One thing that I don’t think anyone has pointed out - even if this is a miracle credit card with really low interest and no charge for a cash advance, all AR has to do is be late on one payment and the interest rate will sky rocket. Probably the best way to get AR to believe this is to get a hold of the terms of the card and point these things out.
No, it’s like any other loan - your payment covers whatever interest accrued since the last period, and then goes toward the principal. However, AR’s idea is not to put each monthly payment on the CC, but rather to pay the loan in full with a single CC charge, so that no further loan interest accrues. It would just be transferring the debt, in the same way you might transfer your CC balance to a lower-interest card. That part makes sense. It’s all the other issues discussed here (high risk, unforeseen costs, low-to-no reward, can’t actually be done that way) that make it nutso.
If the SL is the smallest expense, and if AR doesn’t spend much, where is the other money going? Other debts?
Something to keep in mind, student loans cannot ever be discharged in a bankruptcy but credit card debt can.
The biggest ones are car (insurance, gas, repairs) and health insurance. We’ve been trying to find a job for AR anywhere that has affordable housing (nowhere around here) and sufficient public transportation, so they can get rid of the car. But even getting the current job (1 hour away) was a huge deal. AR is very good at keeping a job, but just has a hell of a time getting one. I mean, *I *probably wouldn’t hire AR, if I didn’t know them.
And we allowed AR to retain the expensive health insurance until now because we didn’t realize how tight their finances really were. Now that we have the facts, we’re insisting on a 50% reduction in that cost, as part of our conversation tomorrow. It’s going to be fun.
True. And if bankruptcy were a reasonable solution for AR, I’d take that into consideration. But it’s not. Aside from the student loan, AR is not in a huge amount of debt - less than $1000 on the CC right now, and AR is paying $100-200 on that each month. Even if all of AR’s debts, including the loan, were wiped away tomorrow, that would only give them $180-280 more per month. They’d still be spending nearly as much as they’re earning, or more than they’re earning, in slow months like the current one.
As everyone’s said, it really is a bigger issue than the loan, and that’s being addressed. I just don’t want playing around with the loan to potentially make things even worse.
That actually depends on the type of loan, the specific regulations in place at the time it was made, and the type of bankruptcy being filed. So I’m told by my wife, who was employed for many years handling paperwork for write-offs on defaulted student loans. So she’s probably right. (She usually is. 
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I’m providing housing and some financial support to an adult relative. The AR, we’ll call them, has some student loans. It’s nothing too onerus: a current total of about $6,000, with a payment of $80.00, which is actually the smallest of all AR’s monthly expenses.
[/QUOTE]
From your OP
I know you say they are an adult and should make their own decisions, etc. However, YOU are providing housing and YOU are paying for some things beyond that. Disabilities and/or age aside, that gives YOU the right to set conditions for that support. IMHO and with all the love and compassion I have for the situation, you need to be the one handling AR finances. All of there money comes to you and you make sure that all of the necessities and bills are paid. With whatever is leftover, it either goes into savings or an allowance (preferably split between the two) and when the allowance is used up, that is it until the next disbursement.
All of this is transparent. Buy a ledger book and have AR sit with you and show them how to track the money. If your argument is “they are an adult” then why are you contributing to their support? You are doing neither yourself nor AR any good with the belief that you need to help them out financially but they can do what they want with their money.
There’s usually a balance transfer fee to do something like this with a credit card - 3% of the balance is typical. So on the 6,000 dollars, we’re looking at increasing the debt by 180.00.
What are the minimum payments on the card vs. the loan?
I don’t know if the new CC law prevents the banks from raising interest rates on existing balances if the card doesn’t have a fixed rate. Say the card’s rate is “prime + 10%” (vs “15% for now, more later if we want to”)… and prime goes up, is that 6,000 locked in at the value in place when the transfer is done?
Another handy hint - when my wife and her brother finished school, their parents said “either you go to college or you pay rent”. Both were working, both paid rent. When her brother got married and got his own palce, they took the rent he paid til then and it was part of his wedding gift. After a few years, that was a substantial amount and went toward a down payment on a house. (Ah, those were the days - house prices are crazy now.)
He didn’t know, so its not like he spent like crazy figuring it into his plans. Of course, that spoiled the surprise for my wife when she moved out. If you don’t NEED rent, that’s always a possibility - unless someone starts planning ahead for when they get their grubby mitts on it.
