People first, then money, then things.  


                                   CNBC


She's everywhere!  Men hate her.  Women love her.  But personality quirks aside, Suze Orman actually gives good advice.  I read her 2009 Action Plan and it contained great tips-- so much so that it's on my list of recommended books for my clients. 

However, in the spirit of Anderson Cooper's "Keeping 'Em Honest", I have respectfully decided to correct Suze when she makes a mistake.  She's human (I think).  But if she says something that's incorrect, her millions of loyal followers will take it as gospel.

On last night's show, Suze told a caller that she couldn't close an account with a balance. The caller was going through a divorce and struggling with the decision to close her joint accounts, knowing that this may hurt her credit score.  Suze was right-on in telling her that even if she trusted her ex, the cards needed to be shut down even if it did ding her score-- because she can't take the risk that ex charges them up later on and puts her in financial risk since both are jointly liable on the account.  She also stressed that the account needs to be paid off.

But then Suze curiously added that one cannot close an account with a balance. 

Not true. 

You absolutely can close an account with a balance to ensure further purchases are not made.  Yes, you still have the pay down the remaining balance.  And in the case of a joint account, you still have to monitor things to ensure the other person pays on time until you're able to payoff the account completely.  But closing can and should be done in this case.

Next, there was a caller with overwhelming debt.  We only acquired a few tidbits: the amount of debt (46K), her monthly take home income ($ 4,100), the fact that the accounts were current and that the interest rates averaged 16%.  Central in this was that the caller had a shopping problem which stemmed from filling the void caused when she was widowed 2 years ago at the young age of 41.

Now, I know Suze only has a few minutes for each call.  There's a reason why it took me 30 - 60 minutes to size up the situation... which is why Suze should give a wide range of advice, including seeking out a qualified financial counselor such as myself-- something Suze does all the time in her books.  Each week, at least one of my clients finds out about us through Suze Orman.  But perhaps that makes for boring TV.

Suze first suggested the caller try to negotiate lower rates with her creditors.  OK, a good start.  But from my experience, creditors are more apt to work with you if you emphasize that you need a lower PAYMENT, not a lower APR.  In the end, if they agree to lower your payment, they'll also lower your APR.  But it's all depends on how you ask.  Ask for lower interest and lost dollar signs flash in their head (or at least in the scripts they're trained to recite).  Ask for lower payments and suddenly they're afraid you'll default. 

Doubtful that the caller would have success, Suze basically instructed that she may have no choice but to stop paying everyone altogether for 6 months to get better leverage.  What?!  Yes, if you fall behind on your credit cards, you will have a better shot at negotiating a payment plan or settlement-- but really, a settlement in this case is useless since this woman clearly did not have the lump sum of cash that would be required in a settlement.
 
Suze left out 2 key points.  If the caller couldn't get her rates down, it's entirely possible to pay down 41K of debt at 16% APR if you have a sound budget, are disciplined and keep from using the cards.  $1000 a month would get the job done in a reasonable 5 years.  Now, the caller may not be in an emotional state to do this on her own.  But through the help of a Debt Management Program through a reputable credit counseling agency (like the one I work for) she might be able to pay $900 a month (including an agency fee of $25 to $50 a month) and pay down her cards in the same 5 years at 6% to 10% APR without ever falling behind and subjecting herself to harassing phone calls.  No one could determine if paying $1000 on her own or $900 through a CCCS program is realistic in such a short call, but those options need to be mentioned.

Instead, Suze used this as an excuse to scream at credit card companies.  She insinuated that they were forcing the poor caller to stop paying her bills when they should be willing to work with her BEFORE she falls behind.  And Suze is right-- most credit card companies are inflexible and rip people off at every opportunity.  But this was not the correct segway to jump onto her soapbox. 

Suze, give the full picture when giving advice to all your viewers.  Don't just suit your advice to prove a point-- not even when the point itself is right!  In the end, this will help viewers more and make a better case when scolding a credit card company.

-- Chris Dlugozima, CCCC

Please submit questions to financialloft@deborahsteinberg.com.