financialcounselor

Woman Exhausts Student Loan Money trying to keep up with her Mortgage; Home in Foreclosure anyway

In Uncategorized on July 26, 2012 at 10:02 pm
They say that you should never jeopardize your future for the sake of the present. In my job as a financial counselor I witness many people doing exactly that. One of my clients even was forced to give up her education because of it.
It was a really sad situation. This woman, named Lisa, was loaded down with student loan and credit card debt, and her house was in foreclosure. The worst was that her education was going nowhere.
Now let me explain the financial mistakes she made to get to where she was.
Lisa had lost a job a couple years back and so she decided to go back to school full time. But rather than cut back on the lifestyle she had and live more like a student, Lisa used student loan money to keep the party going. She took out a ton of student loans, and she used the money not just for school expenses, but also to keep up with her mortgage payments and all the other things in her life.
After three years Lisa hit the wall. She couldn’t borrow any more money in student loans. She’d exhausted all the student loan money available to her by overborrowing, using the student loans to pay her mortgage. She had no money in the bank to pay for tuition so she was forced to quit school even though she was only halfway to her degree. She’d gotten a part time job, but it didn’t come close to covering all her bills. Without the student loan money, she fell behind on the mortgage and the house went into foreclosure.
Now that she wasn’t in school anymore, Lisa was required to begin paying on the student loans. And she was carrying about four grand in credit card debt when she lost the job. Her credit card debt had ballooned to $9,000 by the time I talked to her.
So here she was needing to find a new place to live, with huge credit card and student loan payments, a house in foreclosure and wrecked credit because of it all. And all she had to work with was her part time income.
The mistakes this girl made. First, there was the four grand in credit card debt she’d been living with. If she’d have paid her credit card bills in full each month she’d have had one less expense when she lost her job. But her biggest mistake was using the student loans to keep up her lifestyle. If she’d have gotten a roommate or cut back on her spending in a major way and just used the student loans for school, she wouldn’t have exhausted her loans.
She owed far more on her house than it was worth, and she only bought it a couple years before the job loss. It might have been a good idea to let it go if it was apparent she could not afford the payments without the student loans.
This is why I always tell people to look at the big picture and to be realistic about their financial situation. An education is a big commitment and with sky-high tuition it needs to planned for. If Lisa had done these things she might not be in the position she is now, with no degree, no place to live and major debt obligations.
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