Monthly Archives: January 2015

Invest in Retirement or Pay for College? How About Both?

7cd5aed6674a46eab97e53c3da70960fOne problem that every parent faces is whether to invest for their retirement or pay for their children’s college.

On the one hand, the cost of college is reaching unprecedented levels. Outstanding student debt recently exceeded $1 trillion so helping out your children with college tuition helps prevent them from going into crippling debt.

On the other hand, your children have their entire lives to pay back student loans while you have a more limited timeline to invest for retirement.

Today we’ll review the advantages of each option and propose a third approach to retirement and college savings.

Advantages of Helping Pay for your Children’s College

There was once a time where a student could work his way through college. Today that is becoming less and less realistic for the 20+ million college students in the United States, even for students who work full-time while going to school.

Students who graduate with large amounts of debt typically end up being forced to hold off on life events like getting married, moving out of their parents’ house, or buying a home. It can lead to additional stress and poor credit scores.

The biggest advantage of helping pay for your children’s college education is that upon graduation they will have a low-level or non-existent student loan debt. This will give them more freedom and flexibility, not to mention stability, in their post-grad life. They will be more likely to take calculated risks such as starting a business, and will likely have a lower level of stress because they don’t have massive student loan debt in the back of their mind.

The advantages of helping pay for your children’s college education is extremely visible and will likely result in gratitude from your children – and who doesn’t need more of that?

Advantages of Investing for Retirement

The advantages of investing for retirement are not as visible in the short-term. Saving and investing for retirement does have an advantage over saving for a child’s college education, though: unlike college, retirement can’t be funded on loans.

Choosing to forgo retirement savings could result in not having enough for those long years of your life. Many people help their children with college with the belief that they will be able to “catch up” later on, but the problem with this logic is that a dollar invested today is worth more than a dollar invested 20 years from now. Compound interest makes money invested today more valuable, making it important – and easier – to save for retirement now instead of playing the catch-up game later on.

Is it Possible to both Pay for College and Invest for Retirement?

You don’t have to think of these two important options as an either-or, but before you start a college fund of any kind, you should make sure you are on track for eventual retirement.

Use a retirement calculator, learn retirement annuity basics, and find out how money manager fees differ. This will ensure that you are knowledgeable about the retirement process and prepared for what’s ahead. Only then should you consider saving for your children’s college educations.

If you do have additional income that can be diverted to save for your children’s college accounts, consider looking into a tax-advantaged 529 plan. Because these accounts are treated favorably from a tax perspective, you will be able to save more than if you simply put money into a savings or individual investment account. Plus, there are hundreds of unique ways your child can save money in college including:

  • Community colleges
  • Keeping a Steady job
  • Applying to small, local scholarships
  • FAFSA
  • Purchasing Used Textbooks
  • Strict Budgeting

Regardless of how much you decide to contribute towards your children’s college tuition, retirement planning is a necessity that can’t be overlooked.

Repairing Your Credit in 2015

With the calendar flipping over into a new year, resolutions are on everybody’s mind. Maybe you’ve resolved to pay off all of your debt this year. Maybe you are determined to get rid of those bad money habits that landed you in hot water in the first place. It’s important, though, when figuring out plans for the coming year to remember to focus as much on building something as on breaking old things down.

So, in this post, we’re going to talk about the things that you can do to repair your credit rating.

#1. Start at the Beginning

Before you can take action, you have to know where you’re starting. Getting your hands on a copy of your credit report is the best way to do that. You’re entilted to one free copy of your credit report from each of the three credit reporting bureaus every twelve months. What better time to get yours than during the start of a new year?

#2. Fix Any Mistakes

Go over each of those credit reports with the finest of fine toothed combs. There is no such thing as a “minor” mistake when it comes to your credit report. Dispute every single detail that is not 100% accurate. The credit bureaus allow you to do most of this through their websites. They will check into each dispute and if they cannot prove that what they have on record is the truth, that item will be taken off of your report.

Be patient with this. It can take a few months to get these blemishes erased. The credit agencies have 30 days to act on a dispute, then there’s a 30 day wait for the information to be proven and then they have up to 30 days to correct the information on your record. It won’t happen in just a few hours.

#3. Take Out a Secured Credit Card

If you’ve just paid off a ton of debt you’re probably reluctant to take on anything new. And, if you have a history of only paying minimums or maxing out cards, you aren’t yet ready for an unsecured credit line.

A secured credit line is one that you open up with some sort of collateral, typically cash. They are typically granted in smaller amounts–most start at around $300. You pay the bank your $300 and they give you a card with a $300 limit. You then use that card like you would any credit card: paying for things and then paying off the balance. If you default, the bank simply keeps the money you gave them as collateral. It’s sort of like a gift card except that your payment history gets reported to the credit bureaus. Secured lines of credit are great ways to teach yourself new and responsible habits while also building up a positive payment history on your credit report.

#4. Work with Bad Credit Financers For Bigger Things

You don’t want to take on a lot of debt, but after successfully managing your secured credit card(s) for six months or so, you will probably feel ready to take on a larger type of debt. A good way to do this is to buy a car. The best way to do this is to work with a “middle man” who helps people with bad or sketchy credit get auto loans. One such “middleman”, Consumer Portfolio Services, buys automobile contracts from dealerships and retailers and then “sells” them to people whose credit will get them turned away at a regular bank. You then take the loan from CPS (or whoever) and they report your positive payment history to the credit bureaus.

If you manage to go a year without any major slip ups–missing payments, only paying the bare minimums, defaulting on a credit line, congratulations! You’re on your way to having positive and solid credit for good!