Suze’s Surprising Credit Card Controversy

Normally, I have the criticizing personal financial gurus business all to myself.  I like to think this is because I am the only one who sees the faults in their advice, or alternatively, that I am the only one bold enough to say the emperor has no clothes on.  But it is also possible I am the only one who takes them seriously enough to bother writing about what they say.C Cards 2 (Andres Rueda)

This is not the case with Suze Orman’s recent advice on credit cards and emergency funds. It took a while, but quite a few people thought it was important enough to comment on critically.  Welcome to my world.

It started with Orman’s March 1 Suze Scoop.  There’s been some disagreement as to what exactly she told her readers to do, so if you are as obsessed about this stuff as I am, click on that link and come back when you are done.  In the event that you have more balance in your life, I’ll quote the first two paragraphs.

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.

Reduced to essentials, her reasoning is as follows. 1) Things are bad, so even more than before, you need an emergency fund you can live off of for eight months. 2) Things are so bad that your credit card company may cancel your account at any time.  3) Even though in the good old days you could rely on tapping your credit cards if your emergency fund ran out, today things are so bad you should run up the balances while you still can to build the emergency fund.

It took a while for the buzz about this new bit of wisdom from Suze to build.  There was this column by Brett Arends on March 11, in which he independently came up with the same advice and argument as Orman did ten days before. The Consumerist carried a post about Orman’s advice on March 18.

Then after Orman repeated her advice (surprisingly verbatim) on Oprah, it was reported here, here, and here.  “Reported” being the right word.  There was relatively little critical evaluation of what Orman was saying, although The Simple Dollar weighed in against Orman on April 7.

The drought of discussion ended on April 22 when Liz Pullman Weston, “the Web’s most-read personal-finance writer” picked up on Orman’s by then eight-week-old advice.  No doubt in a nod to a certain innovative new blog, she titled her post “Bad Advice from Suze Orman”. Weston is not a fan of Orman’s.  In the post she included a link to what else Suze Orman gets wrong and refers to her as an “influential media personality”.

Weston argues that Orman’s advice is lousy for most people.  Running up your credit card balances is not a great way to weather an economic storm.  Your credit rating will deteriorate and you will make it more likely that the credit card company will raise your rate or cut you off.  And, of course, you will pay an extra wheelbarrow of interest along the way.

Weston does concede that in some cases, if you are unemployed or on the brink of bankruptcy, then Orman’s advice could make sense, but she makes a strong case that this is a bad idea for the vast majority.

With Weston’s piece, the controversy began.  Marcus at CreditMattersBlog wrote about Arend’s version of the bad advice the next day with a link to Weston’s post.  And then last week Orman herself responded with another Suze Scoop “Emergency Planning Remains Job #1” in which she reiterated her stance even though “Not everyone agrees with my advice.”

Almost immediately, responses and comments on Orman’s latest appeared in the blogosphere.  CreditMattersBlog was up within hours, pointing out how little sense Orman’s assumptions about her readers made.  All Financial Matters came out that same day with a post on the controversy, diplomatically arguing that perhaps a person could just split the difference, using half their free cash to pay down cards and saving the other half.

And yesterday Mighty Bargain Hunter posted a defense of Orman in “A bolstered emergency fund isn’t a bad idea”. I don’t agree, but a tip of the hat to MBH for having the nerve to take an unequivocal stand.

As for me, I don’t have much to add to Weston’s comments. Orman is advocating a very expensive insurance policy that only makes sense for a few people.  The chances of losing a job and access to credit is never zero, and is significant for many, but under Orman’s scheme you will spend a lot of money in additional interest and damage your FICO score with certainty.

What interests me more is the widespread lack of interest in actually engaging in a discussion of Orman’s advice.  Pre-Weston, what little notice of what Orman had said was largely in the form of just passing it along, with no more commentary than would be expected if a fashion diva had said that purple was going to be big this spring.

It is my conviction that this personal finance thing is an important topic, both to individuals and to the economy as a whole.  Suze Orman and her fellow gurus provide a substantial portion of what little instruction most Americans get on how to deal with their money.  Am I the only one who thinks that seriously considering the merits of what they say is worth the effort?

[Photo: Andres Rueda]


  • By Jim Blankenship, CFP®, EA, May 4, 2009 @ 11:54 am

    Frank, I think you’re right on top of it, and no, you’re not the only one who thinks the merit of the recommendation is important. For me, it’s difficult to keep up with all the missives put forth by the “gurus” – or even what’s written about the gurus by the guru watchers. So we have you, the watcher of gurus and watcher of guru watchers, to speak up when it gets too silly to bear.

    Thanks, Frank.


  • By Emily, May 4, 2009 @ 12:03 pm

    I don’t see how paying the minimum balances on time each month could damage or worsen your credit. Obviously it won’t improve your credit, like paying more than the minimums would reduce your utilization.

    But wouldn’t paying just the minimums keep your FICO score the same as it has been? No better, no worse?

  • By Mr. ToughMoneyLove, May 4, 2009 @ 12:58 pm

    I am in the camp that believes that no one takes Suze Orman’s advice seriously. Most people who watch Oprah or buy Orman’s books don’t do much more than watch and read. Actually following financial advice – good or bad – is much too stressful for your average U.S. consumer. Those who actually seek out and follow good financial advice are not watching Oprah or reading Orman. Bottom line – it’s much ado about nothing.

  • By ObliviousInvestor, May 4, 2009 @ 1:46 pm

    I think it’s certainly worth discussing. The mainstream gurus have the ears of millions of investors–when they spread nonsense like this, somebody needs to be there to point out how unwise it is.

