Chuck Jaffee, in an article he wrote for Investor's Business Daily has this to say about Suze Orman:
If you knew Suze like we know Suze
Anyone who has ever heard my radio show knows it's no secret that I am no fan of pop-culture personal finance guru Suze Orman, but I couldn't help but do a double take when during one of her recent shows on CNBC.
In talking about debt, Orman said: "One of the books I wrote, I did a whole section on good debt and bad debt. In fact, I was the one who created that terminology, good debt/bad debt in the United States back in 1999."
A quick check of a not-too-complete database found hundreds of stories written throughout the 1990s using the terms good debt and bad debt and describing them roughly in the fashion Suze claims to have originated. (Good debt is generally considered to be an investment in who you are and who you will become, so mortgages, student loans and, sometimes, car loans are the kind of things that qualify. Bad debt comes from paying for today's wants with tomorrow's cash, thereby jeopardizing your ability to meet your future needs. Think credit card debt.)
A couple of those articles were my own, although the financial advisers I quoted on the subject must have found out about good and bad debt while visiting foreign countries, since Suze hadn't created the terms here and wouldn't for several years.
No one corners the market on good financial advice. Anyone who suggests they do, who acts as if their way is the only way, probably is espousing methods that falter under intense scrutiny.
One other Suze note: She won a daytime Emmy Award this week in the "best service show" category (Martha Stewart was robbed!). Upon learning she had won, Orman said: "For the first time in my life, I am seriously speechless."
Here's hoping she wins a lot of awards.
Personal finance advisors differ widely in their opinions about whether it's wise to take out a home equity loan to pay down credit card debt. What they recommend depends largely, I believe, on who they assume their audience is. If they assume that I'm someone who, after paying off my credit card debt, will turn around and max out my cards again so that I end up with both credit card debt AND a smaller safety net in my home, then they're going to advise me against it. Certainly, if I'm on the brink of bankruptcy, it would be self-destructive to convert credit card debt (which is dischargeable in bankruptcy) into secured debt against my house (which is not dischargeable).
On the other hand, if the financial expert I consult knows that I'm a highly disciplined individual with a history of a frugal lifestyle marred only by an unfortunate period of high debt due to illness, job loss, divorce, or business failure, then the advice I get might be very different. If I'm in no danger of having to file for bankruptcy, and I pay down my credit card debt with a home equity loan, and then cut up those cards so that I'll never use them again, then I'm actually in a much better position than I was in before I took out the loan. The interest on the loan is tax deductible, and the interest rate will be much lower than what I was paying on the credit cards.
When addressing a broad audience, finance experts can't give advice tailored to each individual's personality, so they have to choose whether to take the pessimistic view (which, unfortunately, is supported by statistics which show that people often do charge up their credit cards again after paying off that debt with a home equity loan) or the optimistic view (which is . . . well, optimistic).
So my advice is: "To thine own self be true." I've never settled on what this really means in the context of Hamlet, but what it means here is that if you can honestly and somewhat objectively assess which type of person you are in terms of debt, then you can make a sensible decision about whether to trade in some of your equity for a fresh start and a little peace of mind.
Lately, I've been hearing alot from college and graduate students who are struggling to get their degrees in the face of astronomical tuition hikes and cutbacks in grant programs. The anxiety among students who have to start out their careers with mountains of debt is so overwhelming, I don't know how they manage to focus on their studies. The situation is much worse now than when I went to school. Though I took out student loans, the total of my debts upon graduation from law school were less than my yearly income a short time afterwards. These days, I believe many students are leaving school with debts that far exceed their starting salaries.
I'm interested in hearing from people in this situation, to find out what your expectations were when you started your education and what they are now as you face the prospect of looking for employment. Would you do it again and would you do it in the same way? I know that if I had to do it again, I might have chosen to take a low-paying job at the university in order to get tuition benefits. It would have taken me a year longer to get my law degree, but the delay would have been well worth the benefit of not having to repay student loans for the next twenty years.
Anyone in this predicament who would be open to being interviewed via email, please contact me by clicking the email link above. If you wish to be anonymous or just go by your initials, please indicate that in your email, and your privacy will be respected.
The Village Voice is publishing a series of articles under the general heading "Generation Debt: The New Economics of Being Young." The first three in the series are:
1. The Ambition Tax - Why America's young are being crushed by debt-and why no one seems to care
2. Student loaned - Kerry borrows youth voters for his campus Snoozefest
3. Wanted: Really Smart Suckers - Grad school provides exciting new road to poverty
These articles paint a very bleak, and unfortunately realistic, view of the prospects for people coming out of institutions of higher learning. As these writers point out, unless you happen to have wealthy parents who are able to pay your tuition and living expenses during college and graduate school, and possibly even subsidize your life during the early years of your career, you very likely face a future of indentured servitude to Sallie Mae and Citibank. Never mind your dreams of marriage, children, home ownership, and building up something towards retirement because just making ends meet on a day-to-day basis will be challenging enough. Your starting salary, especially once you pay the hefty health insurance premium that your employer won't cover, will look like tenant farmer wages. Once you take those wages and pay your debt masters, you might be lucky to eat and have shoes.
