Suze Orman’s Law You Must Break
Financial expert Suze Orman has made a career of telling people what to do and not do with their money. He offers advice on how to avoid credit card debt, build emergency funds and make smart investments.
However, as with many personal finance rules, not all advice will make sense for everyone. One of Orman’s tips — to cancel your credit card if you’re in debt and overspending — is advice that many consumers can leave behind in their system. Here is the reason.
Suze Orman’s Credit Card Law
Orman is a proponent of cutting off your credit cards if you can’t pay them off in full. On his website, he says, “If you’re in credit card trouble, you should cut off all your credit cards now, except for one emergency card; but don’t carry this card in your wallet.”
The goal of this tactic is to encourage you to rely on the money already in your accounts to cover expenses instead of continuing to bury yourself in debt. Credit card debt in particular can wreak havoc on your overall financial plan as it comes with high interest rates. If you cancel your card, you can’t use it by swiping the next time you’re at the cash register.
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Why the law may not make sense to you
If you cut up your cards and close your accounts, you’re missing out on an opportunity to build your credit score, which can lead to lower interest rates on mortgages, auto loans and other financial products.
Credit cards also have rewards programs and enhanced consumer protection compared to debit cards. Ditching credit cards entirely can mean missing out on rewards, like cash back and airline points that can help you save elsewhere.
To be clear, cutting up a credit card may be helpful for some people—especially those struggling with credit card debt. But it’s important to carefully check whether the law makes sense for your financial plan and goals.
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Another way to reduce credit cards
While a credit card can be a great resource, it’s important to use it responsibly, pay off the debt and avoid the high risk of getting into high-interest debt by paying your monthly bill in full, if you can.
Setting a monthly budget that you know you can pay can help. You can go old-fashioned with pen and paper, or use a budgeting app like YNAB.
Some people also choose a credit card with a lower limit, especially if they are new to credit cards or trying to rebuild their credit score without overspending.
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While Orman’s advice on cutting up credit cards isn’t for you, his other advice on credit cards might be. He recommends paying more than the minimum monthly payment, focusing on paying off the highest interest credit cards first and understanding the pros and cons of how credit cards work if you plan to use them.
You don’t have to follow all the rules of personal finance. It’s important to understand when to bend them and customize them based on your situation.
