Bankruptcy? Credit Counseling? Where to Turn?

Question: Hello Chris, I am a thirty year old male living in Asheville, NC. I currently have over 20,000 debt to a private student loan lender (Loan to Learn) which is a consolidation of a previous loan plus an additional amount from L.T.L. The school I attended did not participate in the Federal student loan program or I would certainly have opted for that instead. I have not been in school for the last year but have filled out the FAFSA for the 08-09 school year and am considering going back. I am in serious default of my private loan right now and in no financial state to 'catch up' in the manner they wish. They allowed me to apply for forebearance, then denied me due to being in default. I have been regularly ignoring their daily phone calls for some time now. I am wondering, if I return to school is it possible to transfer or consolidate my private loan over to a federal loan where I would have drastically better interest rates, lower payments and the possibility of forebearance? Are the re any other options to begin working this matter out? In addition I also have two small credit card debts. They are far more feasible for me to deal with right now and the cards have been destroyed. Should I consider bankruptcy?? I am engaged to be married soon and hope to start a small business with my brother in the next couple years. In other words, I am thirsty for any knowledge about how I can begin to relieve myself of this awful financial dilemma! Thank you for your time! I really hope to hear some feedback! Sincerely, Ryan, Asheville, NC

Answer: A few specific points: Declaring bankruptcy won't get rid of your student loans. You can't "discharge" student loans in either Chapter 7 or Chapter 13 personal bankruptcy. You never want to mix private student loans and federal student loans in a consolidation. The reason is that federal consolidation loans offer far better benefits than private ones, and you don't want to lose those by putting the two very different species of student loans together.

You could also visit with a credit counselor to get advice. In earlier posts, I've recommended the Consumer Credit Counseling Services with the National Foundation for Credit Counseling (www.nfcc.org). There is an office in Asheville, the Consumer Credit Counseling Service of Western North Carolina (www.cccsofwnc.org).

You have a lot going on: A big debt burden, a desire to head back to school, getting married, starting a business with your brother. My advice is to slow down. There is a season for everything, and it seems to me that you need to make some priorities. Right now, the big priority in your life is to sit down with your fiancé and go through all the financial options. The two of you should gather information together (such as both of you visiting with a credit counselor). The two of you need to come up with a mutually agreed upon plan for handling the debt and getting you to school.

About the author

Chris Farrell is the economics editor of Marketplace Money.

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