$11,000 Cash for Training or CC Debt ?

[KWITT]

*NOTE I have full MGI Bill benifits from my 4 years of active duty service in the Air Force in witch I plan on using after I receive my private license. Also waiting patiently on the changes to the new GI Bill to take full effect in Aug. 2009 and what it will do for us who choose a flight career.

 

Any advice would be appreciated.

 

Bubba Army For Life

[Gomer Pylot]

Credit card debt is evil. You may pay up to 30% interest, and almost never less than 20%, compounded daily. Never, ever carry a balance on a credit card. Never, no matter what. Do absolutely anything else to get the money. Pay off the credit card every month, without fail.

Credit card debt is evil!!

Did I mention that credit card debt is evil? If you pay the minimum due, you will never pay off the debt, you'll owe forever, and pay many times the amount of the original debt. Pay off the credit card no matter what it takes.

[Sparker]

Pay off debt and do not finance first step?

[Darkhorse]

NO Credit card debt is the most important BUT my opinion for someone who is credit card responsible (wont get carried away) is: Step 1. pay the credit card off

 

Step 2. save the money for whatever your planning on doing, put it in the bank

 

step 3. Pay for what you saved for on the credit card in case the company goes out of business or doesnt provide services in the contract.

 

step 4. pay the credit card at the end of the month to avoid finance charges.

 

Rinse and repeat....

[ADRidge]

My advice is to save up, pay cash for your PPL. Try to pay cash for Instrument as well. Figure 80-90 hours. This way, you kind of self-censor and make sure this is what you want to do. You will obsess over it nightly, and it will keep you up. Also, if you do decide to take the plunge and burn up all that hard-earned and harder-saved cash and you find out that maybe helos aren't for you, you're not stuck with a ridiculous loan that does you no good or CC payments that will make you cry.

 

Once you get a rating or two under your belt and still want more, then look at financing if that's what it takes.

[500E]

Again GP\Darkhorse are correct DO NOT USE CARD AS MONEY. it is an illusion unless you can pay it back every month.

It is a way to safeguard your payments to a degree, personally I would not\did pay up front for lessons

[jehh]

Credit card debt is evil. You may pay up to 30% interest, and almost never less than 20%, compounded daily. Never, ever carry a balance on a credit card. Never, no matter what.

 

Absolute statements are rarely accurate...

 

Credit cards serve their purpose, even if they are misused by many people.

 

APR is a legal term, regardless of how it compounds, 10% APR = 10% APR... So a fixed 7.99% APR on a credit card will cost you less money than 10% APR on a Sallie Mae loan.

 

This surprises a lot of people, however that is how it works.

 

In addition, many cards offer 0% balance transfer deals or purchase deals. American Express Open currently offers a card with 15 months 0% interest and a fixed 8.99% APR after that. That is pretty cheap money, all things considered.

 

never[/b] pay off the debt, you'll owe forever, and pay many times the amount of the original debt.

 

That first part is not true, most credit cards will take 22 years to pay off if you pay the minimum, however that varies depending on the card. Some of them require more than the minimum 2% payment, those would be paid off sooner.

 

Yes, if you do pay the minimum, you'll generally pay back more than you borrowed in the first place, however that is true with a house mortgage and a Sallie Mae loan as well.

 

We recently had a student approved for a $30,000 Sallie Mae loan at 14% APR with a 5.2% loan supplemental fee. He'll pay back about $92,000 on that $30,000 borrowed, or just over $500 a month for 15 years. How is that better than a credit card at a lower interest rate?

 

Gomer, you offer a lot of good advice on this forum, you've been flying a lot longer than I have, however in this case, I have to disagree with you. Properly managed, credit cards can be a valuable tool.

[Sparker]

I thought it was illegal for flight school owners to oppose debt, until the owner of my school told me not to rush it and do like he did, just take three years to get your rating. No payments and a lot more money in the bank in the long run.

 

We recently had a student approved for a $30,000 Sallie Mae loan at 14% APR with a 5.2% loan supplemental fee. He'll pay back about $92,000 on that $30,000 borrowed, or just over $500 a month for 15 years. How is that better than a credit card at a lower interest rate?

 

Neither option is good. It is better to be patient and save for it/ pay as you go... The only way I would consider getting a training loan is if I knew I could consistently pay at least 3 times the minimum payment every month, and that's just because of the little laziness inside of me.

Edited August 16, 2008 by Sparker

[KWITT]

My advice is to save up, pay cash for your PPL. Try to pay cash for Instrument as well. Figure 80-90 hours. This way, you kind of self-censor and make sure this is what you want to do. You will obsess over it nightly, and it will keep you up. Also, if you do decide to take the plunge and burn up all that hard-earned and harder-saved cash and you find out that maybe helos aren't for you, you're not stuck with a ridiculous loan that does you no good or CC payments that will make you cry.

 

Once you get a rating or two under your belt and still want more, then look at financing if that's what it takes.

 

 

I have the GI Bill to use after I get my PPL and that would be why I would use my credit card on training as to pay as I go monthly then when the VA sends the reimbursement pay back the card and so on. Thank you for taking the time to give me advice ADRidge.

[brushfire21]

First off, credit card dept is a serious problem here in the great USA and it seems alot of folks see a credit card as free money. Far from it.....

 

But there are ways to use credit and credit cards to your benefit. I personally have used a credit card for part of my my training and I made money doing it. With credit card companies handing out 1.99 to 2.99% APR's (life of the loan), and high interest rate savings accounts (Citi Bank - ING etc) with 3-4.5% interest, you can make money by borrowing. At the time I had the money to pay off the loan, but I was not in a hurry to be honest. This made me a little extra money each month, got a free vacation out of the CC points I racked up along with making my excellent credit score even better. Now keep in mind as it was over a year ago and the interest rates had a better spread between them.

