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.

Suze Orman

With the stock markets in a downswing and the weak economy threatening your home value and job security, one way to keep money in your wallet—and your investment accounts—is to limit the (sometimes hidden) fees:

Retirement savings: Do you know how much it costs you to invest in the funds in your 401(k)? The difference between paying high and low fees can add up to tens of thousands of dollars. Call your plan provider to make sure your funds don’t charge sales commissions (called a “front-end load” or “deferred-sales charge”) and that the annual expense ratio is no higher than 1 percent. If your plan doesn’t offer lowcost options, you and your colleagues should make a ruckus—the law is clear that 401(k)s must be operated for the employee’s benefit, and high-cost funds are of no help to you. The same goes for your Roth IRA—no-load funds and low-expense ratios are the surest way to boost your bottom line. Fidelity, T. Rowe Price, and Vanguard all offer many low-cost funds.

Credit card: If your monthly payment isn’t on time, you’ll be slapped with a late fee as high as $39. Do that three times a year, and you’ve donated nearly $120 to the credit card company. Late payments also hurt your FICO score. And never, ever take out a cash advance on your credit card. The cost is often 3 percent of the amount borrowed, and the interest rate can be higher than 20 percent.

Bank account: It’s easy to be hit with fees of $3 or more when you use an ATM—a charge from your own bank plus the one from which you withdraw cash. Do that twice a month, and you’re spending at least $72 a year.

Recurring payments: Some bills, such as your insurance premium, allow you to choose between making one big annual payment and a series of installments. If you can afford the one-time deal, you’ll avoid the $5 or so service charge levied when you pay quarterly or monthly—that’s $20 to $60 a year. It’s easy to save $200 annually by eliminating these types of fees. Invest that $200 a year for 20 years, earn an annualized 8 percent gain, and you’ve got nearly $10,000. It pays to be a fee fiend.

Suze Orman has always been my favourite financial expert. Just the end of year 2008, she came out with a new book called
Suze Orman’s 2009 Action Plan This book received great reviews from my customers. Read it today!