Comments on: Liz Pulliam Weston vs. Suze Orman – Who’s Right?

By: Anna.

Anna. — Wed, 08 Dec 2010 19:56:20 +0000

It is a very dangerous game to suggest people pay off debt first and not save at all to an emergency fund until it’s paid off. Dangerous, unless you have a very small amount of debt that can be paid off in very VERY short time. Otherwise, it is a game of roulette to not save. For some people this could take years, even decade and that long a wait is not something most people cannot afford to wait on. It obviously depends the amount of debt and income a person has. I’d recommend ever get a full customized financial analysis done. My husband and I can get ours done for free as often as we want and so can others. Anyone can work on paying down their debt while putting a little away to an emergency fund. I agree with both Ramsey & Orman on most things. Problem with paying off debt only is a lot of people, including myself, have experienced paying down the debts, only to have the limit reduced to what your balance is or having the account closed once it is paid. This is very discouraging if you were NOT saving in an EF and were planning to use the CC as emergency. EF in my opinion is extremely important to have plumped up. Even if you have loss of income, you should always pay yourself first, even if it is painful, get rid of luxuries you don’t need like TV, games, spas, restaurants, etc. The EF will be there for you more than a paid off CC. It is important to pay down debt, yes, but you will be right back at square one if you are not building that emergency fund. My husband was laid off for 7 months. The EF came in handy, but of course even still, we had $50 on PAC to an EF no matter what. It was hard and we had to skimp on many things, but we are alive, we have our house, power is on, and everyone is fed. Our brakes and tireds needed replaced, so boy were we happy we had forced ourselves to save. No one knows the importance of having the EF until they need it. For those living paycheck to paycheck, there are certain things you cannot afford to be without, ever.. an EF and insurances, food, gas (to get to work) and shelter. Everything else most can survive without. Do whatever you can to save anything. Have it put on automatic so you don’t have to think about it and it will force a habit of saving

By: Bill

Bill — Tue, 12 May 2009 19:04:19 +0000

Depends on the individual. Depending on the debt amount. If you can pay it off in a hurry or utilize a debt solution out there to help pay it off quicker, then i would say pay it off quick has you can. Stop paying those outlandish interest payments.

By: mbhunter

mbhunter — Thu, 07 May 2009 06:26:25 +0000

Suze’s spot on.

People should be padding their emergency accounts because this will buy them time in the event of a job loss. It doesn’t matter who you are; the risk of job loss is higher. It’s hard to pay the credit card bills at all without income or savings.

By: Andrea

Andrea — Wed, 06 May 2009 15:28:05 +0000

I have to agree with Suze. Easy for me to say. I have no credit card debt and a 24 month emergency fund.

By: sam

sam — Tue, 05 May 2009 17:09:57 +0000

I don’t see a big advantage either way. Pay down first – save first. My advice is to pick one way and do it. Doing it is better than worrying about a few bux of interest one way or another.

By: Kirk Kinder

Kirk Kinder — Mon, 04 May 2009 16:54:40 +0000

I still like paying off the credit card rather than saving. The savings accounts today pay so little while credit card companies are increasing their rates.

Every person is different, and we all have different “mental accounting” methods that make us feel warm and fuzzy with a safety or emergency fund. But, if you are ever to really get wealthy, you need to acknowledge your bad ideas and habits and change them. Keeping money in an account earning 1% while paying 11-18% interest is not smart. It may make you feel better, but it isn’t the optimal course of action. I am not saying don’t take that course, but just realize this safety blanket is costing you considerable amounts of money, especially if your credit card balance is large.

While money is an emotional topic, those who do the best act like Mr. Spock. They look at the most logical course of action.

By: David

David — Sun, 03 May 2009 10:50:12 +0000

I just can’t live without a safety net. I’d save about 3 months worth of living expenses first. Then I’d continue to save, but at a slower rate, and start putting more money toward the credit cards. Once I hit 6 months EF, I’d stop saving and put it all toward the CC. During this time, however, I would max out the 401k to the extent there was a company match.

By: Angarreq

Angarreq — Sat, 02 May 2009 19:57:00 +0000

We hedge by doing both (though aggressively weighted towards removing the debt). The mathematically optimal approach ERE suggests may omit probabilities of unforeseen circumstances, or the chance that a particular situation will not lend itself to the “put the emergency on the card” solution. Peace of mind comes at a small cost for us by pulling back from the optimal $$$-maximizing frontier curve.

By: Online Banking

Online Banking — Sat, 02 May 2009 12:18:00 +0000

I think that Dave Ramsey’s advice is excellent. Get your emergency fund to $1000 and then pay off your debt. A $1000 emergency fund will be enough to cover most unexpected expenses.

By: Jim

Jim — Fri, 01 May 2009 23:50:49 +0000

I agree with Moneymonk’s point that theres no ‘on size fits all’ answer. Early is also right that paying the debt first is optimal. Some sort of cash buffer is important. How large it should be depends on your individual financial situation and risks.

Suze’s advice is based on the fear that the credit card companies will cut credit limits and/or shut down accounts altogether. So if someone with CC debt hits an emergency they could be without any cash and then get their credit shut down as well. Also Suze wants people to have an 8-12 month emergency fund which is pretty large IMHO. Its a nice goal but maybe too large to be practical for many. You could spend years building such a surplus and by then the recession is over.