What to Do When Your First College Bills Are Shockingly High
"This kind of loan would be for a larger dollar amount and best for families with no other options available, as it's not ideal," Dinsmore says. "But it can provide the cash you need to make it through the next few years without maxing out your credit cards."
Credit cards should always be looked at as the "last resort" for paying for college-related expenses Williams says, as they offer double or triple the interest rate of student loans.
"Next to taking money earmarked for retirement and spending it on college, charging your expenses to a credit card is the worst thing you can do," he says.
Although many families may look at their 40(1)k and see "ready funds," taking a 401(k) loan to pay for college is a horrible idea, he says. Removing money from your retirement accounts will serve only to "set back your retirement timetable," he says."Even if you say you'll pay yourself back in a few years, the $20,000 you took out would have grown to $40,000, so you're losing money no matter how you look at it. You're losing a chunk of capital that would have compounded over time towards retirement." In fact, Scott Darrah, an Ameriprise (AMP) financial adviser in Council Bluffs, Iowa, suggests maxing out your retirement plan contributions. "Consider maxing out retirement plan contributions to 401(k) plans and IRAs to get the income tax benefits, retirement benefits and shelter assets from the financial aid calculation," Darrah says. "If you have maximized these contributions already then consider maximizing your premiums payments into your cash value life insurance policies to help your policy grow more efficiently, shelter wealth from the FAFSA form and have cash available should you need it." No matter how much extra money you find yourself needing at the end of this semester, Dinsmore says that proper planning can prevent it from recurring in the spring. "Hopefully if you are finding yourself coming up short it's not going to happen again," Dinsmore says. "Every family has a variety of options for dealing with this to make sure it doesn't become a pattern."
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