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April 18, 2009


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I always had the feeling that those "settle your credit card debt for less than what you owe" advertisements were scams.

Are they an actual legit business?

I hope one thing we have learned about this recession is that you can never rely on your income so emergency funds are an absolute must! And everyone should start thinking about diversifying their income, see my blog for this idea.

I kind of agree with Orman's main point, that it's time to reevaluate our money priorities during this upheaval - and for sure, it's not over yet - but if you have a credit card with 19% interest, it's still a good idea to try to get rid of it asap I think. But even I have diverted much of my investment income into savings and paying off debt as a result of the economic uncertainty - two practices we should be doing all the time anyway! I guess it's true that it's the hard times that wake people up.

I like the idea of practicing to live off of one income for two income households.

I have been trying to do this but with student loans instead of credit cards. Minimum payments to the loan and maximum payments to the emergency fund.

I disagree with Orman. We went from two incomes down to one, and we are able to pay more than the minimum on our debt. It's called being on a budget. I agree that you need to save some money as an emergency fund, but after that PAY OFF THOSE CREDIT CARDS!!! That is why Dave Ramsey's plan works. If it didn't, why is it that every Friday, many people call in saying that they are debt free, IN THE MIDDLE OF A RECESSION?

The sad fact is that if you have a load of CC debt during a recession and get laid off, then you're in deep do-do.

Your strategy should have been to live within your means and not accumulate CC debt while the 'good times' rolled on. At this stage of the economic cycle, you'd be better to focus on cutting expenses to the ABOSOLUTE minimum, so that you can pay off CC debt AND accumulate some savings, rather than just shifting from paying off CC debt to accumulating savings while keeping your expenses/living standard the same.

If Orman's strategy was sensible, then the logical conclusion would be to now put ALL your day to day expenses on your CC's until you had maxed them out, and use the surplus cash flow into an emergency fund. However, for the 90% of people who won't lose their jobs in the next year or two, having cash sitting in a savings account earning next-to-no interest, while paying off CC minimum amounts and paying 20% interest on the CC balance is a short cut to the poor-house.

Keeping an unsecured line of credit, with a variable rate on the books (i.e. credit card) is financial insanity if you have the cash to pay it off. Recession or not... don't worry about the "what ifs" of the future and pay off the known credit card debt. Probably 80% of our worries never even happen.

QUESTION: If you were debt free, would you borrow money on a credit card to have cash sitting in an "Emergency Fund" making 1-2%? No you wouldn't... unless you werebad at math or unable to think about risk.

Orman is wrong. Follow Ramsey's baby steps and enjoy true financial peace.

Debt = Risk

I tenatively agree with Suze's advice, but with a very important emphasis:

If someone does not have an emergency fund, it should always be their top priority!

However, as distasteful as it might sound, a credit card can also act as a secondary emergency fund. So, it doesn't hurt at all to pay off your card.

The very important context that I hope everyone will grasp is that, I'm not going to beat around the bush, if one does not have an emergency fund, they've not achieved even step 1 of their financial journey yet. Still, paying off a credit card that can double as a secondary emergency card can come in at a close second.

Yes, I'm splitting hairs.

Thank you for the information, take a look at it was helpful to me

Thanks again!

With so many people out of work and in trouble with credit cards.I'm shocked that more people aren't using credit counseling services. My cousin used one, and it actually really helped her.

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