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Interview with Suze Orman

Aired January 08, 2003 - 14:44   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


KYRA PHILLIPS, CNN ANCHOR: Today, it's money. If you're that guy in West Virginia, though, who just won a gagillion (ph) dollars in Powerball, feel free to make a sandwich, but the rest of us still searching for the road to wealth or the courage to be very rich need every bit of wisdom Suze Orman can dish out. Orman is a best-selling author, a radio and TV talk show host, a magazine columnist, and a certified financial planner.
She joins us from New York. Wow, Suze.

SUZE ORMAN, FINANCIAL PLANNER: Pretty good, Kyra?

PHILLIPS: Yes, that is not bad. You've done pretty well for yourself. I have got to hand it to you.

ORMAN: Thank you.

PHILLIPS: All right. This is what we want to do. We have tons of e-mails, OK? So let's first get to your sort of financial New Year's resolutions, OK? We'll hit on each point and then get into the e-mails.

ORMAN: You got it.

PHILLIPS: First of all, eliminating credit card debt. Of course. How do we do it?

ORMAN: It's -- It's true. You have to understand that I know we have this economic stimulus package, but the truth of the matter is, you've got to stimulate your own finances, and most people don't have any money today to stimulate and why? Because they bought many things that have resulted in credit card debt. So what you need to do is get out of debt. The way you get out of debt is get the lowest possible interest rate you can on those credit cards, and always pay more than the minimum that those credit card companies require of you.

PHILLIPS: All right. Establish an emergency fund.

ORMAN: Yes, you know, you never know when something's going to happen in your own personal financial life. You're going to become ill, possibly, and not be able to work. Maybe you'll get laid off of your job. What are you going to do if that happens to you? So, in my opinion, you need at least, after you're out of credit card debt, eight months of an emergency fund so that you can carry yourself through if anything should happen to you.

PHILLIPS: All right. Resolution three, make an extra mortgage payment. Resolution four, fund your 401(k) requirement plan. Resolution five, diversify. How do we do it?

ORMAN: Well, you have got to make sure, first of all, that you don't have all your money invested in just one mutual fund or one stock. You have to really look at what you want to see happen in your life and most people would like to own their homes outright sooner than later.

You can do that quicker by making just one extra mortgage payment a year. Do you know if you make one extra mortgage payment a year, you will take a 30-year mortgage and make it into a 22-year mortgage. That will save you a lot of money.

PHILLIPS: Wow. Finally, resolution 6, raise that FICO score. All right, explain.

ORMAN: Explain. All of us get rated all the time on credit reports. Most of the credit bureaus now report into something called FICO. Your FICO score is what determines for you, in most circumstances, along with some other things, your job history and things like that, how much of an interest rate you will pay on credit cards, mortgages, car loans. The higher your FICO score, the lower the interest rate you will pay, but most people don't even know what a FICO score is. They don't even know where to go and look at their FICO score and what they can do about it. MyFICO.com, there's a small fee, but every one of you have a FICO score and you should all know what it is.

PHILLIPS: All right, Suze, we do now. That is for sure. Stephanie from Boston. Here's her question to you, all right?

"I am a registered nurse and I have been able to save several thousand dollars in the past months. I am unsure as to what I should do with that money. Pay off student loans, car loan, down payment on my first home?"

What do you think?

ORMAN: Well, you know, Stephanie, the thing that I would always tell you is debt of any kind is bonded. You're never going to have financial freedom if you have debt. Which debt should you get rid of first? First goes the highest interest rate payment debt. I don't care if that's a car loan debt or credit card debt. That is the debt you get rid of.

In terms of student loan debt, be careful, because that's kind of good debt. Especially if you've consolidated that student loan, you're probably at a 4 percent interest rate, and in most circumstances, that's tax deductible up to $2,500 per year.

So don't worry about your student loan debt. First tackle your consumer debt, then save for that down payment on your home.

