[Trialbyfire]

I couldn't disagree with Suzi more. Credit card debt has high interest rates as well as monthly payments. If you get laid off, you're still going to have to make those minimum payments while accruing exhorbitant monthly compounding interest rates. The name of the game while being laid off, is to reduce your monthly bills. Consolidate as much as possible under reasonable interest rates, including renegotiating your mortgage, etc, so you can reduce the size of your monthly output.

With credit card debt, your burn rate through any cash reserves can be exhorbitant, reliant on the size of your debt.

[carhill]

Yes, I forgot to mention, in this thread, the advice to pay down credit card debt as expeditiously as possible. That said, I think it is good balance to start a regular savings program, even if just a minimal amount. Even 50.00 a month is a great start. It sets a habit. I did this back in high school and my dad matched it dollar for dollar. It provided a down payment on my first house.

[Mary3]

Originally Posted by Trialbyfire

I couldn't disagree with Suzi more. Credit card debt has high interest rates as well as monthly payments. If you get laid off, you're still going to have to make those minimum payments while accruing exhorbitant monthly compounding interest rates. The name of the game while being laid off, is to reduce your monthly bills. Consolidate as much as possible under reasonable interest rates, including renegotiating your mortgage, etc, so you can reduce the size of your monthly output.

With credit card debt, your burn rate through any cash reserves can be exhorbitant, reliant on the size of your debt.

Friday, May 1, 2009
Suze Orman Says That Emergency Planning Remains Job #1


Suze Orman caused quite a stir back in March when she recommended that people start paying just the minimum amount on their credit cards. In lieu of paying more than the minimum, she said that people need to build up an emergency fund that covers eight months of living costs. In this environment, she argues, that's more important than paying more than the minimum amount on credit cards.

Suzie :

My strategy for years has been that if you are in credit card debt you are to pay the minimum due each month on every card, and then pay extra on the card with the highest interest rate. So all that has changed is that I am now telling you to not pay more than the minimum on the card with the highest balance. To be honest, in this environment if you were paying only the minimum on all the other cards, you have probably already seen your credit, or your credit score impacted. Paying only the minimum isn’t “good enough” according to the credit card companies right now.

So why am I not telling you to pay more than the minimum on all your cards to preserve your credit score? Well, I seriously doubt you have the money to pay more than the minimum on all your cards; if you did you would have already paid down your debt instead of paying the astronomical interest rates the card companies are levying these days. And even if you could manage to pay down your card debts, we still have the problem of where you will come up with cash in an emergency. A lowered credit score you can recover from, but not being able to handle a financial emergency can lead to horrible consequences. I wish you weren’t in this situation of having to choose the lesser evil, but here you are. I say sacrifice your credit score if necessary, so you can protect yourself and your loved ones from life’s what ifs.


Orman writes:


So how do you pull this off? I am not going to tell you to cut back your spending. Please. I am not going to insult you; I know you have already done that. I know you have scoured every expense to cut out all the “wants.” And I know you are not making matters worse by running up more credit card debt. I get that you “get it.” But you still need a way to start building up real emergency savings. That is why I suggest paying less on your highest-rate credit card (but make sure you pay the minimum due) so you have more cash to put into a savings account. " End

You know I * get it * For years we were told to pay our CC on time or suffer the wrath of late fees , penalties , ect. Most people can't imagine paying yourself * first * and making your CC on a lower priority. We fear all the hype they have fed into our brains. We go without to make those good payments. Just as society has changed and the economics as well , we DO have to pay ourselves first and make the higher priorities such as mortgage and deeper expenses .

[Trialbyfire]

Don't forget that when people lose their jobs, they're going to be receiving UI. As long as your monthly payments are kept down and I mean way down with some form of loan consolidation/mortgage renegotiation, you should be able to survive.

Of course this probably won't work for a one income earner/one family, but if you're maxed out like that for one income, you're already in big trouble.

I don't buy into anyone's strategy, just my own.

[Enema]

Suze sounds bonkers to me.

You always pay down the highest interest first and with the biggest wad of cash you can find.

If crisis hits and you need emergency funds, use your (now) healthy credit cards again. Keeping they money as cash will earn you what... 4% interest? Keeping the money on the credit card will effectively "earn" you whatever your credit card interest rate is.... wayyyy more than 4%.

[sb129]

Originally Posted by qdobajoe

yea it has new carpets...but we want to put in laminate floors because they are more popular and will make the condo sell quicker and for a higher price?

Um. No. NO no no no no no!

that poster was me (re: the inheritance) Thanks for the "advice", but its all done and dusted.

Suzi whoever she is sounds a little nuts. Credit card debt accrues interest. Mortgage debt accrues interest. If you don't pay them off at more than the minimum repayment rate, they COST you money in the longterm. And when you can't pay them off, the re-po men come a knocking.

If either my H or I lost our job (which considering the job market we are both in is unlikely, education and healthcare are generally safer during bad times) we have paid enough off our mortgage to ensure we could easily afford the repayments over six months until one of us could claim extra benefits or got another job or whatever. In fact the reason we did it is because I am going to have a baby and I WON"T be working for six months afterwards. Our monthly outgoings have been trimmed down enough so that we will be able to live on one income comfortably, AND we have high equity in a house that hasn't lost value in an area that is still experiencing economic growth. So Suzi can stick it, to be frank. If she can show me whats wrong with our finances, I will eat my hat.

I would much rather have no unsecured debt and a house that is worth more than is owed on it than a chunk of cash in the bank- and the way we are saving by NOT having all these repayments we will have cash in the bank too. Sorry Suzi- blew your theory there, huh.