Part of the problem, of course, is the astronomical rise in tuition costs at most private universities. Why are these increases so far out of line with the rest of the economy, even the real estate market after its most insane period of appreciation? Yet, competition for entry into these universities remains high. I believe this is because our tenacious hold on the American idea of upward mobility in this society hasn't adjusted to the new realities. As one friend of mine put it recently, until people see that "the emperor has no clothes" and stop buying into the delusion that education will raise you up the socio-economic ladder, no matter the initial cost of that education, these schools have no incentive to stop the madness.
Doing business on eBay can be risky, despite safeguards and complaint procedures put in place to protect users. Because you can transact business with relative anonymity in this marketplace, it invites unsavory characters to use it as a vehicle for stealing from the unwary. One story I heard recently is of a saavy individual who suspected that an interested buyer of his laptop computer was using a fake escrow service. The seller pretended to go along with the sale, exchanging many emails with the buyer regarding details of the transaction, which the seller then chronicled on a discussion board at Something Awful Forums. Ultimately, the seller sent the laptop computer to the designated location -- the real one replaced with one made clumsily of cardboard pieces -- which the buyer paid hundreds of dollars in duty charges to pick up in London. Apparently, there's been no word from the buyer since the pick-up. The entire story can be read in one piece here -- thepowerbook.pdf.
I suppose a big ego and the feeling of entitlement to judge people based on an iota of information are inherent attributes of guru-dom these days, but the whole Suze Orman/Dr. Phil phenomenon still amazes me. Last night, dozing off to sleep, I caught part of the Suze Orman show on T.V., and a caller asked about the damage to her FICO score caused by her parents' charged-off credit card account (she was apparently an additional cardholder). In the course of giving this poor woman fairly standard advice about repairing her credit, Suze called the woman's parents "losers," and "bad examples" with no integrity. I ask you: (1) Were these insulting remarks about the woman's parents really necessary or even relevant to the financial advice Suze imparted? and (2) Does Suze give a second's thought to the possibility that there are people in this world who, despite the best of intentions and solid moral values, come upon hard times, like illness or job loss? Her gratuitous and offensive remarks about the character of people who have debt is proof that if she ever had any empathy for ordinary people, such sentiment has long been washed away by the inexplicable flood of good fortune in her own life.
What cultural force has created this mindset that it's necessary to give up your self-respect to obtain worthwhile financial advice (or good relationship advice as in the case of Dr. Phil)? Suze Orman's money advice is fairly standard fare, nothing earth-shattering. Certainly, her information is no better than Jean Chatzky's -- and Jean doesn't have that obnoxious personality to go along with it. So why do people tune into Suze more than anyone else out there dispensing very similar advice? I believe it's the same underlying need that used to (and still does) draw people to television evangelists. It's a certain kind of bizarre "charisma" (defined in the Oxford Encyclopedic English Dictionary as "1.a. the ability to inspire followers with devotion and enthusiasm, b. an attractive aura; great charm. 2 a divinely conferred power or talent"). So, Suze requires you to surrender your own ego to hers, and if you do that, you will pay off your credit cards, save the maximum in your 401(k) plan, deny all others, and see the light.
And, what about that sidekick of hers, the obsequious Jeff? Maybe this is beside the point, but he makes me cringe. Better not to get off on this tangent -- save for a later time.
I spent last weekend at a conference with over 150 other bankruptcy lawyers (yawn). Also in attendance were bankruptcy judges (they look smaller up close when they're not behind that big wooden bench) and people from the Department of Justice. There was alot of discussion about credit card fraud. Someone told a story about a woman who charged up credit cards in the name of her infant -- who had died. Another individual applied for and received credit cards in the names of her two dogs. These are the kinds of stories that bankruptcy lawyers and others in professions related to consumer debt like to tell. They're sensationalistic, but you have to forgive them for telling these outrageous stories because, let's face it, the job's generally not that interesting. Hopefully, everyone understands that these are aberrations. There are nuts in every area of life.
It doesn't surprise me, though, that banks are issuing credit cards to dogs and infants. My daughter has been getting pre-approved credit card offers since she was four. What database of information are these companies looking at when they do this?
