Friday, May 27, 2005

Beg to Differ, Part 2

In the interest of fairness and further clarification (and also because I just think it's really interesting), I'd like to elaborate on Suze Orman's credit-card strategy previously mentioned here. The following is from her Money Book for the Young, Fabulous, and Broke, pages 81 and 82:

It is true that I have spent the past ten years telling the OF&B generation (Older, Fabulous & Broke) that running up credit card debt to finance an indulgent lifestyle is flat-out stupid. But that is not advice for the YF&B, who are just trying to make ends meet and live off their credit cards. ...

I'm changing my hawkish debt stance for you because I understand that you are Generation Broke. By that, I don't mean that you were born broke, but that what many of you had to face in the early years of adult life has made you broke. ...

My credit card strategy is solely for expenses that you need to live on — and not expenses that finance your living the high life. The only YF&Bers who should try this are those of you who are conscientiously doing everything you can to get your living costs as low as possible but are still coming up a few hundred dollars short each month. ...

Because I want this strategy to be nothing but a lifesaver, we need to laydown some basic parameters. While you are starting out in your career, I think it is perfectly reasonable to lean on your card for monthly living expenses, but you are to keep those charges to less than 1 percent of your annual gross income. For example, if you make $30,000, I don't want you to use your card for more than $300 in monthly living expenses. After two years, that would mean you have charged $7,200 on your credit cards. That's the upper limit of what I think is "safe" for you to take on, given your current earnings. My thinking is that within a few years, your career should be picking up some steam, and you can stop adding to your card debt. Ideally, at that point you would be able to start paying down the balance. ...

Ultimately, though, you need to police your own card. It is up to you to gauge whether giving yourself another six months or year to lean on your card will make a big difference in getting your career over the initial dues-paying hump. Just be careful that you don't dig yourself such a large debt hole that you will spend the rest of your life trying to climb out.

Okay, I get the picture:

Entry-Level Job + High Cost-of-Living Area = Credit Cards Are Necessity

True as that might be, I still have misgivings about the advice. Reality tells me that there may indeed be times when Suze's YF&Bers have absolutely no choice but to lean on plastic. But where is the line drawn?

"It's okay. Suze says I can use plastic until I have the perfect job lined up. Once I'm making big bucks, I can pay all this stuff off."

Seems like a pretty tenuous line of advice to balance upon, if you ask me.

— Posted by Michael @ 12:10 PM


If you ask me, it seems like Old Suze is selling out. If you are adding $300 per month to your credit card, for any amount of time, you are really screwing up your financial picture. Dot coms might have been able to live for, what seemed like many years, on someone else's money, but we as individuals don't tend to have quite the sexy presentations showing how we'll be a superstar performer later in life so that the credit wolves stay away.

Most people wouldn't go find the 0% apr cards and keep moving the money around so that means they'd be paying some interest every month. More than likely, if they are in this situation, they probably aren't going to get the most attractive rates either.

Seems to me they ought to start looking for roommates, or work some OT, or find a part time job to bridge the gap. Yeah, easy for me to say since I'm not in that situation, but I tend to believe I'd be really hardcore about paying out less than I'm bringing in, no matter what my income level was.

No one can sustain the credit "house of" cards for too long.

Anonymous Anonymous
, at 1:57 PM, May 27, 2005  

If it weren't so easy to get money, we'd be more creative in finding solutions to problems like Suze presents. The problem is that their is easy money, which totally cripples the consumer's ability to think outside of the box, consider other saving-money or earning-money options, and they run to their credit card to rescue them.


Are the Credit Crad issuing companies doing charity work and doing to run out of business? 80% card holder spend beyond their estimated limit if they were not holding any card.Itjust lures you to spend more.And there the companies who issue cards cash on.May be mebership,add on etc are free of charge.Introspect on service charge straight.2 to 3% but they never advertise it 'per month' basis which comes out to 24 to 30% per annum forget the delay charges and other hidden costs.The ME does it on charity by charging less and not charging the establishment cost ?Though they get their money back immediately from bank does the bank has no operating cost ?If any thing is to only do a good job then the bank has to shut down.How much profit any bank in Asia Pacific,also in West inclusive of GB and US,has earened out of profit card(retail)business?Strictly writing,I am not against plastic money,but I am against foul play.I have instances of my own and I can show the proof as well.What the collecting agent do,is it also a free service?Bye the way,what is the interest one earns on savings.Is it 20 to 36%PA range,is it?




Suze should filter her advice through the new bankruptcy regs. It's not so easy to bail out on bad decisions anymore.

If you're making too little in a place that costs too much, you need to move. There's nothing that says you HAVE TO live where you live. No one likes uprooting, but it's a better alternative than $3,600 a year in new credit card debt while waiting for a raise.

Of course, if your argument is that you can't earn more than you spend no matter where you live, then you have a whole different set of problems than just being too young to make big bucks.

Remember, kids: You're parents weren't living the way they do now when the graduated college. There is no reason to expect to maintain your living-with-the-parents lifestyle after graduation. You'll have to re-define the term "necessity" just like the rest of us.


There is no excuse for maxing out credit cards like the average American does. Not even starting the career.

My sister-in-law earns $24,000 in the Boston Area - a low salary for the area. Still, she manages to save $150 / month in an IRA, $150 / month in a house buying fund, and pays off the credit card balance every month (does not carry debt). She has her own mini-studio. She doesn't have a car, as the Boston Area has public transportation. She does pays half of the cost of every date she has with her boyfriend. She is a good example that you do not need to max out your credit cards.

She does have a credit card with a $200 credit limit that she has always paid off entireley every month. She has been working for 6 months.

Money and Investing

** Comments Closed on this Post **

Thoughts on my personal finances, goals, experiences, motivations, and accomplishments (or lack thereof).

My financial life began turning around when I took responsibility for it.
— Dave Ramsey


Start (2005-12): ~$21,900
Currently: $0
[About Our Debt Paydown]


Savings Goal: $15,000
Currently: ~$15,115
[About Our Liquid Savings Goal]