Money Management

A 529 plan could make paying for college much easier, but don’t make this mistake that could come back to haunt your kids. Find out more. 

About one-third of American families use college savings plans — mostly in the form of 529 plans — to help set aside and invest money for their kids’ college expenses. This is certainly an admirable goal, but many Americans save for college while simultaneously not saving enough for their own retirement.

There are a few reasons why it’s generally not a great idea to prioritize saving for college over your own retirement.

Saving for college takes care of your kids now

Most parents want to set aside money for their kids’ college to give them a financial head start in life. And it certainly makes sense to want them to graduate without the burden of debt when they’re starting their careers.

However, if you’re putting your kids through school at the expense of your own retirement, you could potentially have the opposite effect over the long run. After all, if you run out of money in retirement, your kids could end up having to dip into their savings accounts to financially support you. In fact, 32% of adults ages 40-64 provide regular financial support to their parents, and 42% expect to be doing so at some point in the future, according to an AARP survey. A sufficient retirement nest egg can help your kids avoid this.

It’s also important to keep in mind that it’s rather easy to borrow money for college if your kids need to. But it’s not an option to borrow enough money for a financially comfortable retirement if you don’t have enough in savings. So, what’s better? Your kids being in debt debt, or potentially having to financially support you when they’re trying to raise their own families?

To be sure, it’s great to aspire to do both. But the point is that your own retirement savings should take priority. If you want to contribute to a 529 after making your retirement contributions, by all means go for it.

Retirement savings can be flexible

One big reason to err on the side of saving more for your own retirement is that there are ways to make sure your own retirement needs are taken care of while also leaving yourself the flexibility to help your kids pay for college if you’re in a position to do so.

Specifically, the IRS provides an early withdrawal exception for IRAs that allows for penalty-free withdrawals to be used for qualifying higher education expenses.

A good rule of thumb is to aim to set aside 10% of your income in retirement accounts, not including any matching contributions from your employer. But that doesn’t necessarily mean you need to put 10% of your salary into your 401(k). One suggestion if you’re worried about saving for college and your own retirement is to contribute to an IRA as well as your employer’s plan.

The idea is that if you’re on track to have enough saved for retirement elsewhere by the time your kids are starting college, you can use some of the money in your IRA to help pay for it. But if you need the money for your own retirement, you have the option of leaving it there. Plus, it’s worth noting that a Roth IRA has the same general tax structure as a 529 plan, so many families specifically use them as 529 alternatives.

The bottom line on retirement savings and college

529 plans can be great tools to help families plan for college expenses. Not only is your money able to grow tax-free, but you might even be able to get a state tax deduction for your contributions.

However, it’s important you aren’t sacrificing your own financial security in retirement by saving for college. An IRA can allow you to set yourself up for flexibility to do both and could be an excellent choice for savers who aren’t sure if they’ll be in a position to pay for college.

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When you get pre-approved for a mortgage, you get the opportunity to borrow at a designated rate if all goes well. Here’s what this could mean for you. 

If you are going to buy a home, mortgage pre-approval should happen early in the process.

You will need to provide financial credentials to a mortgage lender, including details about your credit and income. The information you provide will be reviewed and you should be pre-approved for a loan up to a set amount, assuming you qualify.

But what happens after you are pre-approved? Here’s what you can expect.

You’ll be able to use your pre-approval letter to go see homes

When you’re looking for houses, some sellers will require proof that you have been pre-approved for a loan before they will allow you to visit their home for a showing. A lender will give you a pre-approval letter after you go through the process to enable you to visit any house you may be interested in taking a look at.

You can make an offer and provide proof of pre-approval

When you have found a home you are interested in, you will need to submit an offer. Most sellers require proof of pre-approval before they will accept it. That’s because they don’t want to take their home off the market for someone who doesn’t have the funds to buy it. You’ll include a copy of your pre-approval letter with your submitted offer.

