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Frequent Contributor
compassion101
Posts: 487
Registered: ‎06-06-2012

Re: Cards for people with high utilization


CruzImperial wrote: Everyone make mistakes. Some of you have made the same mistakes as him

Yep, for sure I have. And I tried the approach he wants, getting more credit. And it worked for the short-term, then a few yers later I had to file BK which I am 8 years removed from and it still hurts me somewhat.

 

The key is to budget at this point. To spend less than he makes, live below his means. As a student, obv quite difficult. Prob needs to pick up a few hours of work, or additional work and not spend it on stuff he wants.

 

He prob won't qualify for any additional credit now which is probably good for him (when I did it util wasn't as important so there were more credit offers to get me in deeper). My real issue was that I lived a lifestyle that was above my income.  

 

If he can somehow get hold of a low interest loan it might help him to pay more principle, but it will not solve his problems until he starts budgeting. At 20 and a student, I'm sure he can grasp the concept just fine but having the discipline to follow it is the tough part. Good luck to you guys.

Established Contributor
Cdnewmanpac
Posts: 759
Registered: ‎01-16-2012

Re: Cards for people with high utilization


j_casteel wrote:

Putting the moral reason's aside, using a Federal student loan for anything that is not school related is fraud aka illegal. Not too mention adding more debt. that he'll have to pay after he graduates and if he can get a job to pay for that debt. Also, if the poop hits the fan and he must later in life file a BK then he'll have that much more student loan debt. that cannot be filed in the BK. Those are just a few reasons thats it not good advice. The whole picture much be looked at, and not the quick fix of getting him out of credit card debt. right now. You don't want to graduate college with a degree that is costing you much more than you're making. It just sounds like the guy needs to set a budget and stick to it. Sure, its going to be tough and take some time, but once he has the cards paid down or off then he can make sure that they don't get maxed out again. The debt is paid off and not something he'll be dealing with for years to come after he graduates.


So this is just wrong. Not sure where you got your info, but there is no obligation to use loan money towards school expenses. You are permitted to use your funds for living expenses while you are in school. It certainly isn't "fraud". There are private loans that may come with specific funding stipulations, but Ford loans (whether subsidized or unsubsidized) have no such restrictions.

Also, using a loan to pay off other debts doesn't increase your debt. Shifting from a high interest rate to a low one is a good idea. It also allows him to defer while in school and if he doesn't earn enough to pay the full amount upon graduation, he can use one of the income-driven repayment plans. Federal student loans are a source of low interest finance. The OP's friend would be a fool not to at least look into it.

 

You are correct that student loans cannot be discharged during bankrupcy. But shifting to a low interest loan and paying off his high interest credit card debt may avoid bankrupcy in the first place. This also would seem to contradict your moral objections: he is shifting from a debt that can be discharged to one that cannot, thus forcing him to meet his obligations.

 

For the OP, getting a federally guaranteed loan at this point may be a stretch unless he filled out a FAFSA, was eligible for loans and then did not accept them, but it is still worth a try. If not, he'll need to make his minimum payments, accept that his debt will bloom and focus his energy on getting a new job. If he keeps making the minimum payments and staying under his limits, he could be eligible for a zero interest BT once he regains employment. But sending out apps while unemployed seems more likely to trigger adverse action from his current issuers than a viable solution.

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redeemedsoul136
Posts: 13
Registered: ‎07-27-2012

Re: Cards for people with high utilization

This hasn't been said yet in the above responses (to my knowledge) but do not, do not, do not join your credit file with his. Joining your credit (making him an AU to increase his total limit which decreases his AU) is much much worse than just giving him money to help pay it off (personal friend to friend loan [which I wouldn't do either]). Even if he sock drawers the AU'd cards it is a recipe for disaster if YOU somehow get pulled into a debt mess with him.

 

Just for reference, people that are married don't even want to AU their spouse or other family members and you want to AU a college friend who is clearly in the hole.

BE CAREFUL!


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ComputerWizMaster
Posts: 69
Registered: ‎05-26-2011

Re: Cards for people with high utilization


j_casteel wrote:

LilNYC wrote:

j_casteel wrote:

LilNYC wrote:

I noticed that you said your friend is 20 & that you study with him- if he's a student his best bet is to take out a federal student low (interest deferred while he's a student & for 6-12 months after graduation) & pay off his credit card balances.


I'm sorry but i would have to completely disagree with taking out a student loan to pay off credit card debt. That is very very poor advice.


why do you disagree? Student loans have low interest while credit cards have astronomical interest even if they start off with promo rates. This was actually somerhing 1 of my biz professors advised students ages ago when I was in college.

