Even if you have a lot of credit card debt. Yes, the Guru of "Pay Off Dem Credit Cards!" has done a volte face:
http://www.usnews.com/articles/business/your-money/2009/04/03/suze-orman-and-the-new-rules-of-credit-card-debt.htmlAs she said recently on Oprah Winfrey's talk show:
"If you have an unpaid credit card balance not much saved up in emergency savings, I need you to listen up. My advice has changed. I want you to only pay the minimum due on your credit card balance, and instead, make it your top priority to build as much of an emergency cash fund as you can."
..."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 in paying your bills on time,"
She continues by mentioning what most of us already know: The creditors are busy covering their butts by reducing credit lines and/or "rate-jacking" and/or revoking them no matter the credit history of the account holder with them or their credit score. Therefore, one cannot rely on having lines of credit to serve as a "safety net"; it's far more important to cover one's own financial butt--as long as those minimum payments are made on time--than to become debt free.
The reasoning is sound: This recession is far from over and nobody's income--or job--is safe and one must eat. However, some questions that can be raised:
1.)
Where in the heck did she come up with the "eight-months' worth of living expenses in savings" as the goal? During a long recession, people can be out of work a lot longer than that.
Even if such savings were not to be touched until unemployment compensation payments ran out (highly unlikely), eight months' worth of "fallback" may be far from enough. Eight months' worth of living expenses in savings would be more appropriate as a form of "disability" insurance to cover a lengthy but shirt-term illness or recovery from an accident--or living expenses in case of disaster--than replacement for a steady income.
2.)
Why was this point the last one in the article (and down the list)?
Don’t forget about your other bills. Meanwhile, take care to make your other payments—mortgage, auto, etc.—on time each month; failing to do so can lower your credit score.
THAT point should be #1: Pay essentials first (even before the "emergency fund" if one has already fallen behind on those bills).
3.)
Why the focus on credit scores? In the current market, credit scores are becoming more and more irrelevant unless the consideration is employability, not a small one these days. The control the consumer has over the credit score, in contrast, IS smaller and smaller, no matter if they do everything "right" or not.
4.)
The extra savings in an "emergency fund" can actually make the consumer a bigger target, especially if they fall behind: Savings of this sort are 100% vunerable to seizure in judgment. If there is much of a chance that one could end up sued for any debt, having a lot in a bank account (the usual source of easily liquid funds) may well be the wrong move.
5.)
And where is even a slight mention of cutting expenses? If one reads the article, there is not a mention of selling expensive-to-own items or selling one's home if necessary while the savings are being put in place.
Not only would "downsizing" one's lifestyle lower the amount of emergency savings needed, but the proceeds might well actually help one pay off the credit card debt and other "non-essential" debt. If this includes selling a home? This can actually also help in the job search if one is currently "tied" to where one is because they own real estate. The reason is if one's a renter, it's easier to pull up stakes and move to another location where jobs may well be more plentiful (trying to sell a home in a hurry does not work when nobody can afford to buy).
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Palmer, Kimberly, "Suze Orman and the New Rules of Credit Card Debt
Getting out of debt isn't always the most important thing", U.S. News and World Report, posted April 3, 2009. Downloaded April 4, 2009 from http://www.usnews.com/articles/business/your-money/2009/04/03/suze-orman-and-the-new-rules-of-credit-card-debt.html