 

Some may call this reckless, but if you stay on your finances and know how to manage them and are responsible, there is no reason to use credit cards to your benefit. Business and corporations do this all the time.... Some go bankrupt, others grow!

 

PS kwitt, BTLS is the man, awesome to see another listener!

[Gomer Pylot]

Most credit cards have fine print which many, if not most, consumers don't read. That low interest rate isn't guaranteed, and if you miss a payment it immediately becomes usurious, 20% and more. Credit cards have their uses, of course, and I use them. I make certain to pay off the balance every month, though. If your standard loan has a higher interest rate than a credit card, you're in trouble and have a bad loan, probably because of bad credit.

 

I still say credit card debt is evil. Not the cards themselves, but the debt. It's far too easy to get behind, and when you get behind, you really get behind. I would never, ever, finance anything using a credit card. If you advise your students to do so, I think you're giving bad advice just to make money off them.

[jehh]

Gomer,

 

You're correct in that the fine print allows them to rate jack you if you miss a payment... But that is true of many loans, not just credit cards.

 

I also agree that saving money and paying cash is a good idea, there are times that financing makes sense. Businesses do it all the time, otherwise they could never afford to expand. If I had to wait to buy another helicopter until I had the cash in the bank, I'd be waiting awhile.

 

Your career is a business, abit a small one. If you can save $5K a year, you'll be waiting awhile before you start flight training. If you finance it, you can be flying for a living a lot sooner, doing something you like, instead of something you don't.

[FlyNHighNFast]

But there are ways to use credit and credit cards to your benefit. I personally have used a credit card for part of my my training and I made money doing it. With credit card companies handing out 1.99 to 2.99% APR's (life of the loan), and high interest rate savings accounts (Citi Bank - ING etc) with 3-4.5% interest, you can make money by borrowing.

 

Some may call this reckless, but if you stay on your finances and know how to manage them and are responsible, there is no reason to use credit cards to your benefit.

 

Cha Ching! This is know as OPM - Other People's Money - and I've been doing it for a long time. High interest loans are for people that are bad at math (just like buying lottery tickets to get rich) Well managed, low interest credit card debt or other types of revolving credit is one of the best kept secrets in how to save money. 1.99% for life from Chase = Money in my ING account earning interest @ 3.7% or higher. What does this cost me? Not a darn thing, I don't even have to worry about it with the automated monthly payments. The returns may be small, but it is still free money.

 

BOT: KWITT, pay off the CC debt, before you take on another loan. If you have great credit, shop around for a low interest, fixed rate card.

[Misfit]

Hi, KWITT!

 

Some advice from someone who was sort of in your position until recently (minus the $11,000!):

 

ADRidge is absolutely right - the very best way to do this is to save ALL the money first. You never know what could happen during your training (or afterward). Even if you confirm that this is what you want to do, anywhere along the way an accident or health issue could prevent you from continuing to fly. Or what if you can't get a job, due to a number of factors? If you use a loan for all of that (or credit card debt), you are now stuck with huge payments you have no way of making. Now, if you save the money first, and any of the above things happen, the worst scenario is that you broke even - got the training but can't fly (temporarily or permanently). And that would be if you completed the training. If you didn't, whatever money you had left would be yours, to spend on whatever you wanted.

 

I agree that credit card debt is evil - you should pay that card off immediately with the money you have. However, I also agree that you can use credit cards to your advantage. I have three credit cards, and I have bills automatically paid with them. Then I use the money I would have used to pay the bills to pay off the credit cards every month. I don't keep them in my wallet at all, or use them on anything else.

 

As for saving the money, I used to think that it was impossible to save that much in any reasonable length of time, but I was wrong. It just depends on what you are willing to do, and how good you are at saving and not spending. I am now working for a government contractor overseas - I have only been here a month, and I should have enough money for school within a year. There are many other companies that pay even more than mine - you just have to find them. I had no idea how many people actually did this until I got here. As prior military, getting hired with them should be no problem. You do not need previous experience. Yes, it is hard to be away from home, and yes, a year seems like a long time to wait to start training. But on the other end, when you are paying for your lessons with cash, and are able to go full time, instead of waiting a week or a month in between lessons while you save for the next one, that year will seem like nothing.

 

It was actually another poster on this forum that told me about this company. He was on the other end - had all the money saved for his training and was ready to go home. He offered to help me, and did. I would love to pass on the favor. Anyone who is interested in going this route is welcome to send me a PM, and I will give you what information I can.

 

Good luck, KWITT, whichever path you choose!

Edited August 25, 2008 by Misfit

[Gomer Pylot]

Certainly, credit cards have their place. I use a credit card for almost all my purchases. It pays me back 1% of my purchases every year, and is far more convenient than cash, which I seldom carry much of. I would be hard put to get by without a credit card. It's not the cards which are the problem, but the debt. I carry no credit card debt, making sure I pay it off every month, without fail. Properly used, credit cards are essential in the modern world, without doubt. But carrying a balance will get you in trouble, eventually. Default on one payment, and your interest rate will skyrocket, with almost every card extant. It's up to each individual to be a smart consumer, because the credit card companies will not tell you what you need to know, even if you get a magnifying glass and read the fine print.

 

With modern banking capabilities, it might be smart to open a separate savings account, and every night transfer the amount of the day's charges to that savings account from your checking account, and having the money available to pay off the bill at the end of the month. Admittedly it's going pretty far, but if that's what it takes, it would be worth it.