Deep card debt jeopardizes hopes to fund children’s college


Dear Credit Smart,
I am in severe credit card debt, close to $80,000. My husband and I make about $140,000 combined and are in our early 50s. Two daughters, one graduates college in May and one a junior in high school. We are barely making our bills each month and are considering going into a debt repayment plan. However, we will have to begin paying college loans for my older daughter soon and I will still need to take out loans to pay for my younger daughter’s college in a few years. Will a debt consolidation program affect my ability to obtain a new school loan in two years? I do realize I should stop borrowing but I just need to get these children through college before I can really regroup here. I have no real plan and feel like my life may just implode over money at some point. Your thoughts? – Dee


Dear Dee,
I am glad to see that you understand you need to do something about your considerable credit card debt. I am not sure how far you have gotten in your search for a debt repayment/consolidation option, so I would like to start there and then we will talk about the college loans.

I don’t know if you are talking about a consolidation loan or a debt management plan, which based on your question, seem to be options you might be exploring. A consolidation loan from a bank or credit union allows you to borrow enough money to repay your credit card debt and effectively moves your debt from numerous credit cards to one loan payment. This method trades one debt for another, but if your rate is good you can certainly save money this way and you probably will not have to close your credit card accounts. However, because the amount of debt you have is substantial you might be asked for collateral for the loan. If this means using your home, I would strongly advise against that. Trading unsecured debt for secured debt can put your home at risk if for any reason you must default on the loan.

On a debt management plan, you will make one payment to the agency you are working with, who will then disburse those funds to your credit card companies. Like a consolidation loan, you will be making one monthly payment instead of several, but on this type of plan your accounts will be closed. Closing the accounts may result in a drop to your credit scores because you will lose your available credit, which is one factor in credit scoring. Making regular monthly payments to your creditors on a DMP will help to bring your scores back up in time. I recommend you contact The National Foundation for Credit Counseling to find a certified, nonprofit counselor who will go over all of your options to address your debt, including a DMP.

Either a consolidation loan or a DMP may or may not affect your ability to get additional student loans when the time comes to send your youngest to college. But doing something now will give you two years of payments to help if you make your payments on time, every time. On-time payments are the No. 1 factor in credit scoring.

As for your daughters’ college loans, I would suggest that you and your husband consider the advice the flight attendants give on every plane flight: “Put on your own oxygen mask before helping those around you.” If you do not take care of your own debts, that implosion you refer to is much more likely.

Have a frank discussion with both of them about how the loans will be repaid. While I understand and sympathize with your desire to pay for your children’s education, it does not make you bad parents to expect them to contribute. You and your older daughter should also explore the options for student loan repayment. Forbearance and even loan forgiveness might be available, depending on your daughter’s area of study and other factors.

Your younger daughter should also be part of these discussions before any loans are taken out on her behalf. Many schools offer dual credit while students are still in high school that will translate to college hours. Community college is also a great option for getting the basics that will transfer to her school of choice and save hundreds, maybe even thousands of dollars that will not have to be borrowed and then repaid.

Navigating student loans and the repayment options can be tricky. I have already suggested you contact a credit counselor but I want you to know that in addition to offering help with your credit card debt, NFCC has several qualified members with counselors that have been trained in the student loan process and can help you understand the repayment options available. Search for an office that offers help with both and when you make the call you will find that the counselor will go over every aspect of your financial situation and help you make the right choices for you and your family.

Remember to always use your credit smarts!

See related: How to ask the kids to help out in a financial crisisConsolidation loan versus balance transfer versus DIY payment plan6 debt consolidation traps and how to avoid them

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Updated: 01-17-2018