According to Seth Godin, if you're reading this blog, or any blog for that matter, you're very smart because only 10% of people on the internet read blogs. Not only smart, but young too -- he makes the observation that even otherwise sophisticated seniors may not know what a blog is. I believe that's true (about seniors), at least in this little corner of the blogosphere. There's been alot of press about older folks going into debt in record numbers. Debt is a touchy topic, which is why anonymous participation in discussion boards like creditboards.com is an ideal way for people to learn how to navigate their way through financial crises. But I believe that members of creditboards are generally fairly young. There's Debtors Anonymous, but I don't know anyone who belongs to that organization, and am not familar with its purpose.
A documentary about our relationship with credit cards is in the works at trueworks, an independent film production company based in L.A. I recently sat down and talked with James Scurlock (producer-director) and Lee Thompson (who has a background in reality television shows) about this project, which is in pre-production. These guys are traveling around the country meeting various people in professions that relate to consumer debt (authors, lawyers, "debt eliminators," lawmakers), but mostly they're interested in talking with real people with compelling stories to tell about how they fell into debt. If you want to talk to these guys and contribute your experience to this project, you can reach Lee by email at lee@trueworks.us.
It only takes 3 minutes or so to process your department store credit card at the register, and you get a whole 10% off your purchase that day. Sounds irresistible -- you get the card, save your 10%, pay the entire balance when the bill comes. A good deal, right? The last time I fell for this, I forgot I got the card, and when the bill came, I threw it out with the junk mail, and ended up paying a late fee the following month. After paying the late fee and the interest, I probably ended up paying 20% more than the purchase price, which means I paid a premium of 10% over the purchase price rather than getting a 10% discount. And that was just one card. It's not that difficult to get 12 of these, or 25, or 40. At that rate, it's a full-time job just keeping up with the bills. If you have more than 5 department store credit cards, chances are, you're not paying off the balance each month. With interest rates approaching and sometimes exceeding 20%, what kind of deal is that?
I recently caught up with Scott Bilker, known as the "Debt Daredevil." He has a website, debtsmart.com, that is devoted to teaching consumers how to beat credit card debt. I was curious to know who this man is and what motivates him, so I asked him to respond to a few questions by email, and he obliged.
HK: The first thing I noticed on your website is that it's kind of whacky. The cartoon of you as the Debt Daredevil does stand out among all the other images related to this topic. Most people don't think debt problems are funny, but I've always appreciated dark humor. What was your motivation for making your website comical?
Debt Daredevil: I wouldn't call it "whacky," I like to think of it as an unconventional approach, but very effective. The Debt Daredevil is not a funny character. His goal is to help people understand how to use credit to their advantage and that doing this may seem "daring" to some but when you think about it, and do the math, the strategies work!
HK: Before you became the Debt Daredevil, what profession were you in?
Debt Daredevil: Electrical Engineer for NAVAIR at NAES Lakehurst http://www.lakehurst.navy.mil). My department handled VLA (Visual Landing Aids) for all air capable ships.
HK: What do you think is the biggest mental hurdle when people are trying to figure out how to deal with their debts?
Debt Daredevil: Not seeing their own credit options and power as a consumer. They feel that they're at the mercy of their credit card banks. The truth is that the banks are at our mercy! They're a business like any other, and we need to fire the banks that don't give us good deals. That means transferring balances and cancelling accounts. People have credit options but many just don't see that.
HK: Do you hear from institutional creditors, and if so, what are they saying to you?
Debt Daredevil: They say, "Hey Scott, we'll give you one year at 0%." Really, I know you're asking if they're saying anything about my showing people how to do better with banks but the truth is they don't seem to care. They're more concerned with me using my personal credit lines.
HK: Do you give seminars or is your information available exclusively on the website and the products available on your site?
Debt Daredevil: Online (http://www.debtsmart.com) and in print with my three books, "Talk Your Way Out of Credit Card Debt," "Credit Card and Debt Management," and "How to be more Credit Card and Debt Smart." I'm working on developing online programs that will help people manage their credit, create a repayment plan, and earn money, but that won't be ready until next year.
HK: About bankruptcy reform legislation -- I m concerned that many people who deserve a fresh start will not get it if this legislation is passed, and that crooked credit counseling companies will take advantage of all these people who are going to be abandoned by their government. What's your opinion about bankruptcy reform?
Debt Daredevil: My opinion is that bankruptcy reform will hurt the majority of the people! Sure, there are some that are taking advantage of the system, but I believe the current reform is too one-sided. The banks are partially responsible. They lent the money to many people whom they knew didn't have the ability to repay and they tried to gouge them, and everyone else, with high rates and fees to make up the difference.
HK: Do people recognize you on the street?
Debt Daredevil: Maybe on my street. Actually, maybe in my town but that's because I'm a member of the Barnegat Board of Education. Other than that there has only been one time that someone recognized me from a TV interview about credit cards but they said, "Hey, I recognize you. I saw you on TV right? Are you in a band?"