|by Jason Steele|
About a month ago, I took a stab at critiquing self styled financial guru Suze Orman’s latest advice. As you can see, I was not very complimentary towards her advice to save up cash rather than pay down your credit card debt.
The Readers Respond
I received several responses to this article, yet most were positive. While I appreciate the flattery, it is actually the criticism that I find most interesting, as it helps to illuminate a different point of view.
Here is one example from a reader named Becky:
I agree with her! When you have the choice (while Earth is in economic turmoil) to either pay off your credit card or put money is savings you should put it in savings because it is not uncommon to have your credit limits lowered when a card issuer feels like it. It would be horrible if you used your only/last $10,000 to pay off a credit card and then the next month you find out you lost your job and your credit card limit was lowered to $1,000 and you have nothing else to fall back on. I would rather have $10,000 in my bank acct and have to pay for interest payments on my card(s) but still know I can pay my mortgage a few more months while I try and get a job again.
I know from experience that credit issuers lower credit lines. I pay my balance off each month and my credit lines keep going lower and lower as the months go by.
I have thought about this comment for while, and I think I understand her perspective. The assumption of Becky, and presumably Suze, is that you have several thousand dollars worth of credit card debt, zero emergency fund, and mediocre credit. If you are worried about loosing your job, and all of your credit, I can see how Suze’s advice might resonate. These days, it is not paranoid for anyone to be worried about loosing their job. While job loses can and will happen in any economy, it is really the difficulty finding a new job in this economy that can be truly scary.
Another assumption that must be present to follow Becky’s and Suze’s advice is that you have mediocre credit and hold very few credit cards. In that circumstance, it is a real possibility that your sole card’s credit limit could be cut, leaving you with no options in the event of a fiscal crisis like job loss.
The source of my criticism really comes from my own situation where none of these assumptions apply. I have very good credit, and I have many credit cards, most of which I seldom use. So far, none of my lines have been cut, but if one were, it would not affect my planning. Not coincidentally, I never carry a balance on a credit card, so I don’t spend any time worrying about paying off debt. I can only imagine if I were to incur credit card debt, my first priority would be to pay it off. That is where my sentiments are coming from.
I realize that everyone is not in the same place, presumably many of Suze’s audience. I still stand by my criticism for people who don’t fit all three assumptions: High credit card debt, mediocre credit, and few credit cards. The truth is that having many credit cards helps your credit score by reducing your debt to credit ratio. A side effect of having multiple cards is the redundancy of having multiple backups in case one bank chooses to slash your credit limit.
In fact, one of the commenters, Eric hit the nail on the head when he said:
I didn’t seem to interpret her advice as strongly as you did. Basically I think she just wants you to build up some kind of emergency fund even if it means cutting back on your CC payments for the time being. It’s important to have some kind of cash protection in this economic catastrophe right now.
As for her statement about the CC industry pulling back, it definitely doesn’t apply to people like us who have great credit, but you must realize that Suze’s audience are mostly people on the opposite spectrum from us. They’re lower credit people who advice like this applies to more. They usually have zero savings and reduced credit.
Thank you to both Becky and Eric for contributing to the discussion. I really do welcome your comments, especially those who disagree with me.