Rages On … Squeezing Individuals and Businesses Alike

Despite Greenspan’s proclamation, the financial crisis rages on. In late October 2009, commercial lender CIT Group Inc. became one of the latest high-profile casualties of the credit crunch. CIT had been one of America’s biggest providers of loans to small and medium-sized businesses. But the 101-year-old company was forced into Chapter 11 bankruptcy – the fifth largest bankruptcy in U.S. history – after CIT’s own lenders refused to extend it more credit and CIT’s financing evaporated. Unfortunately, CIT Group wasn’t alone in its woes. In November 2009, another lender to small businesses, Advanta, also filed for Chapter 11 bankruptcy protection. Commenting on the company’s unsuccessful efforts to survive the credit crunch, Advanta CEO Dennis Alter said in a statement: “The economic debacle over the last two years devastated Advanta’s small business customers and Advanta itself.”

Unfortunately, there were more than 1.4 million consumer and business bankruptcy filings in 2009. So the bankruptcy problem and the credit crunch is expected to last for years to come.

As we creep into Labor Day we learn that the unemployment rate rose in August to 9.7% from July’s 9.4%. The U.S. Department of Labor announced September 4 that this rate is the highest in more than a quarter century. There are now an estimated 14.5 million jobless Americans.

I know what it feels like to lose a job. In early 2003, I lost my six-figure television job as a Wall Street Journal reporter for CNBC. Like millions of others in corporate America, I, too, was laid off in a cost-cutting move.

After my layoff I didn’t immediately rein in my spending. I even made some serious money mistakes that I’d never advise anyone else to make. For example, I took $80,000 out of my 401(k) plan.

I tell you my story in the hopes that you won’t be ashamed of the money mistakes you’ve made or that you can even learn from the mistakes I made in the past and not even make them.

Here are 5 tips for saving if you’ve been laid off, fear you might or just need to save more.

1. Don’t raid your 401(k). If you lose your job, leave your 401(k) with the same account if you can. Otherwise roll it over directly to a IRA or Roth IRA without taking any as cash. You will have 20% withheld for taxes if you took cash. And there’s a 10% early withdrawal penalty if you’re under age 55, as well as the missed opportunity of tax-deferred growth.

2. Pay bills on time. I know that is easier said than done for some people. You can save hundreds of dollars a year on late fees if you simply pay your bills as you receive them or set up automatic payment plans.

3. Curb eating out. You can save $1,825 a year by cutting out an average of $5 a day on fast food purchases and $3,650 a year for an average of $10 a day. Take a week or two and track your restaurant spending habits. Tabulate every bagel and coffee. You might be surprised by how much money you’re wasting on these purchases.

4. Become a frequent library patron. Borrow videos, DVDs, CDs and books from the library instead of purchasing them. If you’re used to buying even just 10 DVDs a year at $10 – $30 a pop, or downloading 50 MP3 music files a year for $0.99 – $1.99, or renting several videos a month from Netflix or Blockbuster, you’ll save hundreds of dollars a year by simply borrowing them from the library instead.

5. Take a level-headed friend shopping with you. If you’re the type who just can’t stop spending, bring a friend with you who can keep you focused. Don’t bring the friend whose Visa bill is constantly more than her rent, but do bring the one who knows not to squander rent money for a new pair of shoes one doesn’t really need. A friend with a good head on her or his shoulders will keep you from making outlandish purchases and wasting your money. Take that friend’s advice without holding it against her or him.

By Lynnette Khalfani-Cox, The Money Coach

Do you have enough socked away to cover your bills should you get slipped a pink slip? Typically I would say you should have enough savings to cover three times your monthly living expenses, but given this economy and the skyrocketing unemployment rate, six or nine months worth of savings is more ideal.

Here are three ways to earn some much-needed extra cash to help pad your savings.

Get a second job. I realize that most people already work really hard, and might even be covering for recently laid-off co-workers, but if you can fathom the idea, consider getting a second job or part-time work, even if just for three months. This may seem like a burden, but trust me, the time to build your emergency savings fund is before you actually need to tap it.

Start a part-time enterprise. Whether you turn a hobby into a cash-making business, sell new or used products online, or stuff envelopes for another business, the key is for it to be a no-cost or low-cost venture that can be operated exclusively from the privacy of your own home. Why these characteristics? For starters, you don’t have the money to buy tons of products. You also don’t want to have to hire anybody or lease space. You want to keep all the money you earn, right?

Squeeze money from your residence. Whether you rent or own, getting a roommate or housemate is another way to generate income. If you can tolerate having an extra person around, you’ll likely find takers willing to lease out a spare bedroom or space in your attic or basement, especially given the high rate of people being put out of their homes these days due to foreclosure or inability to get a mortgage for their own place. However, before forging ahead if you’re a renter, be sure you’re not violating any clauses in your rental contract by letting someone else live with you.

— Adapted from “Day 22” chapter of my book, Zero Debt: The Ultimate Guide to Financial Freedom.