Suze Ormand's credit card advice

[ceecee]

When we were first married, my FIL told us many times, "The difference between a rich man and a poor man is that the rich man collects interest, while the poor man pays it."

I LOVE that quote! I wanted to add sometimes Suze says some off the wall things. She drives me crazy, I quit watching her.

 

[JoanneNC]

When we were first married, my FIL told us many times, "The difference between a rich man and a poor man is that the rich man collects interest, while the poor man pays it."
.

I also love this quote -

 

[DisneyAprilFool]

Here's a quick question... We have ONE credit card- and it carries no interest until November. I was going to squirrel away payments on it (extra- above and beyond the minimum) each month to pay it off before November. Now I'm thinking it'd make MORE sense to put it in savings and THEN pay the card off in October.

That makes financial sense, right?

 

[DisneyAprilFool]

Double post- sorry!

 

[JoanneNC]

Here's a quick question... We have ONE credit card- and it carries no interest until November. I was going to squirrel away payments on it (extra- above and beyond the minimum) each month to pay it off before November. Now I'm thinking it'd make MORE sense to put it in savings and THEN pay the card off in October.

That makes financial sense, right?

That is what I would do

Continue to borrow that money interest free and make 1-2% on it in savings.

 

[punkin]

I will second (third?) crisi. There is no right answer. Everything depends on the particulars of your financial situation. If it was me, with my situation, I would pay the credit cards off first. But then again, I already have an emergency fund and DH's job is fairly secure.

 

[minimi.4214]

agreed, depends on individual situation and my priority would be closing credit debt asap...

 

[aka-mad4themouse]

Here's a quick question... We have ONE credit card- and it carries no interest until November. I was going to squirrel away payments on it (extra- above and beyond the minimum) each month to pay it off before November. Now I'm thinking it'd make MORE sense to put it in savings and THEN pay the card off in October.

That makes financial sense, right?

For me, it would depend on how large the debt is and how much the interest rate is on the savings.

The current interest rate on my savings account is 2%. If I were to start with $500 in there and put another $500 in every month for the next 9 months, I'd have saved $5000 and I'd get $37.66 in interest for my efforts.

YMMV but you can use this calculator to plug in your own numbers. Then you can decide if it's worth putting your money into the bank instead of paying on the card monthly.

 

[JoanneNC]

For me, it would depend on how large the debt is and how much the interest rate is on the savings.

The current interest rate on my savings account is 2%. If I were to start with $500 in there and put another $500 in every month for the next 9 months, I'd have saved $5000 and I'd get $37.66 in interest for my efforts.

YMMV but you can use this calculator to plug in your own numbers. Then you can decide if it's worth putting your money into the bank instead of paying on the card monthly.

Wouldn't 37.66 be greater then 0 interest?
She still has to pay her monthly payment but would have the pay off banked to send the check in full before interest accrues or am I missing something in her post?

 

[chemysterygal]

I'm sort of in the situation you guys have been discussing - we have our trip to Disney on our Disney Visa. I have paid off a few hundred of it just because I sent a little extra with each minimum payment but, since we have 0% interest, I'm letting the payoff amount sit in my credit union savings account and accrue interest. Yes, I have the money to pay it off, but personally *I* feel better having the extra few thousand sitting in a bank account where I can access it if we have an emergency.

Before we start being charged interest, we'll pay it off, but for now I'll make money on their money. I know I am taking a ding on our FICO score for letting those couple thou sit on a CC, but I can live with it. We've always been dinged anyways for high revolving debt even though prior to this we have always paid off our credit card(s) every month. Whatever!

I do plan on looking into trying to refi if the rates stay low or go lower, so this attitude might come back to bite me, but I can live with that possibility. I'll just make sure to pay off the CC the month before and check that it reports before having our reports pulled.

So, bottom line, Suzy's advice works for some, but not all as pp's have said!

 

[DisneyAprilFool]

Nah- nothing missed in the post. I think that's what I'm going to do- and I'm glad to find the idea here. I'll make the regular monthly payments (which are about $80 more then required, but it's what I'm used to paying on my CC, so that's what I'll stick with) and the extra, I'll put in savings, to pull out right before the card starts tacking on interest and I'll pay off the card then. Makes sense to me.

 

[aka-mad4themouse]

Wouldn't 37.66 be greater then 0 interest?
She still has to pay her monthly payment but would have the pay off banked to send the check in full before interest accrues or am I missing something in her post?

Sure, it's better than nothing. But that's just an illustration with numbers I pulled out of thin air. If the amount is lower, the interest earned is also lower. Let's say that it's only $2000 saved over 9 months. Then the interest earned is $15.06.

My point is that for some people it's worth the effort but for others, the payoff is not significant enough to go through that. Most 0% intro cards carry high default interest rates if you're late on paying it or any bill. There's a tipping point that makes the risk worthwhile for people. For one person, $38 is enough. For someone else it might take much more than that.

