If you’re feeling overwhelmed by student loans, you may be thinking that you would do almost anything to be rid of them. We understand your frustration and the temptation to take drastic action to eradicate your educational debt. That being said, there are some things you should think about long and hard before doing, and some other things you should NEVER do to pay off your student loans.
Think Hard: Using Home Equity
If your home has a lot of equity, you may be able to refinance it and take out cash you can put toward your debt. Alternately, if you have a home equity line of credit, you may be tempted to borrow on this typically low interest loan to pay down your debt. But, as the CFPB wrote recently, there are a couple of reasons this is a poor idea:
• You may get lower interest, but you could be at risk of losing your home if you can’t afford the payments on the equity line.
• You will lose out on the possibility of income based repayment programs and student loan forgiveness for good.
Think Hard: Filing Bankruptcy
We’ve written before that it is possible for student loans to be discharged in bankruptcy, but the fact is, it’s not automatic and it’s not necessarily easy. An additional case, called an adversary proceeding, must be filed adjunct to your bankruptcy case. Unless you are completely overwhelmed with other debts as well as student loans, this is likely a solution you should not jump into.
Don’t Do It: Gambling
If you’re in debt and desperate, you may be thinking of heading to Vegas or Atlantic City to turn a little cash into enough money to pay off your student loans. Or maybe you’re thinking of buying up a stack of lottery tickets when the Powerball hits $50 million. Gambling is no way to deal with student loans or any other type of debt. You’re better off applying for IBR or rehabilitating yours loans than gambling.
Don’t Do It: Pawns or Title Loans
If you’re close to paying off your loans or have been told you can pay a lump sum to bring your loans current and get them out of default, you may be tempted to overturn every rock looking for cash. Pawning the title to your vehicle or jewelry or other assets is not a wise money move. The interest rates can range from 300% up to 3,000%. If you take a lien on your title and don’t make payments, you could lose your car. And piling debt on top of debt never makes sense.
Don’t Do It: Cash Advances on Credit Cards
Cash advances on credit cards come at higher interest rates than even standard credit card rates, which are greater than most student loan interest rates – potentially five to ten times higher. And unless you can take enough cash to pay off your loans in full, you’ll be in the same situation as above, and you’ll be piling debt on top of debt, which will likely not improve your overall debt outlook.
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