Continuing inflation and high interest rates, a downward trend among leading economic indicators and rising unemployment all point to a difficulty in managing your personal finances.

The months ahead are likely to be pretty rough for a lot of people, regardless of what name economists put to the downturn. (The old criterion is probably still valid: If your neighbor is out of work, it's a recession; if you're out of work, it's a depression.)

Probably the single financial element that causes the most trouble for the most people is the over-use of credit. "No down payment, easy terms" sounds great when you buy -- but when it comes time to make those inevitable monthly payments, the picture changes.

Come credit counselors use an arbitrary ratio as an indicator of trouble: Your monthly payments shouldn't exceed "x" percent of your take-home pay.

But you can't really tailor your life to the "average" or to some arbitrary numerical pattern. Each individual has different needs and different priorities. Payments that one person can accommodate readily may be impossible for another person in apparently similar circumstances.

There is a single infallible test that works for everyone. If you're having trouble paying your bills, you're overextended. Here are some of the symptoms:

You can't pay everyone, and have to decide each month which bills to pay and which to let slide a little longer.

You make all your payments, then live on bread and water the last few days before each payday.

You get letters and calls from creditors remiding you of past-due payments.

You've cut the size of the payment on each account to the minimum permissible amount.

You've drifted into the habit of charging basic purchases like food and routine household items.

You buy something on impulse (charging it, of course); then when you get home, you can't remember why you bought it.

What's the connection between credit and recession? Well, the sounds of economic turmoil should serve as a warning to get your own financial house in order.

Obviously not everyone is going to lose his or her job. But if you're part of a two-income family, try to cut back to where your monthly payments won't overwhelm you if you have to make it on just one income for a while.

If you've been piling up overtime -- and have gotten to where you depend on the extra pay to make it through the week -- tighten up so you can manage on your regular pay alone.

What's good for you personally may turn out to be good for the country too. Our economic situation is highly complex and not amenable to simple solutions. o

But a reduction in the demand for credit just might help bring down the cost of credit. And a reduction in the demand for goods and services might put a small dent in inflationary pressures.

Personal financial restraint might even help change the psychology of inflation by putting a temporary damper on the pressures for "more" or "bigger" or "better."

The key now -- facing the possibility of more difficult economic times ahead -- is to retrench so that you will be able to keep your head above water even if you run into heavy seas.

Question: I read your column (April 28) in which you wrote about the tax advantage in selling bonds that have dropped in price. My broker recommends that I sell some old municipal bonds to get a little more interest as well as a tax loss -- just what you had said. But how can I claim a loss when income from municipal bonds is exempt from tax?

Answer: You're talking about two different kinds of income. It's true that the interest income from municipal bonds is exempt from federal income tax (and may be exempt from state tax as well.)

But a capital gain or loss on the sale of municipal bonds is recognized for income tax purposes. You can deduct from other income up to $3,000 in net capital loss each year.

(Remember that it takes $6,000 is net long-term loss to generate this maximum deduction of $3,000.)