Those of you who have followed my blog may recall that my first post made some corrections for Suze Orman.  However, you may have noticed that I've not needed to write much about Suze since.  Actually, I am a big fan of her show.  So is my wife.



            Carmen Wong Ulrich/Boston


I happened to notice another personal finance show right before Orman's, CNBC's On the Money, too, and decided to give it a try.  The show features Carmen Wong Ulrich and a panel of "experts" I find myself screaming at every few minutes when bad advice spews out. 

Example 1: Mike was out of work and struggling to pay off his credit card debt. He's 8 years into a 20 year mortgage. 

Their quick answer: refinance the mortgage.

Sounds great.  Lower the mortgage payment and free up money for the credit cards!  Except, if he's not working, he very well may not qualify for a refinance.  Carmen also suggested that he can get out of debt much faster by increasing his payments by $200.  That's BS advice which is simply not practical. 

But even previous callers were told the same thing.  No matter who the caller is, when someone is overwhelmed with credit card debt, her advice will be to find $200 in their budget.  Then she calculates how much more quickly they can become debt free.  There is no mention of where they can find $200 extra per month.  And keep in mind that all callers are pre-screened and a budget analysis can be done ahead of time.

Next, Carmen recommends that they stop using their cards.  Most people understand the importance of this, but if debt has been accumulating, it’s likely that the person’s expenses are exceeding their income. So, to be able to stop using the card, the root cause of the problem needs to be addressed—canned advice won’t do.

Example 2: Latusha was worried about paying down her dozen cards. Her husband is convinced that he needs to use them every month to prevent them from being closed. 

Their response: keep them all open and still use them occasionally-- maybe once a year-- to keep them active.

If a couple has opened up and maxed out a dozen cards, they need to STOP USING the cards.  While a creditor may shut down a card due to inactivity, they are more likely to do so on a zero balance card. 
Target did this to me, recently.  My response?   A big sigh. 

Even if Zales shut down Latusha's 26% interest card, it's not going to matter in the long term.  One's credit score is fine as long as at least 2 cards remain active.

On the Money recently did a segment on settlements.  But Carmen left out some key tips.  Nothing was mentioned about the possible tax implications of settling a debt.  She didn't differentiate debt that has been in collections vs. debt that is current or only a few months behind.  There was no mention about the impact on one's credit.  And there was no recommendation to get everything in writing, first.

Since the shows run back to back, it’s easy to see the major difference between Wong Ulrich and Orman, and it boils down to compassion.  I’m not suggesting that Ms. Wong Ulrich does not possess compassion, but she does not display it on her show like Suze does.  For those of you in the NYC area, the vibe of On the Money reminds me of watching FOX 5 news.  Lots of graphics, headlines and teases, but nothing of real substance.  My wife happened to catch one brief segment on debit card skimming (a form of identity theft), once, and thought she had missed something; I explained there was nothing to miss— it was just a really long introduction to a guest expert.

Last week, Carmen did a segment to answer the question, should I pay off my mortgage early?  Her answer: no.  She explained that real estate is an investment like anything else, so putting all one's eggs towards a home is a bad idea in case the value goes down.  She also explained that the stock market has gained more than real estate. historically.

Nothing she said was wrong, but it’s irresponsible to provide an answer like that without bringing some depth to the question.  For example, what interest rate is the caller paying on the mortgage?   If paying on an adjustable rate mortgage, or if the fixed rate is more than 7%, then the caller would be unwise to intentionally not pay the mortgage down if there is money to do so.

What if the caller were close to retirement age and his/her income is expected to reduce upon retirement?  If one is in a position to speed up a mortgage repayment to pay off a home before retirement, this can be just as important as padding his 401K.

How long does the caller plan to stay in the home?  If the plan is to move in a few years, then pouring extra into a mortgage poses a big risk.  But if there are no plans to move, having a paid-for home is just one more layer of financial security.

Carmen pointed to a friend who bought a home for 800K, putting 400K down.  The value of the home decreased to 400K, so now her friend's initial investment is gone.  Carmen's argument was that this person took a bath because they'd invested so heavily in real estate.  But if this person had bought a cheaper home, they would have taken on a lower level of risk.

She’s missing the human element.  Posing the question is fine but, ultimately, paying off a mortgage early isn’t just about an investment— it’s about peace of mind. 

If a 30-year-old walks into my office with no retirement, plans to move in less than 5 years and a low fixed rate mortgage, I’m going to suggest that he/she beefs up retirement accounts before throwing any extra to the mortgage. 

If a 50-year-old walks into my office with a guaranteed pension when they retire, a 7.5% fixed rate mortgage (and cannot refinance due to poor credit) and no plan to move, I’m going to calculate what it will take to payoff the mortgage by the time he/she retires and suggest that extra is thrown at the mortgage.

Carmen would do well to get past the math and realize the importance of behavior and psychology when it comes to improving one's finances.


 -- Chris Dlugozima 
    Certified Consumer Credit Counselor

                         
                             Please e-mail questions and comments to financialloft@deborahsteinberg.com