When your offer is accepted, you’ll let your mortgage lender know and an appraisal will be scheduled

After you have an offer accepted, you’ll want to reach out to your mortgage lender ASAP. You’ll need to go through the process of getting your home appraised. Lenders generally require an appraisal to ensure the home is valued highly enough to serve as collateral for the loan.

For example, say you were buying a home for $400,000 with a 10% down payment of $40,000. Lenders want to make sure the home is actually valued at $400,000 because they are generally only willing to make a loan up to a certain percentage of the home’s value (such as 90% or 97%).

If the house appraises for less than you are offering — say, for $350,000 — you would have to increase your down payment in order to remain at the 90% loan-to-value ratio. Or you would need to ask the sellers to reduce their price based on the low appraisal, which doesn’t always work.

You’ll usually also go through some other steps during this stage. For example, you may want to have a home inspection and your lender may require a survey to make sure there aren’t any issues with the land boundaries.

Your loan will go to underwriting

If your appraisal and other pre-conditions of the loan, like a survey, all go well, then your loan will move forward to underwriting. Underwriters assess risk, so they will look at all the details of your home loan and make sure all is well.

Ideally, you will not have made any damaging financial moves between pre-approval and underwriting, like opening a bunch of new credit cards or taking on more debt of any kind. And you hopefully haven’t changed jobs either, as that can make a lender nervous.

If everything looks good both with your financial credentials and the home, you’ll get final approval.

You can close on your loan and home if all goes well

Finally, your closing will be scheduled. You’ll pay all your closing costs, such as your mortgage origination fee and transfer fees, and your lender will release the funds to the sellers. You’ll become the official new owner and can begin the process of enjoying your new home — and paying your new mortgage loan off.

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In 29% of oppsosite-sex marriages in the U.S., both partners have similar earnings, but the time spent on home life tasks remains unbalanced. Find out more. 

Unfortunately, a gender wage gap still exists. Women, as a whole, are paid less than men. But a recent study found that in opposite-sex marriages in the U.S., the number of women who earn as much or significantly more than their husbands has nearly tripled in the past 50 years. While this is excellent news in the fight for financial equality, there’s one issue: Many married women still spend more time on contributions at home than their male partners do.

Husbands spend more time on paid work and leisure

The Pew Research Center examined the financial contributions of opposite-sex married partners in the U.S. The study found that many women now earn as much or more than their husbands. This shows that some progress has been made. Here are some notable stats regarding the financial contributions of married couples in the U.S.:

In 29% of marriages today, both spouses earn about the same amount of money.In 16% of marriages today, wives are the sole or primary breadwinners.In 55% of marriages today, husbands are the primary or sole contributors to a couple’s earnings. Fifty years ago, husbands were the breadwinners in 85% of marriages.

Wives spend more time on household chores and caregiving

But even as married women earn more money, they’re still shouldering more of the household responsibilities while husbands spend more time on paid work and leisure.

The same study found that in egalitarian marriages, where both spouses earn about the same amount of money, and in marriages where the wife is the primary earner, women continue to spend more time on housework and caregiving tasks than their husbands do.

In egalitarian marriages, husbands spend about 3.5 hours more per week on leisure activities than their partners. Wives in these marriages spend roughly 2 hours more per week on caregiving tasks than their husbands do, and 2.5 hours more on housework tasks.

The only marriage type where husbands devote more time to caregiving than their wives is one in which the wife is the sole breadwinner. In these marriages, wives and husbands spend about the same time each week on household chores.

The study also found that 57% of U.S. adults feel what men do at work is valued more than the contributions they make at home. This statistic shows that more progress needs to happen for a more balanced approach to sharing responsibilities in opposite-sex marriages.

Talk about your expectations before you get married

When deciding whether to share a life with someone, you should ensure you’re both on the same page. Talking about your expectations before you walk down the aisle is best. Discussing career goals, family planning goals, financial responsibilities, household chores, and caregiving responsibilities is necessary when looking for a life partner.

