Suze Orman is a genius when it comes to writing great credit card tips. This article will show you how to get out of credit card debt, once and for all.
Table of Contents: Guide to Suze Orman’s Credit Card Management
- Suze Orman is an American author, financial adviser, motivational speaker
- Suze has a B.A. in social work
- Host of the TV Show “The Suze Show”
Suze Orman offers a lot of great credit card tips for gaining back control over your credit card situation. She gives an example of paying a 2% monthly minimum payment for a balance of $8000 with an 18% interest rate. With this minimum payment it will take fifty-four years to pay off the balance and will cost more than $22,000 in interest charges. An $8000 balance is not unusual for people earning between $75,000 and $100,000 per year, and a $4000 balance is a general average. These numbers are crazy, and totally not necessary.
She agrees that it will not be easy to get out of the credit card mess you have created but advocates that it is simply a matter of choice. Qualified credit counseling services are available for people that cannot assume their credit responsibility on their own, yet need to have a strategy to get out of their bad credit card situations.
You need to be ready for a change if you are one of the many that is broke because you just enjoy spending money on credit. Suze Orman realises that most people that are ready to confront reading about this credit card mess they are in are ready to face those changes.
Some people really do use their credit card to help pay bills and buy necessities. It can be quite difficult to draw the line between necessities and indulgences. Suze makes a great example of this by showing the difference between a necessity, i.e. buying groceries, vs a luxury i.e. going out for supper at a high-class restaurant and buying dinner for you and your friends. A luxury such as this will become part of your unpaid balance on your credit card.
The same strategies will be used to get you out of debt whether you are in this situation due to necessity or indulgences. The idea is to get a strategy in place that gets you paying the lowest interest rate possible, as quickly as possible, without falling into all of the credit card traps the companies have in fine print.Back to top
Lower the interest rate
Suze Orman recommends first getting your interest rate as low as you can. Interest rates vary from card to card, anywhere from 15% to 20% or higher, and the first thing you need to do is get that rate as low as you possibly can.
If you have a good credit history and have been making the minimum payment on your card on time every month, you may be able to negotiate a lower rate with your credit card company. You can let them know that you will have to do a balance transfer if your rate is not lowered. Your credit card issuer may give you a better deal because they do not want to lose your business.
If negotiating a deal doesn’t work then you should start looking for a new credit card with a good offer. Unless you are totally certain that you can pay off a balance transfer in the amount of time given in the introductory rate, you need to make sure that the interest rate on the new card does not go up to a higher rate of 20% or more. It will depend on how long the introductory rate is valid, and if it is only six months to a year you may not be able to pay off your debt within that amount of time, especially if you have a poor track record with credit cards.
Suze Orman advises to move all of your balance over to the 0% or low interest rate card, but she also says to not make any new purchases on the new card. These deals come with provisions that state that any new purchases will be charged a high interest rate, and that until you have paid off the balance of your 0% or low interest rate transfer balance your payments will not go towards your purchases. This will completely cancel out any benefits of switching cards, so you must use this new card to pay off your transfer balance, and must not use it for shopping.
If you have a good credit card history and have been making at least the minimum payments per month, then you should not cancel your old cards. They hold a history of your payments that influence your credit rating. All you really need to do is cut them up so that you cannot use them, without canceling your cards completely.
Be sure to make payments
Suze Orman brings up a very interesting point about credit card companies. What are they getting out of this
deal? They are losing a lot of money by handing out a 0% interest rate, and they only offer it to get people to start using their card. They want you to make a mistake using the card, so treat your card well so that they have no excuse to stop the 0% interest rate and start charging you a 20% or higher rate of interest.
What these credit card companies do, is put a fine print statement in their terms of conditions that says that any time you make a late payment your 0% deal is terminated. Even if you are making regular payments on your new 0% interest rate card, they will be watching your credit reports to see if you have been late with payments on any of your other cards, not just theirs. This can cancel out the zero deal in some cases as well.
More credit card tips from Suze Orman – always pay your credit card bills before the due date, and if you are mailing in the payment, put it in the post 5 days before it is due. It is much easier, however, to start paying your debt online. Only the minimum payment needs to be paid monthly, so it’s not really too much of a problem.
If you do not qualify for a 0% deal Suze Orman says…
Not everyone will qualify for a 0% balance transfer card, so now is the time to work on changing your credit profile so that you can qualify later. You will need to raise your credit rating. You can do this by paying at least the minimum on your monthly payment every month on time. After you have done this for a while your score will start to rise.
