PLEASE ADVISE --- how to handle massive credit card debt

[ivywhore]

I don't know what your CC interest rates are right now, but the minimum payment on $20K is going to be pretty significant. How do you plan on covering it with the student budget? It seems like you'll have no choice but to get a part-time job and you'll probably have to find something non-law-related after 1L just to bring in cash to pay the credit card bills. I don't mean to be pessimistic, but with only one month to get things in order, it just seems like it's going to be very difficult for you to manage financially when school starts up.

If there is one thing they tell you on financial aid web sites, it's that you have to have your credit in order and should minimize your debt before entering LS, because there's very little financial aid can do to help you if you have poor credit or other debt outside of law school. Unless you were accepted off a waitlist, I think that a good deal of schools see financial issues as a valid reason for a deferral. Even though you say it isn't possible, I'm not sure that you're going to have a positive law school experience if you're going to be stuck working 20 hours a week trying to get enough money to pay your credit cards debt down.

Do you want a knife so you can stab the OP a few times. Did you not get a good night's rest?? Her debt may be legitimate freak!

["V"]

If I were the OP I would seriously try not to defer. Yes, it may make some financial sense to be in great shape when you begin law school - but 20k in debt is unlikely to be resolved in one, or even two, years. My feeling would be to try to 'push through it' and get through law school ASAP, then deal with the money issues when you graduate. Of course, you have to be able to make that option WORKABLE - as in, make your monthly payments, etc. Personally, I'd forget about trying to pay off the CC debt while still in law school, I think it's a noble but probably unrealistic goal.

Try to consolidate your credit card loans, either with the companies, or with a non-profit group (careful, some are dirty). Then do what a previous poster suggested - check if your leftover financial aid is enough to make the minimum payments. If not, have you considered the new grad plus loans? Can you borrow money from a family member to make the minimum payments for the three years and then pay them back? Seriously, sit down and write up a contract with them.

What you want to avoid, in my opinion, is either extreme. Don't quit on going to law school, and don't let your minimum payments stop getting sent. If you can find a workable range between those, then I'd take it. If you can't, then you may have to take time off to pay down the debt - though it certainly isn't the first choice option. But it's better to defer than it is to graduate with 30+k in overdue accounts in collections (assuming you could even keep getting financial aid with the debtors on you).

I know it's probably too late now, but taking a slightly lower ranked school with scholarship money might have been the smarter move. Anyways, good luck!

[baytostay]

If the OP is only making the minimum payments, then the OP is going to have to pay a lot more $$ to the credit card companies in the long run.

[aerynn]

The non-profits get those low or no interest rates by putting you on a payment plan to pay off the debt in 5 years (instead of the 10, 20 or never paid off plan that minimum payments will get you).  On $20K of debt, expect a minimum payment in the ball park of $600 per month.

["V"]

Even if he's making minimum payments, will increased income be more than the added interest? I imagine it will, in which case he'd be better off increasing his earning potential before trying to pay them off.

[aerynn]

The non-profits get those low or no interest rates by putting you on a payment plan to pay off the debt in 5 years (instead of the 10, 20 or never paid off plan that minimum payments will get you).  On $20K of debt, expect a minimum payment in the ball park of $600 per month.

i thought it was income-based

It is a negotiation between the non-profit and the credit card comapnies.  The way they get the deal is by an agreement to pay it off within a certain period of time.  The credit card companies do whst they can do reduce the fees and interest rates so that they can get the most money out of the debtor in the pay off period.  Considering the cents they get on the dollar if it goes in collections, even getting dollar for dollar on the debt is a good deal for them.  So, it is moderately based on income, but zero income doesn't equal zero payment.  There is just a limit to how low they can do, I guess.  They also work out your other expenses.  Some debt management programs also put a limit on unsecured loans that you can take out before you finish with the program.  I doubt they would stop Stafford loans, but I don't know if you could do private financial aid loans while in a debt management program.

