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]

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