It will also depend on your debt to available credit ratio. Your score will be lower if your ratio is higher. Suze Orman uses the example of a $5000 balance on three different cards, each card having a credit limit of $15,000 combined. In this case you will have a debt to credit limit of 33%. Simply by bringing your balance down $1000 to $4000, you will have a ratio of 26.7%. As this ratio declines your credit score will go up. If you do not see it rising you can call up your credit card company and asked them to boost your credit limit. By raising this limit your ratio is going to fall because your balances stayed the same. This is taking a chance for anyone that has a spending problem with credit cards, and only recommended if you are 100% sure that you can control your spending.
Suze Orman is aware that not everybody can get a 0% balance transfer and advises that you do the following things if you are one of them.The trick is to list your credit cards in order of high interest rate first and low interest rate last. Ignore the balances on all of the cards while you are doing this. Once you have taken stock of all these cards make sure you make all of your minimum monthly payments on time, but add a little extra to the payment for the card with the highest interest rate.
She says you should strive for at least twenty dollars extra per month, but the more the better. You can save thousands of dollars in interest charges by pushing hard and making your extra payments as big as you can. Continue on this way until the first card, the one with the highest interest rate, is totally paid off. Then start doing the same with the second card online. Any extra payments that you were able to pay on the first card should be applied to the second one now.
For example, if you are paying seventy-five dollars per month on the second card, and $200 a month on the first one then you should start paying $275 a month now to the second card. Remember to continue making any minimum payments to all the cards. Continue on in this way with the third card once the second one has been paid off in full. It will take a different amount of time for everybody to get caught up, depending on how many cards you have and your balance. Some will be able to pay it off within a year, while others will take years to become debt – free. Even with a long time frame involved you will feel better because you are in control, instead of the credit cards controlling you.
Always keep track of your credit rating until you find that you are able to qualify for a 0% or low rate balance transfer. This is one of the credit card tips you must keep in mind and not forget.Back to top
Pay off your credit card wisely
Suze Orman cautions people against getting a home equity line of credit to pay off their credit cards. A credit card debt is unsecured, so if you cannot repay the debt for any reason they cannot come after your assets to repay the money. A home equity line of credit is secured, so if you miss your payments your bank can use your collateral, which is your home, as a payment. You can be forced to sell your home in order to pay off the balance. Sometimes circumstances in life come up such as illness or job loss, and by getting a home equity line of credit you are putting your home on the line. This line of credit is not fixed either, it is adjustable. Any time interest rates go up, as they are presently, you will have to pay higher rates. It is just another risk to face. You should never offer your home as collateral to get out of a credit card situation.
You should never borrow money using any of your retirement income savings either. Some of these loans will be subject to double taxing once you have reached the age of retirement, and have different requirements that must be fulfilled where you could possibly lose all of your savings. You may also have penalties and fees to pay as well.
With the amount of debt problems on the rise it is not surprising that some credit counseling companies are taking advantage of the situation by charging extremely high rates for advice. Be careful when choosing a credit counseling company, and make sure that they are fair and honest. You can ask for references if you need any help picking one out.
Once you have found one you trust, schedule an appointment to talk to one of the counselors in person. If you are told that you need a debt management plan as soon as you arrive, that is your cue to leave as fast as possible because they do not have your interest in mind, and are just looking for a quick fee.
A good credit counselor will go over your entire financial situation before anything is proposed. You will be required to go to some education classes to get help with money management techniques and to learn better spending habits. By no means is this meant as any type of punishment.
Suze Orman goes on to say that a debt management plan may be the right thing if you have stopped making any payments because it is all too overwhelming. A payment schedule will be set up with the credit card companies that is mutually agreed on by both of you. You send your payments to the credit counseling agency which then forwards the payments on to the card issuers.
You may not be able to qualify for this plan if your counselor doesn’t think that your credit card debt can be handled within a few years time. You will have to pay a fee to the agency for being the middleman, and the monthly fee should be less than twenty dollars per month. The fee of start-up should be about twenty-five dollars. If you see that the fees you are being offered are out of this price range then you should schedule another interview with a different company.
Also make sure that you only have to pay one fee monthly, and not one for each separate credit card. Understand all of the terms of repayment and get everything explained in writing before you go ahead and sign anything at all.Back to top