Money Sense Tips

Here is another great strategy from Suze Orman. I found it extremely useful during this period. Please read it.

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, even if it means curtailing your credit card repayment strategy.

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 about paying your bills on time. The problem is that most credit card companies are either reducing your credit limits, 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. You did everything right, and yet still you could have your credit limit reduced, which can have a negative impact on your credit score.

So here is the problem. If you do not have a stash of cash in an emergency fund 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, or too little credit, to use in the event you are laid off. Nor will you be able to get a new card if you are unemployed.

That’s why I am telling you to pay just the minimum required on your card each month and then use every extra penny you have to build up your emergency savings fund. You want to have a fund that can cover your living expenses for up to eight months.

If you revert to paying just the minimum on your credit card there’s a chance it may indeed hurt your credit score. But as I just explained, even if you do pay it down there’s a chance your credit score will be hurt if the credit limit is reduced.

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 be able to have money to cover your basic necessities if you lose your job.

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.

Suze Orman's 2009 Action Plan

If you are interested to learn how to survive better in the year 2009, you must get this Suze Orman’s 2009 Action Plan Book.

If you are concerned about your current debt, here are five ways to help you deal with the situation:

1.  Debt Consolidation. When you receive a credit card offer in the mail stating that you can pay off other credit cards by applying for the card with a 0% APR – read the fine print.  The 0% APR is applicable for a short time only.  Unless you can pay off the new card within the time frame given, you are just creating additional debt.

2.  One Card Only.  If you have more than one credit card, save one for emergencies only and cut up the rest.  If you cannot afford to buy an item with cash, don’t buy it at all.

3.  Pay Down Debt.  The next few years are going to be difficult during this recession.   Start paying off credit cards using the Snowball Method.  Make a list of the credit cards, with the highest interest rate card at the top of the list.  Instead of paying the minimum for the card on top of the list, add additional money to the payment.  Once the first card is paid off, use this same method with the second, and so on.

===> Free Powerful Debt Reduction Strategies Guide

4.  Credit Card Checks.  Every month you may receive credit card checks, one of which is probably made out to you for the amount of $1000 or more.  The rest of the checks can be used for purchases or transfers.  Rip them up!  It is very tempting to deposit the check and use the rest to make purchases.

5.  Department Store Credit Cards. No doubt you have been asked by the cashier at a department store if you wish to apply for instant credit in order to obtain a discount on your purchases.  Do not apply.  Department store credit cards have the highest interest rate among all credit cards.

We are a nation in debt – over a trillion dollars’ worth.  Since we do not know how long this recession will last nor how it will affect our income and retirement savings, it would be prudent to resist any temptations that may come your way inviting you to spend more than you can afford.