PHILLIPS: All right. Mary wants to know, "My husband and I make less than $30,000 per year. I would like to put money away for college for our two children, age 2 and 6. Also, we have a retirement account through my husband's job, as I am a stay at home mom. Would it be better to contribute to a 529 plan or maybe a Roth IRA?"

ORMAN: Mary, you know, you're going to have to decide, and this is very difficult for parents to do. Do you have your own financial needs taken care of for your own financial future before the needs of your children? If you do, if you are funding your 401(k) already to the max, if you are already putting into your Roth IRAs, which you can also do along with a 401(k), making only 30,000 a year, your Roth contributions, then you want to look at financing your children's education. Might want to look into a 529 savings plan. Fine way to go. But also, you might want to look into an educational savings account, $2000 a year you can put into it. That's one of my favorite ways to do it as well.

PHILLIPS: All right, Suze. Paula says, "I made a huge mistake and traded with my 401(k) money. Like everyone else, I bought a lot of tech stocks that are not doing well. Should I just hold on and hope that one day the stocks go back up a bit, or sell what I have and start fresh?"

ORMAN: You know, Paula, you used the one word in your e-mail that already signifies danger. Hope. Hope and fear, the two eternal obstacles to wealth, if you ask me. They will forever limit you from making money. You can't hope your money's going to go back up. You need to look at the investments that you have and ask yourself this question. If that money was in cash today, would you buy those exact same stocks that you're currently owning? If the answer to that is no, sell them and buy something that makes sense. If the answer to that is yes, continue to hold on.

PHILLIPS: All right, Suze, we've got to leave it there. Are you working on another book?

ORMAN: I am. It comes out, actually, February 25 in book stores everywhere. It's called "The Laws of Money, the Lessons of Life."

PHILLIPS: And will you join us then?

ORMAN: I hope so, if I'm lucky enough to.

PHILLIPS: Suze Orman, thank you so much, and thank you for your advice.

ORMAN: Thanks, Kyra. Anytime.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com







Aired January 8, 2003 - 14:44   ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
KYRA PHILLIPS, CNN ANCHOR: Today, it's money. If you're that guy in West Virginia, though, who just won a gagillion (ph) dollars in Powerball, feel free to make a sandwich, but the rest of us still searching for the road to wealth or the courage to be very rich need every bit of wisdom Suze Orman can dish out. Orman is a best-selling author, a radio and TV talk show host, a magazine columnist, and a certified financial planner.
She joins us from New York. Wow, Suze.

SUZE ORMAN, FINANCIAL PLANNER: Pretty good, Kyra?

PHILLIPS: Yes, that is not bad. You've done pretty well for yourself. I have got to hand it to you.

ORMAN: Thank you.

PHILLIPS: All right. This is what we want to do. We have tons of e-mails, OK? So let's first get to your sort of financial New Year's resolutions, OK? We'll hit on each point and then get into the e-mails.

ORMAN: You got it.

PHILLIPS: First of all, eliminating credit card debt. Of course. How do we do it?

ORMAN: It's -- It's true. You have to understand that I know we have this economic stimulus package, but the truth of the matter is, you've got to stimulate your own finances, and most people don't have any money today to stimulate and why? Because they bought many things that have resulted in credit card debt. So what you need to do is get out of debt. The way you get out of debt is get the lowest possible interest rate you can on those credit cards, and always pay more than the minimum that those credit card companies require of you.

PHILLIPS: All right. Establish an emergency fund.

ORMAN: Yes, you know, you never know when something's going to happen in your own personal financial life. You're going to become ill, possibly, and not be able to work. Maybe you'll get laid off of your job. What are you going to do if that happens to you? So, in my opinion, you need at least, after you're out of credit card debt, eight months of an emergency fund so that you can carry yourself through if anything should happen to you.

PHILLIPS: All right. Resolution three, make an extra mortgage payment. Resolution four, fund your 401(k) requirement plan. Resolution five, diversify. How do we do it?

