Will Suze Orman's 'Foolproof' Credit Card Payoff Approach Work for You?
- Suze Orman has advised that paying off credit card debt can improve your financial situation.
- She suggests a "foolproof" method of dealing with credit card debt.
- She believes using a balance transfer can help, but this may not be the right choice for everyone.
While her approach may be smart, it can also backfire.
Repaying credit card debt can undoubtedly improve your financial situation. Credit cards tend to have high interest rates so they are an expensive kind of debt. Their high financing charges combined with low requirements regarding minimum payments can mean many people end up in credit card debt for decades.
That's why it makes sense that finance expert Suze Orman suggests prioritizing credit card debt repayment as a financial goal. "Make this the year you tackle that credit card debt once and for all," Orman suggested in a blog post on Oprah.com. Doing so will make you and your family stronger and happier -- forever.
But while most people know they'd be better off if they were free of their credit card debt, it can be hard to figure out how to actually make that happen. Orman has an answer for that too. In fact, she suggests a "foolproof credit card strategy," but is it one that could actually work for you?
Orman's strategy for paying off credit card debt for good
Orman's guaranteed method for debt repayment involves taking a few simple steps. She suggests:
- Trying to qualify for a balance transfer credit card that offers a 0% introductory interest rate for a period of time
- Avoiding charging anything new on the card
- Paying off the balance as soon as possible
If this isn't possible, then she believes the best approach is to pay as much as you can to the card with the highest interest rate until that balance is paid in full. Then, redirect all of your extra money to the card with the next highest rate, and keep going with this process until all debt is paid down.
Should you adopt this strategy?
Orman's strategy can make sense in some circumstances, but it's far from foolproof. In fact, problems could arise that potentially lead to failure.
First and foremost, getting a balance transfer is generally going to save you money only if you're likely to pay off your balance in full by the time the intro rate expires. If you can't do that, you'll get hit with a balance transfer fee -- which is usually around 3% to 4% -- and you could get stuck with a high remaining balance by the time the introductory rate ends. This could make repaying your debt even more expensive, especially if you still end up owing a lot when the 0% rate expires, and if the balance transfer card has an even higher rate than your old card debt.
Getting a balance transfer is also risky if you haven't demonstrated an ability to live within your means. The transfer will free up credit on the cards you transfer the balance off of, so you may end up charging those cards up again and owing even more if you aren't confident you have control over your spending.
Orman’s approach is mathematically sound
Orman's approach toward debt payoff -- which involves paying off the highest interest debt first -- is also mathematically sound. But, some other finance experts, such as Dave Ramsey, suggest you're better off focusing on repaying debt with low balances first even if they have a lower interest rate. Ramsey believes you're more likely to stay motivated if you do this because you score quick wins. Whether you can stay motivated without this extra psychological boost is something you should think about.
Ultimately, Orman's advice can make a lot of sense if you are committed to paying off debt, can qualify for a 0% APR balance transfer card, and are sure you won't charge up your old cards again. But the strategy won't work for everyone and you need to seriously consider if it's likely to pay off for you before moving forward.
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