New Rules of Credit Card Debt
In the latest article from U.S. News and World Reports, financial expert Suze Orman unveils a ‘slight’ shift in some time-honored advice. Because of the increasing number of people losing their job, Orman suggests that people should stop paying extra on their debt until they have at least 8 months of expenses in an emergency fund. Once you have a ‘fully funded’ emergency fund, then the old advice still applies.
“If you have an unpaid credit card balance [and] not much saved up in emergency savings, I need you to listen up. My advice has changed. I want you to only pay the minimum due on your credit card balance, and instead, make it your top priority to build as much of an emergency cash fund as you can,”
The real question is what part of her advice has changed? She still wants people to pay off debt, but she now wants people to focus on funding the emergency fund completely before attacking debt. Personally, I don’t really have a problem with this ‘shift’ in thinking. Especially, if you are working in an area that is experiencing a lot of lay-offs.
Here is a list of things to remember if you decide to build up your emergency fund.
- Evaluate Needs vs. Wants – You should re-evaluate your budget to determine what things would be considered needs and what things would be considered a want. If you are laid off, you will need to eliminate everything that is a want. Your emergency fund will be used to cover your needs.
- Get Intense – You should look to see if there are things you can cut out of your budget now that would allow you to more quickly reach the “eight month” amount.
- Increase Your Income – Look around for additional income streams to help you reach your goal. Are there things you can sell? What about taking on a second job?
The most important thing to remember is that the first step in getting out of debt, is to stop borrowing money. Make sure you are living on less than you make and are aggressively saving the rest. The great news is that the U.S. has gone through tough times before and we have always come out the other side. The economy will turn around, so stay focused on the goal and be prepared for some bumps.
Related Websites - Common Financial Mistakes
- 5 Tips To Get Out Of Debt And Stay That Way
- Pay Debt or Build Emergency Fund?
- Size Matters For Emergency Funds
- How we paid down our debt and saved money at the same time..it can be done!
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Thanks for sharing such great post, according to me stop borrowing money is the perfect way to reduce debt.