4 responses to “What if I let my student loan debt become collections debt?”

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  Randy F July 31st, 2010 at 05:57

  Gabriel

  if it is a federal backed loan say good bye to your tax refund until it is paid off.

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  Mn_Maggie July 31st, 2010 at 08:34

  Rose

  Along with what Randy F said, say goodbye to a good credit score which means, say goodbye to a new car, a house, and a good job. (Since all those things often require a credit check.)

  If you can’t pay, you can look into getting a deferment. It usually lasts 6 months and all that accumulates is the interest. (Which is typically low on a student loan anyway.) That way, you don’t have to pay right away and you don’t have to risk the problems associated with skipping out on your debts.

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  mickiinpodunk July 31st, 2010 at 22:23

  Bonnie

  No, it isn’t dischargeable in bankruptcy, and as an added bonus you get a collections fee tacked onto what you owe in the 20 to 35% of the balance owed added to the loan from the collection agency because they charge you to collect from you. If the collection agency can’t collect from you, then the IRS will garnish your tax refunds for the Department of Education until the entire amount is collected. Be smarter than this, call the servicer and see if you can arrange to make smaller, more affordable payments, or see if you qualify for a hardship deferment before you destroy your credit for the long term.

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  Jeanne R August 1st, 2010 at 01:01

  Marcia

  Student loan debt is not bankruptable. Please do not consolidate. It is not free, they will lower your payments by increasing the length of time until you are debt free, and you will take a hit on your credit score. Or they negotiate your debt down after telling you not to pay for awhile adding another hit to your credit score. Student loans are the only debt that can garnish your wages for non payment without taking you to court first. Just list them out on a piece of paper or a spreadsheet and follow the plan. If you work the plan, the plan will work for you.

  A. Have a garage sale and sell anything that you no longer need or want.

  B.Get a temporary part time job, if you have one, get another.

  Here is a plan that can help you. If you work the plan, the plan will work for you:
  1. Make a budget. Make the budget a week before you get paid. A budget is not a punishment! It is a tool which will free you from ever having to worry about money again. Put everything in your budget. Especially those annual, biannual, or quarterly bills like car registration, insurance, etc. Give every dollar you are going to bring home the name of where it is going. Add an “emergency fund” category to your budget for 25 dollars and save up until you have 1000-1250 dollars. Your emergency fund will help keep you from getting into new debt because of an emergency. If you can, set up a direct transfer to a savings account for your emergency fund. That way it moves automatically and you don’t even have to worry about it. You must cut your spending and live on less than you make.

  2.First get current on all of you debts and make no more late payments. Stop using your credit cards immediately. Do not take on any more debt. Credit cards are like quicksand only the death is much slower. Make a list of all of your debts in order of highest interest rate to lowest interest. Use cash only for your spending from now on.

  3.Pay the minimum due on all of your debts and then put your extra money towards paying off the highest interest one first. After you get that one paid off, you put the money you were paying on debt #1 (the minimum payment and the extra payment) towards debt #2. That will pay debt #2 off faster. When that is paid off, you put all three payments towards card #3 and that one will be paid off pretty quickly. As an example:

  To start :
  Debt #1 (highest interest): minimum payment+ extra payment
  Debt #2 (middle interest): minimum payment
  Debt #3(lowest interest): minimum payment

  Debt #1: paid off
  Debt #2: minimum payment from Debt #1+ Minimum payment from Debt #2 +extra payment
  Debt #3: minimum payment

  Debt #1: paid off
  Debt #2: paid off
  Debt #3:Minimum payment from card #1+ minimum payment from Debt #2+ minimum payment from Debt #3+ extra payment.

  That way, you will get them all paid off, on time, and pay the least interest. It will also help towards rebuilding your credit since you will no longer have any late payments. This works no matter how many different debts you may have.

  4. After you get all of your debts paid off, add to your emergency fund until you have 6-12 months of income saved up. Put that emergency fund money into a liquid money market fund or into a Bank of America no-risk CD so that if you need the money you can take it out without penalty.

  5a. When you have your emergency fund in place, add a category for “fun” to your budget. Save for a holiday, a vacation, a big screen, or dinners out, whatever goal you want. Remember to enjoy your life.

  5b. When you have your emergency fund in place, start saving for your retirement. Join the 401(k) plan at work and contribute the maximum. Your employer probably matches at least part of your contribution so why give up free money? Open a Roth IRA and contribute the maximum on a monthly basis. If you start saving for your retirement now, you will probably retire a millionaire.

  5c. When you have your emergency fund in place, start saving for your next car. Only buy cars, or other things that depreciate, with cash. Save up for a nicer car. That way you get the interest instead of paying the interest.

  You can do it and it isn’t as hard as you think. Just follow the plan.