I’ll go ahead and PM you, since this really gets into more detail than is relevant here. For now, I’ll just say this:
When I say “AR is an adult” I do not mean “…and therefore I should have no say in what they do with their money.” What I mean is that I cannot (legally or physically) stop AR from doing whatever they want with their money. Believe me, I’d *love *to take full control of AR’s finances, and have been gradually building to that point. It’s been gradual for two reasons: first and foremost, because of the circumstances under which this whole situation started, it took a while to even know there were issues. We believed AR when they said they were saving money, and didn’t realize that AR was just guessing, and not actually doing the accounting. Second, once we realized AR was in fact just barely getting by (when we started charging rent, as whatever was left over each month, and got $0 several months in a row), we initially wanted to give AR a shot at handling it on their own. We set up guidelines and plans for AR to follow, and AR would follow them for a time with limited success and then forget about them.
Since then, we’ve pushed for more and more control. At my daily insistence, AR has been doing the detailed ledger for a few months, and willingly lets me see billing statements and account balances. We’ve also told AR that they cannot make any financial decisions without consulting us, because we provide support, which has been largely effective, until this most recent scheme. But I have no real way to enforce that, as my only recourse is to stop housing them. And I have a genuine and reasonable fear that AR could wind up dead or in prison if I throw them out, and I love AR and do not want them to come to harm. I would kick AR out in a heartbeat if they were stealing from me, spending money frivolously, or even simply malingering. But so far, AR has been cooperative (at least, as much as AR ever is), and so we’re continuing to work with them, while taking more control.
I know I’m probably crossing the line and we should move to a PM discussion if you want to continue with this aspect so I’ll leave it with this. I am at heart and by training an educator specializing in this sort of thing. When I suggest that you control their finances, it is with the full intention of teaching them how to manage money so that they can do it independently. You’re showing them how to prioritze expenditure and not be continually guessing. One of the best financial idea I ever got was from my sister who taught me to pull out a certain amount per week after bills were paid and the car is filled up (like $100) as an allowance so there was no more guessing as to how much I had in my account because it is so easy to use a debit card and lose track with fees and forgetting about that little thing you bought. I was 30 at the time and it wasn’t until someone sat down and showed me a money management strategy that fixed my particular problem that I had a workable solution. I actually gave my mom possession of my debit card for a few months until I trained myself with the new system.
I hope things work out because the ultimate goal is AR’s independence.
I’ve PMed you. Just remember, you asked for it. Again, you’re on the money, and we’ve already done more or less exactly this. Like you, we found that the debit card makes it too easy for AR to spend without realizing, and so we convinced them to pay for everything other than bills in cash, so they can see their funds depleting. It helped, to a degree. Unfortunately, AR will take out more cash if needed, and think, “I’ll just take out that much less next week.” Which of course doesn’t work. We didn’t know this was happening, but now we do, and - not to sound like a broken record - we’re working on it.
Independence is indeed the goal, as soon as possible, for as long as possible. And likewise, when I say I’d love to control AR’s finances, it’s only so that I can teach AR what I’m doing, and why, and how, and prove that doing things the right way works, and fudging doesn’t. AR’s had independence in the past, and we’re doing everthing we can (including fighting with other family members who feel the best idea is to throw more money at the problem) to help them acheive it, and *maintain *it, in the future.
And to bring it back around to my OP, that’s why we want to avert AR’s student loan plan. We haven’t yet given them any actual money outside of one or two rare instances of buying groceries, and we don’t want to create a situation where we have to either pony up or let AR’s credit get destroyed, which would make it that much harder to eventually move out.
Can I ask a stupid off-topic question - what are your debit transaction fees? I’ve never been comfortable with debit cards, I use them about twice a month. The rest of the time I take out about $200 at a shot and use it until its gone, except for big purchases.
My bank charges 50 cents a transaction over 20 transactions a month (which cost $8.95 in bank fees). When the bank switched to this from unlimited one year, my wife worked with someone who suddenly found they had a monthly service charge over $50 for the same reason - they just swiped everything on that card. The kids even put $5 McDonalds purchases on the card. …maybe I’m just getting to be an old fogey…
Plus there have been several swipe-and-capture-the-PIN scams on the news the last few years… I don’t trust debit.
If the relative needs to file BK down the line the student loan can’t be discharged but credit cards can.
As far as I know, when you use dischargeable debt to pay off non-dischargeable debt, the new debt actually becomes non-dischargeable, even if it is on a credit card. I don’t think it would help you, and some cases, might be considered a fraudulent conversion.
I am not a lawyer, etc.
I thought there was a big hullabaloo going on a few years ago over the way congress, bought and paid for by the big banks and credit card companies, changed the law so that in most circumstances you could not discharge credit card debt either. IIRC, if you got into it in a way that seemed to indicate you knew you could not pay the debt.
I’m not sure why this would be a bad thing?