It is something the OP will have to research thoroughly before going to school.  It would be a shame if he went in thinking he could do debt management and it cut off private loans for school or the payments weren't as manageable as he hoped.

Even filing for bankruptcy has gotten less forgiving since the law changed last year.  I would just hate to blow of $20K in credit card debt for 3 years and get to the other side unable to get a job that requires a credit check or find that the state bar in  my state required something like all bankruptcies discharged or no loans in collections.  I think GA or NC or FL?  (One of those southern states anyway) DOES have rules about lawyers and their personal finances, to reduce the likelihood of fraud.  In TN the number one cause of a Bar complaint on a practicing lawyer is for problems related to mishandling of money paid into escrow accounts and retainer agreements.  Lawyers tend to spend the money before they actually earn it.  State Bars and ethics committees don't like to see a lawyer with bad credit and undischarged bankruptcy.  I don't know how it is in every state, but even a degree from HYS won't get you a job if your credit keeps you from passing the Bar. 

[wunder]

My two thoughts:

I know a guy who just graduated law school and the forces that be won't let him take the bar in GA because of too much debt (not sure how much it was, but $20K would probably be in the ballpark).  So, you'll want to check the state where you want to practice ahead of time.

Someone mentioned taking out additional private student loans to cover the $20K.  It's my understanding that you can only take out student loans up to the maximum budget allowed by your school, regardless of whether the loans are public or private.  If you want to take out more than the budget, your school has to raise your maximum.  Of course, $20K in debt may persuade your school to raise the maximum.  But then again, whoever said you can't use your student loans to pay off past debt may be right.  Definitely something to check on.

[aerynn]

My two thoughts:

I know a guy who just graduated law school and the forces that be won't let him take the bar in GA because of too much debt (not sure how much it was, but $20K would probably be in the ballpark).  So, you'll want to check the state where you want to practice ahead of time.

thats about the dumbest thing i've ever heard of.

you have too much debt to take the bar and get a good paying job to pay off your debt.  go wash dishes for a while

It has to be consumer debt (not student loans or mortgage) and I think it is a good idea.  Lawyers often work on retainer . . . You pay them a big chunk of money and they put it in an escrow account.  Then, as they work, they bill the escrow account for their work.  Lawyers who have a lot of personal debt are tempted to borrow against the escrow account and work it off later.  It is a major cause of ethics violations.

[queencruella]

valid point only if you go into business for yourself.  which someone with a boatload of consumer debt would be unable to do.

penalizing someone for what may have been circumstances beyond their control and not allowing them to better their lives is stupid.

I think the issue (as the bar sees it) is that a great deal of people who have high credit card debt did not have unexpected situations that led them to high CC debt. Of the people I've known with high debt or bad credit, the vast majority got there through poor spending habits.

[aerynn]

valid point only if you go into business for yourself.  which someone with a boatload of consumer debt would be unable to do.

penalizing someone for what may have been circumstances beyond their control and not allowing them to better their lives is stupid.

Lawyers do tons of stuff with money that doesn't have much oversight.  They set up trust funds, structured settlements, tax shelters, etc.  Even if the job itself isn't related to anything financial, there is a lot of opportunity for corruption.  Chicago, for example, had a problem in the 80's with criminal defense lawyers who claimed the DA and ADAs were crooked and would take bribes.  When the client gave the defense attorney the bribe in order to get the sentence reduced to probation instead of jail time, the defense attorney would just keep it and let the client get the plea bargain that had already been negotiated.  The client thought the bribe went through and the defense guy got an extra $10K.

The point is, nearly any lawyer is in a position to screw over a client for a cash bonus.  Therefore, not allowing lawyers who are irresponsible with consumer debt is a good idea to reduce ethics violations.

There are other ways to get a job and pay back credit card debt, besides being a lawyer.  They aren't stopping someone from bettering their lives.  The debtor just has to pay stuff off a bit before handling someone else life.  It has nothing to do with how you got into debt and everything to do with reducing vulnerbility to ethics violations to pay it off faster.