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Now she'll just have to drop out of school since she has no money left to pay, leading her to a lower income. Great plan
and yes, she will have that CC back up to max in no time. Change the behavior not the area where the debt is located
I don't think the OP gave us enough information to bring us to this conclusion. We don't know if the money she has is excess to her tuition - which I am assuming to be the case. If it is, it makes sense to pay off the CC debt, as long as she has fixed the root problem. You can generally get a SL not only for tuition, but also for education related expenses (i.e. transportation, books, housing, etc.)
The only downside, as someone has mentioned, is that student loan debt cannot be discharged in a BK. But, I hope we are not factoring BK into our financial decisions. That's kind of like getting married, but creating a contingency plan for divorce.
The bottom line is that she is going to pay the $5k one way or another. If she leaves it where it is, she will pay significantly more than the $5k in interest. Paying it off now actually saves her quite a bit of money. You have to be careful though. I do know a couple of people who quit work to go to school FT. They didn't finish. Now they are stuck with fairly large student loan debts and no degree.
There is a downside. Student loans cannot be discharged in bankruptcy. However she does get a lower interest rate and may be able to write off the interest.
Great point. I don't think she'll be in a position where bankruptcy is required, but this is definitely the kind of info I was fishing for. Thank you. I'm thinking it's still the way to go.
Quote:
Originally Posted by ZenMaster2008
Now she'll just have to drop out of school since she has no money left to pay, leading her to a lower income. Great plan
and yes, she will have that CC back up to max in no time. Change the behavior not the area where the debt is located
No.
Quote:
Originally Posted by dmills
I don't think the OP gave us enough information to bring us to this conclusion. We don't know if the money she has is excess to her tuition - which I am assuming to be the case. If it is, it makes sense to pay off the CC debt, as long as she has fixed the root problem. You can generally get a SL not only for tuition, but also for education related expenses (i.e. transportation, books, housing, etc.)
The only downside, as someone has mentioned, is that student loan debt cannot be discharged in a BK. But, I hope we are not factoring BK into our financial decisions. That's kind of like getting married, but creating a contingency plan for divorce.
The bottom line is that she is going to pay the $5k one way or another. If she leaves it where it is, she will pay significantly more than the $5k in interest. Paying it off now actually saves her quite a bit of money. You have to be careful though. I do know a couple of people who quit work to go to school FT. They didn't finish. Now they are stuck with fairly large student loan debts and no degree.
Thanks, this is my thinking as well. On all accounts. I suppose bankruptcy is never out of the question for anyone, but I certainly don't think it would be wise to just pay incredible interest under the presumption that it will happen.
What kind of rate would she get the student loan money at? Back when I was in grad school, I had access to subsidized federal loans at 3% interest. Some of my friends who have been in school more recently say that their loans are in the 7-8% range.
Basically, the two main things to consider are how much would actually be saved by doing this and how certain employment is upon graduation. If there's a chance your friend will be out of work for an extended period, I'd think twice about taking on too much in student loans. Better to default on the credit card debt if that's going to be the case.
I agree with everyone else who says that the root of the problem must be fixed. If the CC debt was for a temporary emergency situation, that's one thing. If it was habitual overspending, using the student loan money would be a terrible idea.
My friend came to me with this query, but the truth is I know little about these things. She has a credit card with "around 5 grand on it," with an APR "in the 20's." Yikes. She has access to student loans with single-digit interest rates. I know, I know-it's technically a no-no to pay off personal debts with student aid. I appreciate this tidbit but I think we can all collectively agree it's not a serious moral issue.
Is there any downside in her paying off the credit cards with the student loans that I'm not thinking of? Is there some nuance in the way student loan interest is calculated that might actually put her in a worse position if she were to pay off the CC's with a student loan?
Thank you so much for your info here. I know nothing of this stuff.
Don't do it. Student loans are not dischargable in bankruptcy.
When I was in college 4 years ago, I had a friend who didn't need all the student loan money that he qualified for, but got the max anyways. The rates were REALLY low. He put the student loan money in his bank account and seasoned it for 3 months and then used it for a down payment on a house. Kind of a cool idea.
$5 k in credit card debt and an apr in the "20's" isn't really the important information.
The important information is how long will it take to pay back if you're only paying the minimum or a little more than that? The numbers are crazy...like 9 or 12 years or something.And the danger is, you dont have a steady income stream for those 9 or 12 years. You're really putting a lot of undo pressure on yourself for no reason if you're only paying the bare minimum.
$5 k isn't a lot, but it may indicate sloppy habits. Something that can't be fixed by paying it off with a student loan.
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