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Old 02-12-2010, 04:52 PM
 
770 posts, read 690,821 times
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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.
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Old 02-12-2010, 05:41 PM
 
Location: San Jose, CA
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I don't think there is anything stopping her from doing just as she described considering that she gets the student aid based on needs. The only thing I can think of that is an issue is that if she has to file bankruptcy it would be much harder to discharge the student loans than any credit card debt.

But seriously paying 20% APR is crazy, and 5 grand is not that much provided she would get a decent job, and is dedicated to paying it back.

One thing she has to think about is why she has 5K in CC debt, and if that reason would still be an issue after getting the student loan, because if she is just unable or unwilling to live within her means she will eventually file for BK and then have to deal with the fact that the student loans are hard to discharge. Otherwise if it was a temporary issue, not a lifestyle issue, I think it should be fine.
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Old 02-12-2010, 05:53 PM
 
770 posts, read 690,821 times
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Quote:
Originally Posted by cardinal2007 View Post
I don't think there is anything stopping her from doing just as she described considering that she gets the student aid based on needs. The only thing I can think of that is an issue is that if she has to file bankruptcy it would be much harder to discharge the student loans than any credit card debt.

But seriously paying 20% APR is crazy, and 5 grand is not that much provided she would get a decent job, and is dedicated to paying it back.

One thing she has to think about is why she has 5K in CC debt, and if that reason would still be an issue after getting the student loan, because if she is just unable or unwilling to live within her means she will eventually file for BK and then have to deal with the fact that the student loans are hard to discharge. Otherwise if it was a temporary issue, not a lifestyle issue, I think it should be fine.
Outstanding. Thank you very much. I know with student loans the interest accumulates year after year, so I wondered if she's got 2 or 3 years of school left if the accumulated interest would somehow make it a worse deal than the revolving credit card apr...but I guess that doesn't make sense the apr on the cc's would continue year after year as well.


Thanks again.
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Old 02-12-2010, 06:16 PM
 
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Typically you find people that have a lot of CC debt charge it back up once it's paid off. And end up with twice the debt.
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Old 02-12-2010, 07:59 PM
 
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Everybody else pretty much agree?
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Old 02-12-2010, 08:43 PM
 
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Quote:
Originally Posted by thinkin about it View Post
Everybody else pretty much agree?
Yep! It is absolutely essential that she fix the problem that created the debt in the first place; otherwise, she will be in the same place in a short period of time. The only problem is she will now have twice the debt. Remember she hasn't paid the $5k off. She has merely transferred it.
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Old 02-12-2010, 08:54 PM
 
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How will she pay for school if she uses her loan money for credit card debt? If she has money to pay for school, then maybe she can just start to increase how much she pays towards her credit cards, without taking on more debt?
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Old 02-13-2010, 12:54 AM
 
Location: Sacramento
2,568 posts, read 5,782,150 times
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Quote:
Originally Posted by thinkin about it View Post
Everybody else pretty much agree?
Yes. The only exception I would make is if the cc charges were school related before she go the student loan. And new clothes or going out to eat do not count as school related.
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Old 02-13-2010, 06:55 AM
 
Location: Coastal New Jersey
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You have to be really careful, and as others have indicated, make a lifestyle change to prevent running up the cc debt again.

I just had this conversation with my sister last night. She went to college in her 40's after raising a daughter as a single mom. She met someone she planned to marry--good guy with a good job, encouraged her to complete her last two years full time. She got a job after graduation and decided to pay off her credit cards with her student loans...then the fiance lost his job and has been out of work for three years. Had to use the credit cards just to live. Now she has both cc debt and the student loans while she struggles to support them both. She keeps getting deferments on the student loans, but the debt is still there.
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Old 02-13-2010, 11:13 AM
 
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Quote:
Originally Posted by thinkin about it View Post
Everybody else pretty much agree?
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.
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