Originally Posted by Trialbyfire

I couldn't disagree with Suzi more. Credit card debt has high interest rates as well as monthly payments. If you get laid off, you're still going to have to make those minimum payments while accruing exhorbitant monthly compounding interest rates. The name of the game while being laid off, is to reduce your monthly bills. Consolidate as much as possible under reasonable interest rates, including renegotiating your mortgage, etc, so you can reduce the size of your monthly output.

With credit card debt, your burn rate through any cash reserves can be exhorbitant, reliant on the size of your debt.

Originally Posted by Enema

Suze sounds bonkers to me.

You always pay down the highest interest first and with the biggest wad of cash you can find.

If crisis hits and you need emergency funds, use your (now) healthy credit cards again. Keeping they money as cash will earn you what... 4% interest? Keeping the money on the credit card will effectively "earn" you whatever your credit card interest rate is.... wayyyy more than 4%.

Thank you TBF and Enema. Anyway, how did this get on to my financial habits being picked apart? I have no issues with my finances, and didn't ask for advice, thanks all the same.

Sounds like the OP is fixated on those laminate floors though......

[Mary3]

Originally Posted by Enema

Suze sounds bonkers to me.

You always pay down the highest interest first and with the biggest wad of cash you can find.

If crisis hits and you need emergency funds, use your (now) healthy credit cards again. Keeping they money as cash will earn you what... 4% interest? Keeping the money on the credit card will effectively "earn" you whatever your credit card interest rate is.... wayyyy more than 4%.

I totally understand. I did the exact same thing for years. Ms. Orman is talking about right * now * with jobs taking a dump , car dealerships closing down , Big autos filing BK , commerical shopping centers ( numerous ) filing BK. Attached to all those are JOBS. That are lost.

I dont think anyone here is immune to losing their job . Some have a lesser chance. Others higher. Depending on your field.

I never expected to get laid off after 7 years . But I did. I did not receive UC for nearly 2 months because of my vacation check , which I erroneously thought you had to collect prior to collecting UC.

I got my job back but now have an injury, so you never know what life deals you. Just put all your faith and start over...

[Enema]

Originally Posted by Mary3

Ms. Orman is talking about right * now * with jobs taking a dump....

I know she's saying this strategy is for now, during the GFC; and she's flat wrong.

To summarize her plan: Keep money as cash instead of paying off credit cards so you have money if you need it.

What I said: If you need money, you can use your credit cards again because you've been paying them off!

Her strategy doesn't magically have more money available. The opposite is true, you'll have a larger net debt because of compounding interest on the credit cards.

If you can explain how her strategy is better, I'll be very impressed.

[Mary3]

Originally Posted by Enema

I know she's saying this strategy is for now, during the GFC; and she's flat wrong.

To summarize her plan: Keep money as cash instead of paying off credit cards so you have money if you need it.

What I said: If you need money, you can use your credit cards again because you've been paying them off!

Her strategy doesn't magically have more money available. The opposite is true, you'll have a larger net debt because of compounding interest on the credit cards.

If you can explain how her strategy is better, I'll be very impressed.

Okay lets use this analogy. You buy a "55" screen TV for $ 1,200 cash. Wallah. No payments , no interest.
You have $ 10,000 in savings and everything looked good so you sprung for the TV. You have 2 incomes and a husband , a very stable job and everything looks good.

Lets say now instead you have no savings ( or very little ) You are going to charge $1,200 on your CC. Obviously you don't * have * $ 1,200 to spend freely so you charge. Your interest rate is now 20 % . ( You did NOTHING wrong but the CCC decides to jack your rate.~~ and they DO lately )
Now you have 20% interest charges . You pay the minmum which is likely $ 100 . Your interest is $ 20.00. You pay and pay but not necessarily much more than the minmum payment and part of the interest.

Your $ 1,200 is ( in cash ) done.

Your CC charge of $ 1,200 is going to drag on and tack you $ 20 a month. Times one year thats $ 200 in interest. Obviously as you pay it down the interest lessens,

Its a cash society now. I have not used CC for 10 months. You don't have it , you don't buy it. CC for true emergencys ....only...

[Trialbyfire]

The only positive I see in Orman's theory, is to shore up the credit card industry so that it doesn't collapse, just like the rest of the financial system already has. In not adding to the collapse, I guess overall, you're helping to prop up the economy.

[Star Gazer]

Originally Posted by Trialbyfire

Don't forget that when people lose their jobs, they're going to be receiving UI. As long as your monthly payments are kept down and I mean way down with some form of loan consolidation/mortgage renegotiation, you should be able to survive.

Not really. In California, weekly UI benefit amounts range from a minimum of a piddly $40, to a maximum of $450, depending on the claimant’s quarterly earnings.

$1,800 a month in income (at BEST) isn't going to help someone with a mortgage survive and keep their home.

[Trialbyfire]

Originally Posted by Star Gazer

Not really. In California, weekly UI benefit amounts range from a minimum of a piddly $40, to a maximum of $450, depending on the claimant’s quarterly earnings.

$1,800 a month in income (at BEST) isn't going to help someone with a mortgage survive and keep their home.

That's why you should pay down your credit cards. The less monthly payments of any kind, the better. Also, when there's job loss, you need to consolidate as many payments as possible, to bring it down to one payment of something smaller. This would be applicable to two salary families.

As previously referenced, one salary families, when money is this tight, that you're relying on UI, are already in deep kimchi, previous to job loss. Any high income earners, hopefully, will already have some money saved or invested, to draw on.