 

[gillenkl]

I agree with akamad4themouse

I agree too.

 

[disneymayz]

I skimmed trough most of these post. From an outside point of few I get from some to most of you..... "If someting happens you do not have to be responable for your cc dept, it is unsecured" I believe that you should pay off your cc (cause you used the money) then save that payment every month. I live check by check with close to nothing in savings. If I did not make min. payments I would end up with thousand and thousands of dept not going anywhere and saving 300-400 / month. By paying an extra 100 to one of my loans/cc I am cutting the amount of time down by 2 years. $2400 I would not make that in intrest from a bank.

Note: paying a simple $9.00/month towards your principal on your house will knock off aprox. 5 years on a 30 year.

Funny : Someone that smokes a pack a day complaining about money! Uh stop smoking and save over 1500 / year

 

[chemysterygal]

Note: paying a simple $9.00/month towards your principal on your house will knock off aprox. 5 years on a 30 year.

I would think this depends entirely on the loan amount. We do bi-weekly mortgage payments instead of monthly, and the effect is about the same as what you mentioned - a 24 year instead of a 30 year mortgage.

 

[CLR4321]

Suze Orman has been known to give some bad advice. I certainly would not go with something she said unless it made sense to me otherwise. I had watched her show once or twice and thought she was great...but after reading an article the other day about her, I would be careful with making decisions based on her advice. This was the article on MSN Money: http://articles.moneycentral.msn.co...CreateaPlan/stop-listening-to-suze-orman.aspx

 

[aka-mad4themouse]

In all fairness to Suze, she is not the only one advocating that people stash their cash instead of paying down debt.
Now's the time to build up your cash reserves

It's just not an approach that I'm onboard with.

 

[prncess674]

"If someting happens you do not have to be responable for your cc dept, it is unsecured" I believe that you should pay off your cc (cause you used the money)

You didn't read carefully. Credit cards are unsecured debt. The point being made is if your options are feed your family, pay your mortgage or pay your credit card, then the credit card should be last on the list. No one ever said to NEVER pay it back. The reason credit cards carry such high interest rates is because it is unsecured debt. If you default they have nothing to collect against. Unlike a mortgage that if you don't pay they will take your house. In a perfect world no one would have debt, but it is an imperfect world and many do.

In this down economy people are working towards having enough money to pay to heat the home and put food on the table. If the credit card debt has to be put on hold (but still paying the minimum to keep out of default) then so be it.

"I live check by check with close to nothing in savings. If I did not make min. payments I would end up with thousand and thousands of dept not going anywhere and saving 300-400 / month. By paying an extra 100 to one of my loans/cc I am cutting the amount of time down by 2 years. $2400 I would not make that in intrest from a bank.

You also have NO SAFETY NET if your job were to be lost. You are already living paycheck to paycheck. Won't you wish you had that extra $100 a month in savings if you were to lose your job?

If times were better and the market was booming and jobs were secure then paying down the unsecured debt would be great, but you should also prepare for the worst.

Note: paying a simple $9.00/month towards your principal on your house will knock off aprox. 5 years on a 30 year.

I sure wish this were true. If paying an extra $9 a month towards my $2,500 a month mortgage would knock nine years off I would do it. Perhaps you would like to back that up with some math. Before anyone jumps on me for having a big mortgage, realize it is all relative. I have no other debt and it is less than 25% of my income.

Funny : Someone that smokes a pack a day complaining about money! Uh stop smoking and save over 1500 / year

I do agree with this point

 

[chemysterygal]

I sure wish this were true. If paying an extra $9 a month towards my $2,500 a month mortgage would knock nine years off I would do it. Perhaps you would like to back that up with some math. Before anyone jumps on me for having a big mortgage, realize it is all relative. I have no other debt and it is less than 25% of my income.

I checked, and I think the amount the original post stated was per $10K of loan amount. That certainly might be a tad more than simply $9 per month for most mortgages. It does really make me consider jumping in and doing it, though - it just isn't that much money!

 

[MiniGirl]

About the 0% interest cards.... there are so many factors to consider. A big one being the card holder. My dh and I are disciplined enough to put that money away each month and then pay it off (usually a month early just to be sure), but many people are not. That's why the banks, furniture stores, etc. are so willing to make these types of "deals."

If you are disciplined enough to put the money away, then sure do that. If money burns a hole in your pocket, then you'd do better to pay it off ASAP. Since I don't know you or anyone else on these boards, I can't say what is best for you. However, by looking at the amount of these types of loans offered out there and the fact that so many people do have debt and that so many people are again almost maxed out on their cc after paying them off with a home equity loan, I think that most people do not have the kind of disciplined required to hold on to the loan until the end of the interest free period.