Suze Orman's advice has now changed

[mommyof4]

I received this email yesterday, stating she has now changed her advice regarding credit card debt.

Application Error Occurred

(link works- just this message came up when I posted???)

What do you think?

[sweeps]

I recently had my limit reduced on a Citibank card from about $9,000 to $2,000. So I know it's happening. (It was a non-issue for me since I had a 0 balance. I cancelled the card in protest.) But let's say I had $9,000 in debt on that card, and they reduced the limit on it. Would I have to pay it off right away or face major over-the-limit fees? That might make me question her advice.

More to the point, I believe you don't have to do just one thing at a time. Maybe you're putting a lot towards your EF. But how about paying a little extra on the debt? I also don't think you should stop putting money in your 401k (or similar) account -- even if it's only 1% for a while.

[Pitman]

Originally Posted by sweeps

I recently had my limit reduced on a Citibank card from about $9,000 to $2,000.

That's certaintly a large reduction on your limit.

[red92s]

I'm actually surprised Citi hasn't cut my limit yet. It's currently $8,700 and I have not carried a balance in 6 months, and have not had more than a plane ticket and some iTunes purchases at any given time. I still get balance transfer checks from them in the mail on a bi-weekly basis.

[creditcardfree]

It sounds like she just wants those with very little emergency fund savings to make the EF a priority. Many people don't have an EF because they think that if there is an emergency, such as job loss, they can just rely on their credit cards. That may not be an option in the future!

I think it is good advice...something she should have been supporting all along!

[Joan.of.the.Arch]

I'll admit that I have always thought of my credit cards as back up I could use in an emergency. That doesn't mean I don't have cash savings for such, but the CC did feel like a guaranteed way to be able to delay paying for a purchase if need be. I had one unused CC account closed on me, but so far have had no limit reductions on the others.

[tripods68]

That'll reduced the FICO score.

[geojen]

Originally Posted by red92s

I'm actually surprised Citi hasn't cut my limit yet. It's currently $8,700 and I have not carried a balance in 6 months, and have not had more than a plane ticket and some iTunes purchases at any given time. I still get balance transfer checks from them in the mail on a bi-weekly basis.

I have the same feelings. My citi mastercard has a 8500 dollar limit, and I get balance transfers once a week at least. In my case however, we use the card for everything--paying it off at the end of the month of course. But, we may have at any given time 2 or 3 thousand charged on it. If they cut the limit in the middle of the month, would I then be charged overages before I paid it in full at the end of the month?

[MonkeyMama]

I think it's good advice. The essence is, "Don't rely on those credit cards."

I'd question the legality of overlimit fees on balances reduced in that manner, but not like a lot of what credit card companies do make any legal sense. Which is why I Would pretty much never carry a balance with them in the first place!

We had a Citi card with a $15k limit that was also reduced to $2k. We were going to cancel it anyway. I wonder if that is the standard amount for "unused" cards. We never used it. I swear they raised our limit substantially in 2008 though. Wishy washy.

[simpleyme]

I always knew this would happen

just like everyone opened lines of credit many with zero balance and paid fees so they would have this money if they ever needed it,but when things got tough banks started shutting those down leaving some people without emergency funds having paid fees for no reason at all

the credit cards have lulled many into thinking they have emergency money at their disposal now suddenly they do not

having a card with a low limit of 2000 is all but worthless
I pretty much only use cards to book vacations and most cost more than that

[puck36]

I don't think this is good advice. Why make the minimum payment on a credit card, it will just take you longer to get out of debt. Everyone should get out of debt as fast as you can and then build your E-fund 3-6 months. When you don't have any payments the more you money you have and the faster you can build that E-fund.

[sweeps]

Originally Posted by puck36

I don't think this is good advice. Why make the minimum payment on a credit card, it will just take you longer to get out of debt. Everyone should get out of debt as fast as you can and then build your E-fund 3-6 months. When you don't have any payments the more you money you have and the faster you can build that E-fund.

Puck, you're assuming that the person in debt will not have an unexpected increase in expenses or an unexpected decrease in income (e.g. a layoff). Suze's point is with credit tightening, there may be no additional credit to fall back on.

[mohawkstrip]

Citi just raised my limit $1000 to $16,000. This is after I've paid almost all of it off. Why?

[mommyof4]

Originally Posted by mohawkstrip

Citi just raised my limit $1000 to $16,000. This is after I've paid almost all of it off. Why?

Don't know. I just finished paying off my HSBC card, and they reduced my available credit down to $460. It makes me mad- I've never had a late payment, gone over my limit, I've payed more than the minimum, so now it's paid off, and then they do this to me.

[creditcardfree]

If it is of concern, I would call the credit card companies and ask them to increase your limit. Never hurts to ask. Just don't use all that credit...of course!!

[EEinNJ]

It never hurts to have cash available, even if you have debt. I don't watch Suze much, but I did catch this piece. The funny part was watching all her gestures, the way she talks with her hands. Now when I talk about personal finance with my wife, I make sure I wave my hands around a lot

[Joan.of.the.Arch]

Originally Posted by EEinNJ

IThe funny part was watching all her gestures, the way she talks with her hands.

I saw the Saturday Night Lives skits of Suze Orman before I ever saw her for real. When I finally did see her, I had to kind of laugh because I felt I already knew her from SNL. Those hand gestures are truly part of the package.

[blankcheck]

I don't have a problem with this advice. Let's say you have a CC debt of $5000 and you have a plan to pay that off in a little over 10 months. At the same time, you have an EF of $500.

If you stick with putting $500 towards the debt and lose your job 8 months in, you have 4000 put towards debt, none of which you'll ever see again, and 500 usable to you.

If you put into the EF first, you have 4500 to cover expenses including the minimum CC payment.

Think about which position you'd rather be in if you needed to buy time looking for a job.

[Scanner]

In the other thread, they are also advising that credit scores (I frankly never understood all the fuss here about them - 2 or 3 points here or there) are becoming more irrelevant.

It appears the downpayment you are able to muster is more relevant to obtaining credit for a car or home.

I currently have a credit limit of 11,500 on my Citibank (which was raised recently from $10,600), which is essentially a personal card but contained to business expenses. I must say I would be pissed if they lowered it to $2000 as sometimes I need to make a large purchase and float a balance for 30 days. That being said, I could get creative with other means of purchase (take my business LOC and move some into my checking and pay by debit card).

I am wondering though, if Suze Orman is worried about people not having emergency funding, what about those "Credit Protection" services that all card companies get you to buy in case you lose a job, etc? I frankly don't know anything about them and always decline the sales offer.

[Ima saver]

I never bought those services either, I just pay the card off in full each month.