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Suze Orman Says Stop Paying Off Debt

Recently, famous finance guru Suze Orman, who usually doles out sensible advice even if in an disrespectful manner, has advised the public to stop paying off credit card debt any faster than minimum payments allow in order to shore up a savings account that could last eight months in an income emergency. According to this recent advice, the economy has changed in such a way that interest payments on debt are small prices to pay for the disaster of a personal recession.

It’s fair to say that Orman has a valid point for some. For example, this advice should be directed to a person whose income depends on a job from which he or she might be soon laid off, if that job is in an industry in which it will be difficult to find a new job, and if he or she won’t settle for a lesser job in while searching for a full replacement. But that describes only a small sample of the population. Orman is painting the picture with too broad a brush.

Liz Pulliam Weston recently pointed out this disagreement with Suze Orman. Weston points out that paying only the minimum to credit cards identifies you as a risky customer. Risky customers are punished by credit card issuers with increased rates and lowered credit limits, in some cases, without advance notice. Besides the direct effect of less available credit and higher interest payments, these actions have an unfortunate downstream effect. It is likely that this will result in a lower credit score.

Again unfortunately, much of modern society relies on a credit score. Your credit is checked when you apply for a loan or mortgage. But it is also checked when insurance companies determine your rates. Auto insurers have found that low credit scores, or credit risk in general, correlates to a risk of dangerous driving. Therefore the insurers feel justified in charging customers with lower credit scores higher premiums for the same coverage. Some employers check credit reports and scores to determine whether hiring you may present an undue risk to the company. And landlords check credit reports and scores when deciding whether you are fit to lease an apartment.

It’s very difficult to function in modern society without a credit history, and a good credit score and clean report goes a long way to make sure you can operate and navigate through life smoothly. Suze Orman’s advice might put that at risk in exchange for an oversize emergency fund in an environment in which the interest you can earn on savings is very low. It could take years to build up eight months’ worth of expenses in cash reserves, and paying only the minimum towards credit cards during that time will prolong and increase the cost of debt. If the minimum payments don’t even cover the amount of new interest charged, by following Suze Orman’s advice, you would be condemning yourself to a life controlled by debt and the credit card companies.

Suze Orman’s advice might be sensible for some people, but it’s important to think about the consequences of all but abandoning the elimination of debt. Where do you stand on Suze Orman’s advice to forgo debt repayment in favor of an eight-month emergency fund?

A Change in Credit Card Strategy, Suze Orman, March 1, 2009
Bad advice from Suze Orman, Liz Pulliam Weston, MSN Money, April 23, 2009

Published or updated April 27, 2009.

About the author

Luke Landes is the founder of shizennougyou. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 24 comments… read them below or add one }

avatar 1 Anonymous

I agree with Suze, but only to a certain extent. I work in an industry that has been hit very hard with layoffs, so I have seen at least 50% of my friends lose their jobs. I personally would not be the least bit surprised if in 3 months, I had no job to speak of. When that time comes, I’d rather be facing a nice stack of cash than a lower credit card balance. But again, I’m probably in the minority on this, and realize that a lot of industries are still strong and even thriving, and job security is not an issue.

Like everything else in life, I think this issue is one of balance – being able to balance the need to beef up savings and pay down debt at the same time. Which one you focus on depends on how safe you feel about your future.

Just like you need an small emergency fund before you pay down debt (for those unexpected expenses), you don’t want to start using cards again when you go on unemployment just because you didn’t save up. So in a way, what Suze is advocating is just a larger emergency fund.

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avatar 2 Anonymous

Yeah, I’ve commented on this before. I don’t agree with this statement. I am going to be continuing to focus on paying down the last little bit of our CC debt. But again, this is our personal situation where our jobs are in no danger of being lost (mine is secure so long as the National Institute of Health is still an operating entity).

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avatar 3 Anonymous

The problem is with any financial advice is it should never be taken as concrete. It has to fit your personal situation. If your interest rate is low (or while it is low) then it might make sense to ride out with lower payments while you pad your savings account. I like Suze because she challenges your financial acumen, but honestly, at 24% interest rate on a balance, it’s not doing any good to eat the fees on that account just to have a back-up savings. People need to take responsibility for their money decisions and in that way, at least Suze gives me them a different perspective.