I should note that I never took out a loan of any kind so I apologize if I gave misinformed advice. It just seemed to make sense when I first heard the suggestion. 


Putting the moral reason's aside, using a Federal student loan for anything that is not school related is fraud aka illegal. Not too mention adding more debt. that he'll have to pay after he graduates and if he can get a job to pay for that debt. Also, if the poop hits the fan and he must later in life file a BK then he'll have that much more student loan debt. that cannot be filed in the BK. Those are just a few reasons thats it not good advice. The whole picture much be looked at, and not the quick fix of getting him out of credit card debt. right now. You don't want to graduate college with a degree that is costing you much more than you're making. It just sounds like the guy needs to set a budget and stick to it. Sure, its going to be tough and take some time, but once he has the cards paid down or off then he can make sure that they don't get maxed out again. The debt is paid off and not something he'll be dealing with for years to come after he graduates.


It is illegal, or at least in violation of your loan agreement, to use student loan funds for anything other than educational expenses. The complicated part becomes in defining what is an educational expense. If he uses the credit card to pay for education related expenses, which can include rent and food among other things, then paying that debt off with his student loan wouldn't be in violation. In absence of court rulings though we can spend all day splitting hairs on what is and isn't a valid expense.

 

That being said, the student loan is a great idea, albeit with limitations. The student loans are an excellent way for him to reduce the cost of this debt. His Credit Card debt will be FAR more costly and crushing to him over the long term than his student loans ever would be. Student loans are far easier to manage than Credit Card debt (with payment facilities like IBR and etc.). That being said, he has to act VERY wisely in this regard. He can't use the student loans as a bail out then continue to charge up his cards. If he doesn't curtail spending and live within his means the student loan options will only make him worse off by allowing his to acquire more costly debt.

 

Credit Cards are the most expensive loans you can get besides pay day loans. You should never, ever, carry a balance on them. I second the student loan advice with the only caveat being that he adjusts down his spending accordingly.

 

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Valued Contributor
jamesdwi
Posts: 1,390
Registered: ‎09-16-2011

Re: Cards for people with high utilization

I agree don't take out a student loan, untill he lives with in a budget he is heading down hill fast. A loan that can't be discharged later isn't going to help. He needs to learn to live with in a budget, no matter how much money he makes post graduation he will figure out how to spend it and more. Not taking out student loans is the one bright point of my credit history. When he manages to live within a budget and pay down some debt, he will be out of the worst of his problem after he pays off 2-3k of his debt. Take a first or second  job, sell some of his assets, donate plasma do what ever it takes. Yes it will be painful for a while but if he gets his financial life under control it will be easier.  He is single its easier to do the steps he needs to do now than after he is in a committed relationship and other responsibilities. 

 

 


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SwampSystems
Posts: 358
Registered: ‎06-25-2012

Re: Cards for people with high utilization

Several people in this thread are confusing Title IV funds with general student loans. There are plenty of lenders willing to give you private "student loans" which you can use for any purpose, but federal Title IV financial aid is very limited in what you are allowed to use it for.

 

As to whether or not taking out loans to pay off credit cards makes any sense, it's a risky situation because there's nothing stopping the person from running up the cards again after the fact. If your friend plans to cut up or sock drawer the cards, then by all means, they should do it as long they plan to start paying the loan immediately and not let the interest balloon while they are still in school. I say interest because, again, it is not legal to use subsidized Title IV loans to do this, so the loan in question would be a private loan.

Contributor
SpiceIslander
Posts: 315
Registered: ‎02-01-2010

Re: Cards for people with high utilization


SwampSystems wrote:

 

As to whether or not taking out loans to pay off credit cards makes any sense, it's a risky situation because there's nothing stopping the person from running up the cards again after the fact.


 

I know someone who has used sutdent loans to pay off credit cards over and over and ran them right back up. She was a sweet person who just kept making the same old mistakes. That person graduated with 100K + in student loans and eventually filed bankruptcy, not being able to keep up with student loans and credit card payments.

 

IMO whether or not OP's friend should use student loans to pay off cc debt is not so much the issue as much as if he's now TRULY disciplined and committed to make a change in his spending habits. If he isn't, no amount of consolidations will help him in the long run. (Generally) In cases of over-spenders, no amount of money is enough until they change their ways. Perhaps the OP could take a look at his budget and make sure the items are all needs and not wants. You'd be surprised what can be cut and used towards debt repayment. Good luck, OP!

 

Meg.

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