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Shifting debt can be more costly than people think

Whether a consumer is filing for Chapter 7 bankruptcy or Chapter 13 bankruptcy, there are limits on what types of debt a person can discharge through bankruptcy. While credit card debt and many other forms of debt are easy to get rid of, certain high-value debts like student loans are not. Furthermore, with interest rates on student loans rising, and more students relying on loans to pay for school, this is a huge problem.

Tennessee readers may be familiar with the saying "Robbing Peter to pay Paul." That is exactly what many consumers are doing to keep up with student loans. Since student loans are virtually impossible to get rid of in bankruptcy, many consumers have begun using their credit cards to manage student loan payments. While this may seem like a reasonable idea at the time, shifting debt is not always the wisest thing to do.

In the first place, shifting debt can be expensive. In addition, while the federal interest rates on student loans are set to rise, they are still significantly lower than most credit card interest rates. When the two are combined, the cost of shifting the debt and the increase in monthly interest rates will effectively wipe out any short-term gains. Another very serious concern is that the credit card debt may become non-dischargeable as well.

While credit card bills are generally dischargeable in bankruptcy, if the court feels the debtor used credit cards with the intention of later filing for bankruptcy, the court may deny them the opportunity to get rid of the debt. Rather than playing games and risking serious consequences under the anti-abuse provision in the U.S. Bankruptcy Code, speak with a qualified debt relief professional about real, long-term solutions.

Source: Fox Business, "Should You Use Plastic to Pay Off Student Loans?" Minda Zetlin, July 17, 2013

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Mark T. Young & Associates
2895 Northpoint Blvd.
Hixson, TN 37343

Toll Free: 888-376-0282
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