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avatar 4 Anonymous

I wrote a post about Suze’s advice when I first read about it.
Like you I disagree with her advice for everyone, for some people it makes sense, but for most of us it doesn’t.

My husband brings in the bulk of the income and his job is as stable as it gets. We have enough saved that with the severance and unemployment $ we would be in good shape for 3-4 months. He is in a highly in demand field, and would anticipate a job hunt to take about a month.

We do carry debt which we are paying off, and we will continue with our plan despite Suze’s advice. For us it just doesn’t make sense!

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avatar 5 Anonymous

What if your husband gets sick or injured and can’t work for several months? We were all set with this scenario until my husband needed heart surgery not once, but twice.

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avatar 6 Anonymous

When the economy turns around will she flip-flop again? Personal financial advice shouldn’t be determined by consumer sentiment, fear, or what leads the news but by what makes sense for each individual situation.

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avatar 7 Anonymous


This is why I am not a fan of these talking heads who claim to be “financial advisors.” Any financial advice should be done after a fact finding mission to uncover all speed bumps, rather than just sound bites on Oprah.

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avatar 8 Anonymous

I read the article and it is full of caveats. I think she makes it very clear that her advice is intended for people who do not have any money saved, and that others should continue paying down their debt.

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avatar 9 Luke Landes

Margaret: Suze’s advice is still bad for people who do not have any money saved. For people in that particular circumstance, funding an *eight-month* emergency fund could take years. That’s a dangerously long time to skip accelerated payments towards debt. Total debt could more than double in that time, even if nothing else was charged to credit cards. Find a compomise. Fund one or two months’ expenses in an emergency fund and get back on the path of aggressively paying off debt. Paying only the minimum towards credit cards, in today’s environment in which credit card companies are not playing nice with credit limits and interest rates, could have damaging consequences.

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avatar 10 Anonymous

I second Ron.

Suze is just another part of the media driven by fear. The right thing to do for your finances should always be the right thing, no matter if we’re in a bear or bull market.

We paid off debt when everybody else was borrowing, and we saved when interest rates were higher (ING was up around 5%.)

Now we’re in a good enough position that we’re buying a house, with 10% down at bargain prices.

Don’t do what everybody else is doing, do the opposite. Don’t be normal, normal is broke.

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avatar 11 Anonymous

How about consolidating your debts on a zero percent APR credit card? This would allow you to pay off the card without incurring interest charges, and add to your emergency fund simultaneously.

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avatar 12 Luke Landes

Enrique: That could be a good solution if someone in that position could find a 0% promotional offer and manage to survive the entire term before the credit card company ends the promotion. There could be a negative effect on a credit score for someone who applies for a new line of credit in response to a promotion, and there will certainly be balance transfer fees. Keep in mind that 0% balance transfer offers usually last for 12 months, at which point the full balance must be paid or else the regular interest rate will be charged on the entire transferred balance (even if some of it has been paid off). If you can’t pay off the debt by the time the promotion ends, then you’d be better off sticking to your current cards.

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avatar 13 Anonymous

That’s usually only true for store credit cards that when a promotional offer expires, they’ll charge you interest on the full balance, even what you’ve already paid off. For major credit cards, when your 0% expires, you start paying finance charges only on the current balance. I don’t know of any that charge you for what you’ve already paid off.

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avatar 14 Luke Landes

There’s no standard rule. In the past, I know Capital One’s terms were more like those of the store credit card. Other issuers go back to the beginning of the month for which you paid late or went over the limit to begin the higher interest rate.

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avatar 15 Anonymous

Wait, who said anything about being late or going over the credit limit? I thought you were saying what happens when the promotional APR expires. But going back to the beginning of the month is not the same as going back to the beginning of the transfer, especially if you’ve been paying for a year!

avatar 16 Anonymous

I had one of those promotional accounts at Washington Mutual (now Chase) When the promotional period ended they raised my interest rate to 24% (it was 12). They said that was part of the deal. Fortunately I had enough to pay off the entire balance or I would have been screwed. My experience is beware those promotional deals. even without the rate hike, the deals aren’t that good. By the time you add the transfer fee (paid in advance) and the lower rate it just isnt much better than the standard rate. Further if you have a mixed high rate and low rate balance, it is not possible to pay anything on the high rate balance till the low rate balance is paid in full. My advice: Strive to be totally debt free.