Even something as basic as deciding if you’ll have a shared bank account or separate checking accounts is something you’ll want to discuss. Figuring out these details early in your relationship can help avoid resentment in your marriage.

Are you unhappy with where your finances stand? It’s never too late to improve your financial situation. If you want to boost your financial knowledge before you say “I do,” review our free personal finance resources.

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Every credit card bill includes a minimum payment. Learn about the issues that occur when you pay less than the minimum on your credit card. 

When you use a credit card, you get a bill every month with a minimum payment amount. The minimum payment is either a percentage of your total bill or a fixed dollar amount, whichever is greater. On large balances, the minimum payment is normally about 1% to 2% of what you owe.

It’s best to pay as much as you can on your credit cards to minimize interest charges. If you pay your credit card bill in full, you can avoid interest charges entirely. But what if you need to pay less than the minimum on your credit card? Here’s what to expect in that situation.

The card issuer charges a late fee

If you don’t pay the minimum on a credit card by the due date, you’re charged a late fee. That remains true if you pay less than the minimum, because this doesn’t meet your payment obligation. Credit card issuers can legally charge you a fee of up to $30 the first time you’re late on a credit card payment. Each additional late payment can cost you up to $41.

The good news is that card issuers are usually willing to waive your first late fee. If you haven’t paid late before, send the card’s customer service center a message or call and ask about getting the late fee waived.

It could hurt your credit score if you don’t get caught up

The most significant factor used to calculate your credit score is your payment history. Even a single late payment can knock over 100 points off your score.

Fortunately, your payment must be at least 30 days late to affect your credit score. That’s when credit card companies can report a late payment to the credit bureaus.

So, even if you got charged a late fee because you paid less than the minimum, you have time to get caught up and prevent any damage to your credit score. If you pay the required amount 14 days late, it’s still considered an on-time payment as far as your credit score is concerned. The key is to get caught up in less than 30 days from the original payment due date.

Your credit card’s balance will probably go up

It takes years to pay off credit card debt when you only make minimum payments. When you pay less than the minimum, you likely won’t make any progress at all on your debt. In fact, you’ll probably even end up owing more the next month due to the cost of interest and fees.

Credit cards have high interest rates, with the current average being over 20%. And as explained earlier, the card issuer can also charge you a late fee of $30 to $41 for paying less than the minimum.

If you don’t catch up on your payments, the consequences get worse

While paying less than the minimum on your credit card is never good, it’s something you can fix by catching up on your payments. But if you continue paying less than required, it can lead to serious issues. Here’s what will happen the longer you go without making your required payments:

It will damage your credit score more and more. The card issuer will continue reporting your card as past due. As your card reaches 60 days and 90 days past due, it has a larger impact on your credit score.The card issuer may charge a penalty APR. This is a higher rate, and card issuers normally begin charging it when an account is 60 days past due.Your account could be closed and turned over to collections. If your account is past due for too long, the card issuer might close it and send it to collections. Card issuers usually do this with accounts that are 180 days or more past due.

What to do if you’re having trouble making your credit card payments

If possible, do your best to at least pay the minimum on your credit cards. Get rid of any and every unnecessary bill, and see if you can pick up any extra hours at work. Paying the minimum keeps you current, which helps you avoid extra fees and damage to your credit score.

Dealing with significant credit card debt can be difficult. Here are a few options to consider if you’re having a hard time making your payments:

Debt consolidation: Get a debt consolidation loan with a low interest rate to pay off your credit cards. Balance transfer credit cards with a 0% intro APR also work well for this, as long as you can pay off the total balance before the promotional APR period ends.Negotiating your credit card debt: You could potentially set up a debt settlement agreement or a payment plan with the card issuer.Declaring bankruptcy: If you don’t see a way to keep up with your debt payments, bankruptcy may be the only way out.

Hopefully, you don’t find yourself in a situation where you need to pay less than the minimum on your credit card. But if you do, what’s most important is adjusting your budget where necessary so you have the money you need to get caught up ASAP.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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