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Authored by: math on Tuesday, December 28 2004 @ 05:33 PM EST

Actually, one falacy in my whole analysis is related to the current situation. Currently, taking out a loan to cover the credit card is clearly not worth it - paying off x in 3 years means a payout of some amount more than x. Divided out into 3 years, it averages some (x+y)/3. Y is relatively small with a good interest rate of course.

However, that money is completely inaccessible during the course of her studies. It is a loss of (x+y)/3 per year in cashflow. The credit card represents a smaller amount of loss as the payments are such a small percentage of principal to be paid. Of course the downside is that most of the payment is interest.

The solution here is a credit line, which we do actually have. It is not money lost in terms of cash flow, as it is a rotating instrument. While paying down (x+y)/3 would cover the increased load on the line should we cover my credit card debt with it, we can get that money back in cash flow through use of the line. In this situation it makes a large amount of sense to use the line instead - over 5 years of her studies it would save us some x/4 or so in cash (x is the credit card balance) directly, and not reduce cashflow at all.

Really, the whole situation comes down to a moderately profitable investment (her studies) with a survivable risk: of a 50 to 150% return on money invested in 5 years. That's a fairly good investment - and one which even borrowing on a credit card at their high rates seems not to be a major concern, considering the profitability of her professional accreditation.

(Again, of course, there's no guarantee she'll complete the program, so minimizing exposure is always a good idea.)