“I Know You’re Going to Think I’ve Lost It,” Suze Orman Tells Unemployed Listener To “Put Any Expenses You Can on Your Credit Card and Only Pay the Minimum”
Suze Orman built her reputation warning Americans away from credit card debt, so her new advice to laid-off workers stopped listeners cold. Whether her reversal is genius or a trap depends entirely on one question most people never think to…
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Suze Orman spent decades telling Americans that credit card debt is a trap. Now she is telling laid-off workers to load up their cards. On her October 22 podcast episode, she said: “Before you use any cash, before you take money out of any retirement account, I would like to see you put any expenses you can on your credit card and only pay the minimum payment due when the bill comes in. Remember, credit cards can be discharged in bankruptcy.”
Here is what that costs. The average card APR is 21%, which sits in record territory for the period since 2023.
Why Orman’s Logic Wins in Bankruptcy Court
The advice is right for anyone headed toward bankruptcy and dangerously incomplete for everyone else. Her reasoning holds up legally. Money in 401(k)s and other ERISA-qualified plans has unlimited protection in bankruptcy. IRAs are protected up to a federal cap that is far above what most households hold, and rollovers from employer plans keep their protection. Unsecured card balances, on the other hand, can be wiped out in Chapter 7.
So if you drain a 401(k) and still have to file bankruptcy, you lose savings the court would have let you keep. In Orman’s words, “that money’s gone and you have nothing.”
Consider an example. Say your job search goes the eight months Orman says it can take, and your bills over that stretch put about $32,000 on cards. Interest while the balance builds is roughly $2,500. Once the full balance is there, it runs about $565 a month.
Now pull that $32,000 from a 401(k) instead. If you’re under 59½, you owe a 10% additional tax on top of income tax. Assume a 12% bracket. Clearing $32,000 then costs about $9,000 in penalty and tax, and that money stops compounding for good.
Your Odds of Filing Decide Whether This Pays Off
Everything turns on one question: will you actually end up in bankruptcy?
If you do, the cards win easily. The balance is discharged and the 401(k) stays whole. If you don’t, you’re carrying that balance at 21%. Paying $800 a month clears it in about 70 months, and you’d pay roughly $24,000 in interest, far more than the cost of the 401(k) withdrawal. Pay only the minimum and it gets worse.
Orman herself drew this line in a 2019 episode, telling listeners who use cards to get by that “you are always to pay more than the minimum payment due.”
Her Withdrawal Order and the Roth TSP Trap
The rest of her plan is solid. Here is the order she gives:
- Cut every expense you don’t absolutely have to pay before borrowing anything.
- Make a list of every account you own so you know what you can draw on.
- Taxable brokerage first. There’s no 10% penalty, and shares held over a year get long-term capital gains rates.
- A 529 next. Earnings are taxed and hit with a 10% penalty.
- An HSA last. If you’re under 65, she warns of income tax plus a 20% penalty.
Her rule for retirement money: if it would goes under 8 months, leave it alone. If you leave your job at 55 or older, you can take money from that employer’s plan without the 10% penalty. That break disappears if you roll the plan into an IRA.
Roth TSPs have a catch. Take a $50,000 account. A partial withdrawal is split proportionally between contributions and earnings, so $12,000 comes out tax-free and $8,000 is taxable. Roll the account into a Roth IRA instead, and the full $30,000 of contributions comes out clean.
What to Do Before Your Next Card Bill Arrives
- Test whether bankruptcy is realistic. Orman’s rule of thumb is that when you owe more than what you’re worth, you are essentially bankrupt. If that describes you, charging expenses protects your retirement money.
- If it doesn’t describe you, price the card path. Multiply your monthly shortfall by your expected months out of work. Then figure the interest at your card’s APR and compare it with the penalty and tax on a withdrawal.
- Call your card issuer about hardship programs before you start carrying a balance. A nonprofit counselor through nfcc.org can often cut the rate on existing balances.
- If you’re 55 or older, don’t roll your 401(k) into an IRA yet. Doing so ends penalty-free access.
Contact [email protected] for any questions or corrections.
AJ spent 10 years writing about financial markets at The Motley Fool. His coverage centers on technology stocks and the broader macroeconomic trends, from interest rates to geopolitics, that shape where markets are headed next. AJ is drawn to the stories where big-picture economics and individual companies collide.