  • By BIGSeth, May 4, 2009 @ 3:06 pm

    Love the blog. Nice to see someone looking below the surface of so much of the ‘advice’ put out there. However, in this case I think Suzy might be right but it probably depends on the numbers. If you have 20k in cc debt and 10 bucks to your name it probably makes sense to build up the cash. If you still have a job and owe $250 to discover then pay it off. I don’t see your FICO moving much either way as long as you make the min payments. If by chance it pushes up your used credit close to your available then maybe – but you planning on buying a house in your position? So, overall, I guess I’m saying – as always- it depends. But I give Suzy credit for switching up her advice based on current conditions.

  • By Cynner, May 4, 2009 @ 4:19 pm

    I think it’s good to read and listen then use some common sense to decide what best fits your own situation. There is a psychological factor to be considered in any financial decision. In this case, you have to ask yourself just how comfortable are you living without a cushion of savings.

  • By Brad, May 4, 2009 @ 4:29 pm

    I agree that suze is an “influential media personality”, which is quite unfortunate. First of all, I could care less about my FICO score (contraversial, I understand), so just paying the minimum doesn’t seem like such a bad idea and neither does pumping up your emergency fund. It’s the using your credit cards to build an emergency fund that bothers me so much. In my opinion Americans need to stop borrowing money…period.

    I enjoy reading your blogs very much!

  • By Rob Bennett, May 4, 2009 @ 4:34 pm

    I think that the root problem is that the world has been taken over by marketing.

    People don’t offer the financial advice that they think will help us with our finances. They offer the financial advice that they think we want to hear. That works better from a marketing point of view.

    I’ve got nothing against marketing. But I believe that the marketing focus is now out of control.


  • By Frank Curmudgeon, May 4, 2009 @ 5:15 pm

    Emily: I guess there is an implicit assumption that you will keep using the credit cards to buy stuff and allow the balances to rise, thus increasing your utilization and decreasing your score. Weston also argues that just paying the minimums would increase the chances that the credit card company would lower your limits or even close your account, both of which would be bad for utilization and FICO.

  • By Mike V, May 4, 2009 @ 6:32 pm

    I took Suze Orman’s advice a little different than many people seem to have done. In these “Hard Times”, people have been cutting back on their spending thus having the choice of paying down a credit card or building an Emergency Fund. The normal advice would be to use extra money to pay down the cards, but Ms. Orman is making the point that the priority of building an Emergency fund is higher given the increased possibility of a reduced credit line or reduced income.

    Ms. Orman is careful to talk about money that was being used to pay down a credit card.

  • By IndependentOperator, May 5, 2009 @ 12:33 am

    Sir, you’re definitely not the only one. The personal finance blogosphere is an echo chamber of crap that rivals only the entrepreneurship-specific blogosphere. I do not want to pimp my own blog here, but my very first post lamented the over-hyped and “just do it!” Nike-commercial nature of blogs trying to “motivate” individuals into taking the life-changing risk of business ownership without any rational thought or cost-benefit analysis. There seems to be a general lacking of rational thought in all of the personal finance world, with the exception of getrichslowly and this blog.

    Your point about the seriousness of this is well-taken. If the mindless echo chamber was in the “what fast food is best!!!” blogosphere, then BFG. But this is the savings and quantification of people’s life work we’re messing with, here. Amateurs trying to make a quick google adsense buck by repeating crap without thinking about it — or telling people to blindly open a business — need to realize that they’re messing with people’s lives here.

  • By Jennifer, May 5, 2009 @ 9:55 am

    Frank, I have to disagree with your implicit assumption. Orman’s consistently militant against the use of credit cards to “buy stuff” and I don’t see any indication in either of her Scoops that her position in that respect has changed. In the more recent of the two articles, she says:

    “So how do you pull this off? I am not going to tell you to cut back your spending. Please. I am not going to insult you; I know you have already done that. … And I know you are not making matters worse by running up more credit card debt.”

    Remove the assumption that her readers are foolishly continuing to add to their debt — an assumption that I think has been unfairly and inaccurately attributed to her — and her advice makes more sense for a broader range of people. Not everyone, as other comments point out, but potentially for people who don’t use credit cards for new purchases and who think their employment situation is potentially precarious. If you have no cash, and your credit’s been yanked by the companies (which, as has been pointed out by many commentators, is even happening to the best credit customers), what’s the plan for survival until you land another job? Keep in mind that if the cashless, jobless person is somehow able to take on new debt to get through that crunch, his/her scores are going to take a hit anyway.

  • By Frank Curmudgeon, May 5, 2009 @ 7:27 pm

    Jennifer: You make a good point, Orman does indeed say at the end of her second post that she assumes the reader is “not making matters worse.” But she also refers to the fact that her advice may harm your FICO score, meaning that I’m not sure that she really means to assume that her readers will not increase their indebtedness somehow.

  • By Roger, May 6, 2009 @ 1:22 pm

    Frank, I don’t think that people believe that it’s not worth discussing the merits of what gurus say. It’s just that most gurus say much the same thing most of the time, so catching the 5% or so of advice they share that is actually new, controversial, and potentially wrong requires carefully combing through the 95% of their advice that’s practically universal (index funds are good, credit card debt is bad, etc.). The few gurus who are consistently controversial and go against the common grain of pf advice (like Robert Kiyosaki, for example) usually get written off as kooks by everyone but their followers.

    In this particular case, I think it’s more likely that this advice simply slipped under most people’s radars; I didn’t hear about it until Ms. Weston’s column, myself.

  • By Jerry, May 8, 2009 @ 12:55 pm

    3) … you should run up the balances while you still can to build the emergency fund.

    I think this is a misrepresenation. Choosing to put extra cash into a emergency fund before paying more than the minimum CC payment has nothing to do with “run up the balances.”

  • By anne, May 19, 2010 @ 12:42 am

    I am real encouraged with the mentation and don’t search like adding anything in it
    Credit Cards

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