Suze Orman Tells Us To Pay ONLY The Minimum On Credit Cards. Wait, What?!
You’re not seeing things. This is not an April Fool’s gag (although if I’d written this last year it would have been). No, this is Suze Orman’s latest advice and it is a complete 180 degrees from her usual advice. Why? Two words – the economy.
I did a double-take on this when I walked past the television a few days ago. My wife was watching Oprah and Suze is a regular guest on the show. I’m used to hearing the same advice from Suze so I thought I was hearing things when I heard her say “only pay the minimum.” I sat down and started watching, as the audience gasped and cheered.
The reason for this drastic turnaround is all based on the rotten economy and the credit crunch. And you may have already noticed a few “changes” to your credit cards recently. This, from Suze Orman:
"The sad reality is that the credit card industry is taking actions to protect themselves with no regard to your needs or how good you have been about paying your bills on time. The problem is that most credit card companies are either reducing your credit limits, raising your interest rates and are even paying you to close down your account. Many of you are even finding that when you do finally pay off your credit card debt that the issuing credit card company of that card is closing that card down as fast as they can so you cannot ever charge on it again. You did everything right, and yet still you could have your credit limit reduced, which can have a negative impact on your credit score."
You can read the whole article here. In a nutshell, the credit card companies were more than happy to let us all borrow more than we could afford back in the good old days. But now that they’re hurting for money, they’re changing the rules on us. Even if you’ve been an ideal customer for them (carrying a high revolving balance and making only minimum payments) they could see you as a potential risk. And if you do everything in your power to pay off your card, that avenue of credit could still be closed to you. Not so good if you need a fallback in times of crisis.
It’s for this reason, and a few others, that Suze Orman is now telling all of us to be as selfish as the credit card companies are being; let them wait for their money, and instead channel every extra cent you can into your savings account to build up an eight-month emergency fund. That’s the amount of money you’ll need to survive for eight months without any other form of income. If the proverbial nastiness hits the fan, you can only count on yourself.
What’s more, debt can be renegotiated (a lesson we’re all learning right now). Interest rates and repayment terms can be renegotiated. Outstanding balances can be renegotiated. However, the contents of your savings account cannot. And in a credit crunch, the chances of accessing money that isn’t yours is a lot tougher.
So, despite what everyone has been telling you for eons, you need to consider paying only the minimum on your cards. Use whatever money you can get hold of to build up a big, fat emergency fund. Oh, and of course, don’t continue spending on those credit cards and buy only what you need. If you need to put it on a credit card, you can’t afford it. These are tough times, who knows what lies ahead. Be prepared and hope that you never have to use that cash you’ve been squirreling away.