Credit cards v student loans?
My daughter is 25 years old and a graduate student at Boston University. After scholarships and grants, she will still owe $11,732 for the fall 2023 semester. She has no student loans from her undergraduate education, and none from her first year of grad school. She has an ABLE account, which has $7,410.12 left in it, which has been funding her education.
She just confided in me that she opened a Venmo credit card 2 years ago with a $5,000 credit limit that she has maxed out. She also has a Chase credit card with a $1,500 credit limit that she also maxed out. She has been trying to pay them off, but still owes $5,850.17 on her credit cards.
She has turned over both credit cards to me, so now she is using only her debit card. Her only income at this time is SSI. Her credit card fiasco is causing her a great deal of anxiety, and I was wondering if it would be a good idea to withdraw $5,850.17 from her ABLE account to pay off her credit card debt. She would then need to apply for a student loan for $10,000 for this semester, and another $10,000 for the spring 2024 semester.
Also, would it be a good idea to cancel her Venmo credit card once it is paid off, or will this have a negative effect on her credit rating? And, do you have any suggestions for what type of student loans she applies for? Thanks!
Terry Says
First, you need to understand the limitations on the use of ABLE funds. Read this:
https://www.ablenrc.org/get-started/what-can-funds-be-used-for/
It might be hard to justify the use of that money to pay off her cards. It should be used to pay her school-related expenses.
What is the interest rate on each card? Likely it is higher than you are getting in your savings account. So it might be a generous gift, if you can afford it, to pay off her credit cards — and then ask her to repay $100/month to you. It would take about four years to pay this off to you — but at least the interest wouldn’t be piling up. It would teach her a lesson — but a less painful one. Make sure you ask her to sign a note for this obligation, and include 1% interest, so if you have to write off a loss in the future, you can at least take it out of your tax liability!
Where would she get the money to do this? She should take on a part-time job at the school — maybe in the food service department, or tutoring, or assisting a professor. The lessons that cost the most, teach the most. So she needs to feel the impact.
Just an idea to both teach and mitigate some of hte cost. If she just pays the minimums to the card issuer, it could take 25-30 years to pay it off because of the accumulating interest.
