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Poorgirl

Is this a really good idea?

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I was talking to a friend of mine about the problem I am having with owing Discover card $3,500. I told her I was being sued over this issue and have no money to pay them and she said, “I should get a student loan to pay off Discover.” Her rational is that once a judgment is render against me I’ll be charged interest and that would make the original amount soar even higher. She thinks by me asking for extra money from a student loan I will come out much better due to my interest on the loan being at %2.7

I’m kind nervous about this idea since right now I owe $6,000 in student loans already and don’t want to burrow anymore. I’m in graduate school and can get up to 18,000 a year. She even went on to say I should burrow a little extra to buy me a good running used car (I don’t have car and had to turn down good jobs that were to far for me to reach with out transportation.) In addition, she said that I should include my living expenses every time I burrow for tuition. In addition, take the money I’ve been paying for rent and put that in savings account. She said the money I’ll put in my savings acct. could be used to pay in the future for my student loans I have taken out.

If I follow her plan then I would have no other bills to pay since I have no utilities. Anyway, does her idea sound like a sound investment? Another note she has done this and was able to pay out her student loans right after she graduated. Hmmm.. However, should I follow the same lead?

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Once a debt has been reduced to a judgment, the interest that accrues is typically much less than a CA would tack on in "fees". What you're proposing is to borrow from Peter to give to Paul...generally not a good thing. BUT, I Have zero experience with Discover, and even less experience with being on the defensive, so I honestly couldn't tell ya if that's a good idea or not.

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Debt collectors always think you should borrow from someone else to pay them. There are a few things that will guide your decision:

  • Interest rates for judgments are defined by the court. I don't know what they are, but it seems somewhere in the neighborhood of 9%. I'm not sure.

  • Do you really want to transfer an unsecured debt than can be easily discharged in bk to a debt that is nearly impossible to discharge?

  • Do you really want to run up your student loan balance for non-educational expenses? Will this limit future educational options?

  • What will be the effect on your credit report? Will doing this improve your score? If not, no benefit here.

  • Will this reduce your debt load at all? No.

So, the only benefit I see is potentially less interest rate. The tradeoff is this debt transfered over to student loan account doesn't have an SOL. Student loans are forever. (Is this correct?)

You'll have to make up your own mind, but the benefit to you seems marginal. They cannot force you to take out a loan to pay them.

Voice of experience: taking out loans to pay loans seems like a way to solve a problem, but I've found it to be a scam that you run on yourself. This strategy never worked for me in the long run.

bw

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Bad, bad, bad idea. I don't think credit cards count as an educational expense first, and second as the other poster noted, student loan debt may be at a lower interst rate, but you are involving all sorts of organizations that have the power to do a heckuva lot more than Discover can.

Borrowing money to buy a car so you can get a better job is not a bad idea. Borrowing money to make one creditor happy isn't so good of an idea. I detest the idea of buying levereged depreciating assets, but in this case, it might make sense.

FYI, checking/savings accounts aren't safe from creditors once they get a judgement.

What state are you in?

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So, far the only money I plan on burrowing for my upcoming semster is for my living expenses and a car. As for asking for extra just to pay for Discover card I think not. Now, I will take my student work check that is tax exempt and also I found out today Discover cannot touch that money. I'll put it in a savings acct. under a family member name. Later I'll take the money I saved up in acct. to pay on student loans when I graduate. In the mean time I'll figure out another way to pay discover card out. Hopefully, once I get my car I will be able to have transportaion to go much further out looking for a job.

My friends' method seemed to have worked out for her though she owes no debts. She paid interest on her student loan the whole time while she was in school. And when ever she got extra money she would pay large somes on the loans. But she was able to due this becuase the only bills she had was her student loans. She would included her rent in her student loans and she bought her first car that way. Anyway, she told me that plan worked for her and might not work for everyone. Oh well, when she graduated from college she was debt free and has since bought her first home.

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I was given a summons and have to appear in court soon. Discover is not the only one I have to worry about I just found that a store I bought a bedroom set from when I was working full time has charged off my acct. and put a negative on my credit report. I do not want to burrow any money from my student loan. However, what my friend said about the car part made a whole lot of sense.

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I believe it would be fraudulent if a creditor knowingly accepted or solicited funds from you or if you diverted funds obtained as part of a federally guaranteed student loan program. They were intended by Congress to be used for tuition and related educational expenses and not as an investment planning tool or for purchasing automobiles.

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I believe it would be fraudulent if a creditor knowingly accepted or solicited funds from you or if you diverted funds obtained as part of a federally guaranteed student loan program. They were intended by Congress to be used for tuition and related educational expenses and not as an investment planning tool or for purchasing automobiles.

I totally, agree with you on the issue of a student loan only to be used for education needs. The sad part is large majority of people use it to buy crap ( fur coats, golf clubs etc..) that has nothing to do with educational needs. Hence, why allot of them end up unknowingly go deeper into debt with student loans. I think in my case the friend who advice me on how to better use my student loan was just trying to help. Look, if I had to choose I would not want to even think about using my student loan to buy a car. But I would by no means be the first person to use a student loan to buy a car in order to get to classes or go to work. Still this does not make it right and I agree but a student loan is not only a payment for a good education but an invest in the student.

