Student Loans and Credit Card Debt

[californiway21]

Hello,

I wanted to get some advice from my fellow sdners and see if my thinking makes sense here. I currently have two credit cards that I have used to help me apply to undergrad and dental school for application fees, travel, hotels, and food. I also used these credit cards for living expenses such as groceries and gas when I didn't have anymore student loan funding available for the rest of the month. The only way that these credit cards are being paid for is by my father who has so graciously been taking care of it. However, money is starting to get tight for him and I want to take it off his back. However, since I will be going to dental school for the next 4 years, I will not have an income to take care of the credit cards. Furthermore, I have been accepted for the 4 year Health Professional Scholarship through the Navy where I'm going to get an approximately 1.9k stipend a month to live off of and all of my dental school and fees will be taken care of. I will be practically graduating dental school with zero debt. Therefore, I was curious if it was a better financial decision to take out $10,000 loan from financial aid at my dental school and take care of the $10,000 credit card debt with that loan. The interest rate for a graduate direct unsubsidized loan is 6%. Please help me if my rationale is right with this. Also, I'm only adding $90 a month in gas on these cards, which my dad can definitely pay off each month in full. So after I used the student loans for the $10,000 balance, I will not be again racking up a huge balance. Please comment your advice or concerns with this plan. My undergrad debt is done mostly through subsidized loans and totals only 20k.

Credit card 1:
Balance - $5,200
Minimum Payment - $147
Purchase APR - 21.74%
Interest charged per month is about $95

Credit card 2:
Balance - $4,450
Minimum Payment - $121
Purchase APR - 20.99%
Interest charged per month is about $75

Thanks!

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[mvenus929]

Taking out a loan to pay off credit card debt in your scenario is reasonable, but you should then start paying the bill yourself and put some of your stipend towards paying off your other debts. I lived off of about $1200 as a Med student, and increased that to about $2200 when I became a resident (primarily because I didn't want to share an apartment with someone anymore). You should have no issue living off $1900 minus a small amount toward your loan.

 

[californiway21]

Taking out a loan to pay off credit card debt in your scenario is reasonable, but you should then start paying the bill yourself and put some of your stipend towards paying off your other debts. I lived off of about $1200 as a Med student, and increased that to about $2200 when I became a resident (primarily because I didn't want to share an apartment with someone anymore). You should have no issue living off $1900 minus a small amount toward your loan.

Do you see the interest being saved from paying off the credit cards will student loans as a huge positive? On "credit card 1" it already has $600 paid interest for 2017.

 

[mvenus929]

Do you see the interest being saved from paying off the credit cards will student loans as a huge positive? On "credit card 1" it already has $600 paid interest for 2017.

Yes, going from a 12-21% interest rate to a ~6% interest rate will save you a lot in the long run. And if you pay it off a little each month, you should have no problem paying off the loan by the time you graduate.

 

[cpants]

Hello,

I wanted to get some advice from my fellow sdners and see if my thinking makes sense here. I currently have two credit cards that I have used to help me apply to undergrad and dental school for application fees, travel, hotels, and food. I also used these credit cards for living expenses such as groceries and gas when I didn't have anymore student loan funding available for the rest of the month. The only way that these credit cards are being paid for is by my father who has so graciously been taking care of it. However, money is starting to get tight for him and I want to take it off his back. However, since I will be going to dental school for the next 4 years, I will not have an income to take care of the credit cards. Furthermore, I have been accepted for the 4 year Health Professional Scholarship through the Navy where I'm going to get an approximately 1.9k stipend a month to live off of and all of my dental school and fees will be taken care of. I will be practically graduating dental school with zero debt. Therefore, I was curious if it was a better financial decision to take out $10,000 loan from financial aid at my dental school and take care of the $10,000 credit card debt with that loan. The interest rate for a graduate direct unsubsidized loan is 6%. Please help me if my rationale is right with this. Also, I'm only adding $90 a month in gas on these cards, which my dad can definitely pay off each month in full. So after I used the student loans for the $10,000 balance, I will not be again racking up a huge balance. Please comment your advice or concerns with this plan. My undergrad debt is done mostly through subsidized loans and totals only 20k.

Credit card 1:
Balance - $5,200
Minimum Payment - $147
Purchase APR - 21.74%
Interest charged per month is about $95

Credit card 2:
Balance - $4,450
Minimum Payment - $121
Purchase APR - 20.99%
Interest charged per month is about $75

Thanks!

It's not unreasonable to do this if you start paying the debt off ASAP. I think what is missing from your plan is an analysis of why you got into this debt in the first place. You aren't living within your means. You need to make a budget and stick to it. Get a small, cheap apartment. No vacations. No eating out. Cancel cable. Attack the debt. You should be able to put 500-1000 dollars/month toward this and have it paid off in a year. Leaves plenty for groceries, utilities, car insurance, and a small studio apartment.

 

[goodoldalky]

I would echo the above poster. You have a spending problem. No amount of shuffling loans will necessarily fix that. You need to note what your cashflow is each month, and ensure you are staying below that. Right now, you are buying/paying for too much stuff. The same thing is likely to happen with bigger numbers even after your $1.9k stipend starts rolling in.

 

[Stroganoff]

Also, I'm only adding $90 a month in gas on these cards,

I'd put gas and any other purchases on your debit card straight out of checking @ 0% APR instead of onto a credit card @ 21.74% or 20.99% APR. By charging $90 of gas on either credit card, you are shooting yourself in the foot $1.57-$1.63 immediately, not counting the $90 compounded every month.

Please comment your advice or concerns with this plan.

I'd apply for a good balance transfer (BT) first before even considering using student loans to pay off credit card balances. There's all sorts of threads on the Web like Best Balance Transfer Credit Cards on FatWallet Forums. You never know until you try.

 

[Another Second Opinion]

I agree with the others that spending each month should be re-evaluated, but the OP did say that a lot of this debt accumulated from applications, travel/meals for interviews so this might turn out to be a very good investment in the long run (assuming getting into dental school couldn't be done without accumulating this debt). With that being said, get rid of those credit cards now, unless you can pay off the balances each month, they're hurting you badly! I think it's reasonable to take out a student loan to get those credit cards paid off, then move to cash or debit cards to cover your expenses until you have the resources to consistently pay off your credit cards.