Saving for Your Child's Education: Can using a credit card today help you to avoid debt in the future?
|Rebecca Lindsey is a staff writer for Credit Ratings.com.
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a news flash: children are expensive. Never mind diapers, food,
clothing, computers, MP3 players, trips to the mall, etc. One of the
biggest expenses your child(ren) will incur is college tuition. The
cost of further education is ever on the rise, and even with
scholarships the costs can be staggering. The amount of federal
financial aid granted to undergraduate students in the form of loans
is shocking as well: according to one study by the National Center
for Education Statistics, 71 to 93% of middle-income students
attending 4-year schools in one study received some type of
financial aid during the academic year 1999-2000.
As they say, the first step is
admitting you have a problem! So if you have thought about or have
even started a savings mechanism specifically for your children's
college education, you are ahead of the curve. If you haven't, right
now is the time to start.
One of the best methods of saving for
education is a 529 College Savings Plan. Named after Section 529 of
the Internal Revenue Code, 529 College Savings Plans are tuition
savings programs exempted from taxation. They were created to
encourage families to save money for college and are operated by a
state or educational institution. Participants invest after-tax
money into the account and the earnings from the money invested are
529 plans are so popular that many
incentive programs have been created to help the consumer take
advantage of them. Credit cards don't typically come to mind when it
comes to saving money, but just as there are credit cards with cash
back incentives or air miles programs, there are some credit cards
that have incentive programs geared specifically toward educational
Read further to find out how these
programs work and for tips to maximize your savings.
The ABC's of 529's There are two
types of 529 plans, savings or pre-paid. Both are managed, meaning
that a fund manager invests the funds for the account. 529 Savings
Plans are operated by states (and all states have one) with the
purpose of saving money for any college, even out-of-state schools,
your future student wants to attend (although some state plans do
place stipulations that the money can be used only for schools in
that state, so you should do your research). Pre-paid accounts are
run by institutions and allow participants to save and invest money
that will go toward tuition at that institution.
The advantages of opening a 529 plan
are obvious: it's a tax-exempt fund that helps you put money back
specifically for future educational goals. As with any investment
fund, the sooner you start the more compounded interest you'll earn.
Consumers can research plans nationwide and invest in the one that
meets their criteria as far as best return, lowest fees, etc. An
excellent resource for conducting research into the various 529
plans available is SavingForCollege.com.
Spending in Order to Invest To grow
healthy investment accounts, you have to invest in the first place.
Start small if you have to, as even a small amount invested each
month can build into a good foundation.
If your investment strategies could
use a little help, or if you're the type who loves a good incentive
program, there are rebate programs available to add a little more to
Frequently in the news are two such
The premise of each revolves around program-affiliated vendors or
products who have agreed to rebate a percentage (which range from 1%
to 10%) of the purchase cost to program members. The rebates are
credited to a member's account, which can in turn be invested in a
529 savings plan. As an added bonus, each program also offers a
credit card that will provide members with additional rebates on all
purchases made, not only qualified products.
A similar credit card is affiliated
Investments. Rather than join up with a program, cardholders
receive a flat 2% rebate on all qualified purchases.
As far as rewards cards go, each of
these has reasonable rates and incentive returns. However, when you
speak of saving and credit cards in the same sentence, you must use
care, otherwise you defeat your purpose by spending more
money-either on purchases or interest fees-than you save. Therefore,
a few tips to using credit cards with the purpose of saving for
thorough look at each of the incentive plans to ensure that it
has the "more bang for your buck" quality. You
should choose the one that is affiliated with vendors you
already use or products you already buy, otherwise, you'll
most likely spend more money than usual.
look at the number of credit cards you already have in your
wallet. If you are serious about saving money, think about
replacing one of your existing cards with one that works with
a 529 College Savings Plan rather than adding an additional
card to your collection.
are using a credit card's incentive program to save money, be
sure that you pay off your balance each month. If you don't,
the money spent on interest fees is money that could have been
contributed to savings.
aware that the card rebates are not meant to replace your
individual contributions. Even if you make every effort to max
out the amount of rebates added to your 529 account every year
for 18 years, at the very most you'll earn enough for a few
semesters. And remember that to achieve rebates, you have to
use the card for purchases. Purchase judiciously, and rather
than saying to yourself "oh, if I buy that, I'll get a
rebate toward our education account," think about the
money you can save if you don't make the purchase. Before
signing on, make a commitment to make your own contributions
to the 529 account to see maximum growth. This will help you
to spend and save wisely.
early, say when your child is starting to master crawling, if
possible! That way you have the advantage of time to help your
savings grow. If your child is starting to master calculus and
plans to enter college in a year or two, investigate a
different method of saving, and fast!
With wise spending habits, you can
utilize any of these programs to assist you in your quest to save
for education.. Investigate each of these cards and their programs
to find out if one has a program that will help you start. But
always keep in mind that they are meant to assist, not replace, your