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Yes, the original debt was only $1500 on the credit card but when I got behind, they charged me outrageous interest. I used my card to pay for extra things I need for school I'm living far away from home. I would say half the time the card was used for food and the other half school. Now, that I think about it much more my credit card was not wasted on junk. Hell, if not for the that credit card I would have starved to death at college. I didn't burrow money from my student loans for living expenses because I thought I would save more that way. Well, I was stupid and should left Discover card alone. Anyway, I assumed that was what created cards were for just small stuff. But small stuff can add up pretty fast.

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One more thing,

I contacted the people granting my student loans and they said after the money for tuition is taken out of my check what ever is left over is mine to use as I see fit.

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I can't speak to legality of whether or not you can use the proceeds from a student loan to pay off your card expense, but I can speak from a economic/business standpoint.

I would consider offering to pay the amount you owed before you missed your first payment and they started tacking on the high interest rates and fees with the condition that they delete the account or mark it paid as agreed. If you are able to legitimately classify the expenses charged on the card and can use proceeds from the student loan to pay off Discover I would.

My understanding of student loans is that the payment is deferred until 6 months after you graduate. By negotiating a reasonable settlement now you would avoid the judgement and the interest rate on that judgement which I expect would exceed 2.7%. In addition you still do not have a hit against present cashflow.

On the other hand if you have a lot of other debt that you have defaulted on you may not want to do this if you intend to file for bankruptcy.

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I can't speak to legality of whether or not you can use the proceeds from a student loan to pay off your card expense, but I can speak from a economic/business standpoint.

I would consider offering to pay the amount you owed before you missed your first payment and they started tacking on the high interest rates and fees with the condition that they delete the account or mark it paid as agreed. If you are able to legitimately classify the expenses charged on the card and can use proceeds from the student loan to pay off Discover I would.

My understanding of student loans is that the payment is deferred until 6 months after you graduate. By negotiating a reasonable settlement now you would avoid the judgement and the interest rate on that judgement which I expect would exceed 2.7%. In addition you still do not have a hit against present cashflow.

On the other hand if you have a lot of other debt that you have defaulted on you may not want to do this if you intend to file for bankruptcy.

Your thinking like me and my friend when we talked about how I could better handle this with discover card. Yes, the offered to settle for two thousand and I would have taken it had I any money. At the time when I filled for a student loan I didn't think to try this method. It was not until a friend told I could have. After all the card was used for school not partying. Anyway, I wish had done that sooner. With a court date approaching now.

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Personally, I think your friend is a genious. Judgment interest rates are state specific; in the 9-13% range. $3,500-tack on atty's fees, court costs etc.-about $4,200 total. Now you've got a big fat, unpaid judgment on your reports, likely to sit there for several years, compounding interest at an alarming rate....say 12%- after one year-$4,700, two years-$5,300, three years-$5,900, four years-$5,600.....you get the idea. Judgments are no joke; if you can settle this for $2,000 you'd be way ahead of the 8-ball. 2.7% is practically free money. There are no legal ramifications to using SL money for this; college kids blow it all the time. The only downside I see here is the fact you can't discharge SL debt in bk, but with the new reform being so much more strict does it really matter?

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The only downside I see here is the fact you can't discharge SL debt in bk, but with the new reform being so much more strict does it really matter?

I couldn't agree more. You would be better off using your student loan monet, negotiating a settlement with Discover for around $2,000, and paying them off. 2.7% is a lot cheaper than the 9-13% interest your going to pay on the Judgement.

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:cool: I've been thinking it over and talked about it even with my school lender. They had no problem with me using the remaining portion of my money to do what I wanted. Just as long as out of that money my school tuition was paid.

After hearing that from my lenders I asked myself "Why the hell did I not do this sooner" Anyway it's still not to late for me to pay this thing out. Now I'll have to pay a little more due to them getting a judgment against me. Oh well, you live an learn. But I know one thing their is no way in hell I'm going to sit around and let that thing collect interest. Another thing is why people keep talking about BK. I have nowhere near as that much debt to fix my mouth and say I'll file BK. Also, with the new Bk laws they are trying to fix it so that even Credit card debt cannot be removed.

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This thread is a great example of why I like this forum...

- Someone floats a problem out there

- Lots of people give their varied thoughts on the situation

- Enough information is gained to make a good decision

I'm not of the rob Peter to pay Paul persuasion, but after reading the various replies, this is one situation in which it would make sense. If you look at the numbers only, it seems a no-brainer. This isn't taking an advance on one high-interest credit card to pay another. There really is a significant advantage here. So, for what it's worth, I vote for using the student loan money to make these people go away.

bw

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Poorgirl, now I'm confused...do you have a judgment against you or have you just been served??? If the court date has not arrived yet you don't have a judgment entered. BIG difference.

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