How should a newlywed couple save up for a house?

[carhill]

Last but not least is she is extremely underwater try for a Loan Mod ( mixed feelings on this program ) . Or she can walk. Not all want to but if you are $ 80,000 down you are never going to catch up and forget selling it ...

 

If this is in the states, watch out for a 1099 on a loan mod. I've heard some interesting stories about that from my mortgage broker.

 

Another thought comes to mind. Since the W acquired the property while single and she owns it sole and separate and H isn't on the mortgage (I'm assuming this and residency in US here), it's possible, if he could qualify for a home loan on his own, she could walk after a subsequent purchase by him and take the credit hit. I have some experience with this strategy. It would depend on their overall debt ratio and how and to whom that debt is allocated.

 

Anyway, some musings for a Sunday evening

[Mary3]

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]

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.

 

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.

 

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]

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]

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.

[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.

[Mary3]

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...

[Star Gazer]

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]

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.

[sb129]

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...

 

So wouldn't it be better to have NO CC debt at all, and save the money you would have paid in repayments up until such time as you have $1200 cash for a TV (or whatever)

 

Yes, CCs should be for emergencies only. And thats why we have one. With a balance of $0.

 

I think the economy where I live is a little better than where you are. And while nobody is immune to their jobs, for my H to lose his as head of adepartment at the largest public school in the city, some serious sh*t has to go down. Likewise me- I am self employed and in the event of the sh*t hitting the fan and all my business suddenly evaporating (which in healthcare, isn't likely) I have insurance to pay me.

 

So we're good. Not everyone is in this situation, granted. But I still think Suzis advice sucks, and in your last post you seemed to go against it by advocating having no CC debt. Which is exactly what I said in the first place.

[BUENG1]

I never understood what the fascination with Suzie Orman was. Writes entire books about how people shouldn't spend money on credit cards with intrest above 30% percent and how you shouldn't buy $30,000 dollar carpet if you only make $40,000 and have no savings and no retirement. I don't know how she does it.

 

[sb129]

I had never heard of her until 24 hours ago.

[Mary3]

So wouldn't it be better to have NO CC debt at all, and save the money you would have paid in repayments up until such time as you have $1200 cash for a TV (or whatever)

 

Yes, CCs should be for emergencies only. And thats why we have one. With a balance of $0.

 

I think the economy where I live is a little better than where you are. And while nobody is immune to their jobs, for my H to lose his as head of adepartment at the largest public school in the city, some serious sh*t has to go down. Likewise me- I am self employed and in the event of the sh*t hitting the fan and all my business suddenly evaporating (which in healthcare, isn't likely) I have insurance to pay me.

 

So we're good. Not everyone is in this situation, granted. But I still think Suzis advice sucks, and in your last post you seemed to go against it by advocating having no CC debt. Which is exactly what I said in the first place.

 

I agree with you .( Save for the things you want. ) But * how * a person becomes CC debt free ( such as you and me ) is another matter .

Some people are buried pretty deep. The equity cash machine has dried up in this state for those who tapped and paid , tapped and paid to get their CC 's down.

[Trialbyfire]

I never understood what the fascination with Suzie Orman was. Writes entire books about how people shouldn't spend money on credit cards with intrest above 30% percent and how you shouldn't buy $30,000 dollar carpet if you only make $40,000 and have no savings and no retirement. I don't know how she does it.

 

[Mary3]

I had never heard of her until 24 hours ago.

 

For those who thought she was full of bunk...I have been watching her since 2006 , she correctly predicted alot of the financial failures that have to come be. ( I know she was not the only one to predict. ) I have alot of sites I visit in the financial sector , amazing and frightening , to see this unfold before our eyes...

[sb129]

I agree with you .( Save for the things you want. ) But * how * a person becomes CC debt free ( such as you and me ) is another matter .

Some people are buried pretty deep. The equity cash machine has dried up in this state for those who tapped and paid , tapped and paid to get their CC 's down.

 

Yeah, well- we got lucky with an inheritance.

I would actually rather have my dad still alive and a massive CC bill than no CC debt and no Dad, but there you go.

 

It made sense to us to reduce our total debt rather than spend it on stuff we don't really need or save it when we don't really need to save right now. We managed to save some of it too. We had a savings plan in place which would have enabled us to pay off the CC by the end of the year anyway, so that money is now going into the savings account.

 

Its not been without sacrifices, and I think thats where alot of people fall down- they still want everything NOW and the lifestyle to go with it.

