Suze Orman

2009 Online Updates
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March 1, 2009

New Credit Card Strategy

If you have an unpaid credit card balance and 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.

Let me tell you why I am now telling you to do this. With rising unemployment, having a big emergency cash fund is vital. 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. The problem is that most credit card companies are either reducing your credit limits, revoking your credit cards all together, raising your interest rates and are even paying you to close down your account.

Many of you are even finding that when you do finally pay off your credit card debt that the issuing credit card company of that card is closing that card down as fast as they can so you cannot ever charge on it again.

So here is the problem. If you do not have a stash of cash and you have been using all your extra money to pay down your credit card debt and they keep closing your cards down- what are you going to live on if you lose your job? Chances are you may not have any available credit limit to use to rely on since the cards are reducing those limits, you will not be able to get a new card since you are now not employed. So to help you in the event you lose your job my advice is to pay just the minimum required on your credit cards every month, and then use every extra penny you have to build your emergency savings fund.

Action Step: If you do not have an emergency savings account that can cover up to at least eight months of living expenses, you need to get very serious about funding that account ASAP.

To come up with the money for your savings fund, I want you to just pay the minimum on your credit cards, nothing more. Will that hurt your FICO score? Well only if the credit card companies lower your credit limit or close down you cards all together. If they do not close you down and you are not charging any new items on them and you keep paying the minimum due on time you should be okay. But as I explain in the March 1 Suze Scoop, there is a chance that even if you do the right thing your FICO score could be hurt.

I want to be very clear: I still believe getting out of credit card debt and making sure your FICO score is as high as possible is incredibly important. For those of you with a fully-funded emergency account please make it a priority to pay off any credit card balances as soon as possible. My new advice is solely for those of you who do not have an emergency savings account, or too small of an account. The single most important Action to take in this severe recession is to build savings so you and your family will have money to cover your basic necessities if you no longer have an income coming in. As you have heard me say before: Hope for the best, Prepare for the Worst. And right now we all need to be redoubling our preparation efforts.

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