Sir,
I wanted to ask you what my options are concerning my credit card and government student loan debt, as it seems that everyone has special interests and they are not primarily interested in helping you first when it comes to debt relief.
When I went to college in 2003 right out of high school I was a full ride student. I had Bright Futures and various grants and awards from Florida State University. However, I did not prioritize my grades over other areas of my life and as a result was academically ineligible for the scholarships, grants and awards that helped me afford college.
My fraternity I pledged had a credit card fundraiser where we were to sign students up on campus for accounts, and I signed for a few to meet a quota. I started borrowing Stafford Loans and using the cards and racked up credit card debt. I also took on jobs to start trying to afford college, but I could not maintain my grades and work at the same time, and I was academically dismissed. I rapidly fell into debt over the next several years. As I tried to work and go to school and make the minimum payments on the cards, I became stressed, depressed and desolate over my situation, and to cope I simply tried to pretend they didn’t exist.
I am 26 now, about to turn 27 in March. I am trying to enlist in the Air Force and change my life around. I have $18k in credit card debt and $26k in government student loans, I confirmed this through all three credit reports. I have enrolled in a Debt Management program with Care One and am doing research on what my options are with paying back my student loans with the Department of Education. I have made payments off and on towards my student loans, but have not been consistent. They are being held by Direct Student Loans and Nelnet I believe.
As I mentioned, at this time, I am trying to enlist in the Air Force and be eligible for a Top Secret Clearance. Unfortunately, my debt is a glaring liability and I will need to get a FED (Financial Eligibility Determination) waiver and submit a personal statement to be approved to be able to proceed with my enlistment. This is my only obstacle, I have taken the ASVAB and scored a 99 on the AFQT, the highest possible score. My MAGE scores were 94, 97, 99 and 95 respectively. I have a good record and am an outstanding candidate otherwise, barring my financial history.
My questions to you are:
1. Was the decision to enroll in Care One’s program a good one? What other options do I have? Will I or anyone viewing my credit history see significant changes as a result of my participation in this program? If so, typically when do they appear?
2. If I were to receive financial assistance from family members in the amount of roughly $4k, what would be the best way to appropriate those funds to my existing debt? Would it be better spent on my student loans or the credit card debt? If I can pay off entire balances with some of the credit card debt, should that be my number one priority?
3. What are my options as far as paying back government student loans? They are currently in default status. I am not aware of the various programs and laws that are out there that may benefit someone in my situation.
4. Lastly, what can I do to improve my financial situation with the Air Force in regards to enlistment? I know that there is no quick fix solution, I did not accrue this debt overnight and I will not miraculously fix my financial issues overnight. But what is the best way to get started and make significant progress?
Any other advice or information you can give would be greatly appreciated. I clearly do not have a good grasp of personal finances and would be very grateful to hear what you have to say. I am really hoping I can overcome this and be able to enlist in the Air Force and get on track and turn my life around. Thank you very much sir.
*I know some of these questions may seem obvious, but I am looking for confirmation and a thorough explanation, because I want to make sure I do the right thing and and implement the best steps to financial freedom and a successful future. Many thanks!
Paul
Dear Paul,
First off, congratulations on your selecting the Air Force. I’ve met and helped some really terrific people from the Air Force before.
I’m going to repost your excellent questions below and respond to the one at a time.
1. Was the decision to enroll in Care One’s program a good one? What other options do I have? Will I or anyone viewing my credit history see significant changes as a result of my participation in this program? If so, typically when do they appear?
I’d like to direct you back to your recruiter and I want you to talk to them openly about your financial situation. Most specifically I’d like for you to get their opinion on which approach will impact you the least.
The Air Force and other military branches view bankruptcy as a legal process that is necessary in the face of problem debt. This previous Q&A will be relevant for you. See Do I Need Good Credit to Get a Top Secret Clearance? Can I Get a Security Clearance if I Go Bankrupt? – Alex
What we need here is not the presumed best solution for you but the most informed from which we can make educated decisions and not best guesses.
I’m not saying the CareOne solution isn’t the best for you. I’m saying that we need to evaluate it in light of your goals and your other debt.
I’m always concerned when people carry debt into military service because I’ve yet to meet anyone that says they enlisted and get paid too much. Things will be tough enough in your new military endeavor and we don’t need to add financial pressure on top of it if it isn’t necessary.
As far as other options go, take a look at How to Get Out of Debt. The Honest and Unvarnished Truth and The Truth About The Success Rates, Failure Rates and Completion Rates of Credit Counseling, Debt Settlement, and Bankruptcy.
Then use the free How to Get Out of Debt Calculator to review your options.
2. If I were to receive financial assistance from family members in the amount of roughly $4k, what would be the best way to appropriate those funds to my existing debt? Would it be better spent on my student loans or the credit card debt? If I can pay off entire balances with some of the credit card debt, should that be my number one priority?
Before I answer this one I’d like to know the answers to my questions I just raised for you above. Let’s not put the cart ahead of the horse yet.
3. What are my options as far as paying back government student loans? They are currently in default status. I am not aware of the various programs and laws that are out there that may benefit someone in my situation.
You actually have some incredible opportunities for dealing with the student loans. See Military Student Loan Forgiveness and Discharge Programs.
You will need to prioritize your debt repayments first towards your student loans. You want to get those out of default as quickly as you can. That article I just gave you has all the resources you will need to tackle this. I would imagine the Direct Loan consolidation and Income Repayment Program combined are going to be your best bet. Then, once your payments are current you will be eligible for a discharge of your student loans under the Public Service Loan Forgiveness Program after a period of time.
4. Lastly, what can I do to improve my financial situation with the Air Force in regards to enlistment? I know that there is no quick fix solution, I did not accrue this debt overnight and I will not miraculously fix my financial issues overnight. But what is the best way to get started and make significant progress?
Be open with your recruiter. Everything you might be afraid to tell them they can see with a consolidated credit report. In fact I would suggest you get a copy of your consolidated credit report and take a look to make sure their aren’t any other unresolved financial surprises out there from those bad old days. Let’s tackle it all at once.
Once we deal with all of this you will need to rebuild your credit, but that’s actually incredibly simple and I can show you how to do it.
Does that sound like a reasonable plan of attack? If so, go do your homework and let’s get a plan in motion.
Please post your responses and follow-up messages to me on this in the comments section below.
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I would pay the 4000.00 to whichever set of loans had the highest interest rate.