 

And laminate floors, for some inexplicable reason...

[Star Gazer]

I agree with Suze.

 

During this financial crisis, if I had CC debt (which I don't) and I had so much of an inkling that my job was in jeopardy (which I also don't), there is still NO WAY my focus would be on paying down CC debt. Rather, I'd be stashing it in huge clumps for the inevitable rainy day, and simply paying my minimum payments... that is, until I felt I had enough saved for that rainy day (at least 8 months living expenses, IMO). To do otherwise seems outright foolish to me.

 

In fact, if the choice is between my mortgage and my CC debt, I'd rather have the debt collectors calling me for their minimum payment rather than a foreclosure sign in my yard.

 

*shrug*

[sb129]

Our CC bill wasn't that big, which is why it seemed stupid to let it languish when we could afford to pay it off.

 

It feels pretty good to have no debts apart from a very manageable mortgage.

 

You have to pay the CC bill eventually- why leave it to accumulate 8 more months of interest?

 

Each to their own SG, and perhaps if I didn't pool finances with WB then I might have done it differently.

 

Any particular reason why you would stash it rather than reduce debt?

[Mary3]

Yeah, well- we got lucky with an inheritance.

I would actually rather have my dad still alive and a massive CC bill than no CC debt and no Dad, but there you go.

 

It made sense to us to reduce our total debt rather than spend it on stuff we don't really need or save it when we don't really need to save right now. We managed to save some of it too. We had a savings plan in place which would have enabled us to pay off the CC by the end of the year anyway, so that money is now going into the savings account.

 

Its not been without sacrifices, and I think thats where alot of people fall down- they still want everything NOW and the lifestyle to go with it.

 

And laminate floors, for some inexplicable reason...

 

I think in your situation you did the ideal thing. I guess she means cash poor persons , if you see a LO coming and you don't have much saved , start saving. I hear thats the latest mantra ....save...save...save....

[Trialbyfire]

Banks will renegotiate mortgages, thus size of mortgage payment, in times of hardship, particularly with the current state of the economy and real estate market. What bank in their right minds want you to be unable to pay your mortgage, thus foreclose on an upside-down home?

 

Orman's out to lunch.

[sb129]

Oh we are saving like crazy too! We have to so we can afford for me to take time off work to have a baby. We really didn't want ANY unsecured debt at all when I stopped work.

 

And its different where I am too- the country I live in hasn't suffered as badly as the US and although it may be coming, lately the economy here has recovered a little bit and things seem to be improving slightly.

 

Not that that means we are going to rush out and spend spend spend again, we are just lucky enough to now have no CC debt, a mortgage we can afford, and a nest egg that is growing.

 

A couple of years ago before I met my H I lived beyond my means and it very nearly bit me badly (managed to sell a property JUST before the property downturn, so got out of it) and I never want to be in that situation again.

 

Like a reformed smoker (I am one of those too!) I am uber-anal about debt and spending more than you earn. Which is why we have a budget spreadsheet (I told you I was anal!)

[Enema]

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...

 

Your example suggests you know how to manage money, but the story above has no relevance to the scenario YOU provided us from Suze:

 

Two years ago Suzie stressed PAY PAY PAY your credit card debt now she says they can wait and be last on the list. Meaning pay your minimum payment only ( in cash stress times ) and pay minimum + interest at any other time.

 

So, she says that if you have an existing credit card debt, you should only pay the minimum balance and save any extra money you have as cash.

 

We, (and you!) say it's bad to have a credit card balance because you pay a lot of interest on it.

 

It seems you know Suze's advice is stupid but just haven't realized it.

[Mary3]

Banks will renegotiate mortgages, thus size of mortgage payment, in times of hardship, particularly with the current state of the economy and real estate market. What bank in their right minds want you to be unable to pay your mortgage, thus foreclose on an upside-down home?

 

Orman's out to lunch.

 

Have you ever seriously tried for a loan mod from your Bank ? Hours of calls and delays only to be told they can't help you,...Its voluntary at this time. ( No I never tried for a loan mod but have friends who have )

 

My friend was many many months behind on his M. He had tried repeatedly for half the year to talk to his bank. NOW they want to help him but he's already in the BK process...

 

What bank wants to foreclose on an upside down house ? ALL of them.

 

I don't know of too many loan mod success stories. They have the upfront fee loan mod companies which it is illegal now for them to ask for money for services not rendered.