ORMAN: Well, you have got to make sure, first of all, that you don't have all your money invested in just one mutual fund or one stock. You have to really look at what you want to see happen in your life and most people would like to own their homes outright sooner than later.

You can do that quicker by making just one extra mortgage payment a year. Do you know if you make one extra mortgage payment a year, you will take a 30-year mortgage and make it into a 22-year mortgage. That will save you a lot of money.

PHILLIPS: Wow. Finally, resolution 6, raise that FICO score. All right, explain.

ORMAN: Explain. All of us get rated all the time on credit reports. Most of the credit bureaus now report into something called FICO. Your FICO score is what determines for you, in most circumstances, along with some other things, your job history and things like that, how much of an interest rate you will pay on credit cards, mortgages, car loans. The higher your FICO score, the lower the interest rate you will pay, but most people don't even know what a FICO score is. They don't even know where to go and look at their FICO score and what they can do about it. MyFICO.com, there's a small fee, but every one of you have a FICO score and you should all know what it is.

PHILLIPS: All right, Suze, we do now. That is for sure. Stephanie from Boston. Here's her question to you, all right?

"I am a registered nurse and I have been able to save several thousand dollars in the past months. I am unsure as to what I should do with that money. Pay off student loans, car loan, down payment on my first home?"

What do you think?

ORMAN: Well, you know, Stephanie, the thing that I would always tell you is debt of any kind is bonded. You're never going to have financial freedom if you have debt. Which debt should you get rid of first? First goes the highest interest rate payment debt. I don't care if that's a car loan debt or credit card debt. That is the debt you get rid of.

In terms of student loan debt, be careful, because that's kind of good debt. Especially if you've consolidated that student loan, you're probably at a 4 percent interest rate, and in most circumstances, that's tax deductible up to $2,500 per year.

So don't worry about your student loan debt. First tackle your consumer debt, then save for that down payment on your home.

PHILLIPS: All right. Mary wants to know, "My husband and I make less than $30,000 per year. I would like to put money away for college for our two children, age 2 and 6. Also, we have a retirement account through my husband's job, as I am a stay at home mom. Would it be better to contribute to a 529 plan or maybe a Roth IRA?"

ORMAN: Mary, you know, you're going to have to decide, and this is very difficult for parents to do. Do you have your own financial needs taken care of for your own financial future before the needs of your children? If you do, if you are funding your 401(k) already to the max, if you are already putting into your Roth IRAs, which you can also do along with a 401(k), making only 30,000 a year, your Roth contributions, then you want to look at financing your children's education. Might want to look into a 529 savings plan. Fine way to go. But also, you might want to look into an educational savings account, $2000 a year you can put into it. That's one of my favorite ways to do it as well.

PHILLIPS: All right, Suze. Paula says, "I made a huge mistake and traded with my 401(k) money. Like everyone else, I bought a lot of tech stocks that are not doing well. Should I just hold on and hope that one day the stocks go back up a bit, or sell what I have and start fresh?"

ORMAN: You know, Paula, you used the one word in your e-mail that already signifies danger. Hope. Hope and fear, the two eternal obstacles to wealth, if you ask me. They will forever limit you from making money. You can't hope your money's going to go back up. You need to look at the investments that you have and ask yourself this question. If that money was in cash today, would you buy those exact same stocks that you're currently owning? If the answer to that is no, sell them and buy something that makes sense. If the answer to that is yes, continue to hold on.

PHILLIPS: All right, Suze, we've got to leave it there. Are you working on another book?

ORMAN: I am. It comes out, actually, February 25 in book stores everywhere. It's called "The Laws of Money, the Lessons of Life."

PHILLIPS: And will you join us then?

ORMAN: I hope so, if I'm lucky enough to.

PHILLIPS: Suze Orman, thank you so much, and thank you for your advice.

ORMAN: Thanks, Kyra. Anytime.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com