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avatar 17 Anonymous

I agree that Suze Orman is painting with too broad a brush. The reality is that most Americans are not going to be able to stash away living expenses for 8 months.

Let’s say average family’s bills are $2,500 per month. (You and I both know that’s low…) $2,500 x 8 months = $20,000 on top of their regular bills. It’s just not reality.

On paper, sure most people would love to make double what they spend and save the rest. But let me tell you this. My company talks to thousands and thousands of people every single month, and we have yet to see someone in a position to do this.
They have just enough to survive and maybe a bit more. In this case I think eliminating debt makes more sense.

I can see Suze’s logic to a degree, but I tend to look at the big picture.

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avatar 18 Luke Landes

Mike: Yes, sorry — too many things going on in my head during the day. In the past, at least one non-store issuer (mentioned already) has had a policy to apply the non-promotional rate to the entire originally transferred balance when the entire transferred balance was not paid in full by the end of the promotion. They’ve changed some of their less consumer-friendly policies since then, perhaps they have changed this as well. But it’s not a foregone conclusion what a credit card issuer will do if you do not pay the balance in full by the end of the promotion, which is why it’s important to read the fine print, and to ask a customer service representative to elaborate on anything that might be ambiguous.

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avatar 19 Anonymous

Yup – she’s got a point. You can argue about the amount of money you need in an emergency fund, but if you don’t feel you have enough in such a fund, a good way to build it faster is to follow Orman’s advice. Again, this should be a temporary measure and it does carry the consequences you mentioned.

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avatar 20 Anonymous

Pretty ridiculous, and yes- quite flip flop at first glance. I gave up figuring out Suze (and quite frankly- caring). About 10+ years ago I had credit card problems, and several years later I followed Suzes advise- paid debt to $0, dumped the car, etc. In 2003 Social Security charged me $50 a month overpayment since I had an emergency fund, and still are costing me $50 a month; then last year when my debt went to $0 my FICO score went up & up to 800. Big deal! Banks & Savings and Loans will not loan me money. Can’t get a house or car without large debt amounts all over again. I do not owe money at all which was what Suze was harping on for years. Built up emergency fund- government took it away; cannot buy what I want…… I take all financial gurus with a grain of salt now- especially Suze.

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avatar 21 Anonymous

Social Security took your money away because you were on SSI. SSI is a needs based program, and its considered a program of “last resort”. In other words, you’re SUPPOSED to use your emergency fund before ever being on the program in the first place. If you’re in a position where you have enough funds to build up savings, the program is not for you. It’s for the very worst off.

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avatar 22 Anonymous

Suzy doesn’t always have the best advice. Yes some things make sense, but other times she’s off base. One that I can think of is her blanket condemnation of var. annuities (before the downturn, of course). Yes they have a cost, but they also have a benefit (living benefits).

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avatar 23 Anonymous

This particular advice isn’t the worst, because she’s used the caveat that it should be based on your personal assessment of your job security. If you don’t have savings, your credit cards are your emergency fund. But with banks cutting credit limits, paying down a debt doesn’t necessarily mean you have more room to borrow if you need to. So building the cash reserve (not 8 months if you’re in high rate debt) makes some sense.

Her original position that you should modify the rational approach to paying down debt (highest rate first) by adding $10 to the minimum of all debts, THEN paying more than that to the highest rate account was a completely OOHA rule (out of her a$$). Made no sense then and makes no sense now.

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avatar 24 Anonymous

I think it’s a shame that Suze is so popular… None of her advice is good advice to all of her listeners, but she seems too myopic to create targeted segments. She’s very skilled at speaking with conviction and passion- In the entertainment industry, it’s called “Spin”. She sounds as though she has all the answers. Being in financial services, I have found that she has been a “disservice” to many.
Frankly, I’m just waiting for her to decide to be a politician…

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