College is an expensive endeavor these days, and many students have no choice but to take out loans to cover their tuition, fees, and room and board. That doesn't sit well with a lot of parents, though, and many would rather sacrifice their own financial well-being than see their children rack up debt in pursuit of a degree.
But some parents are putting their finances at risk in an effort to spare their kids the burden of student debt. In fact, in a recently released report by online lender Laurel Road, 28% of parents wound up taking on credit card debt to help their kids cover their education costs.
Now, it's one thing to make sacrifices like working more or cutting back on leisure and other expenses to cover the cost of college for your kids. But taking on credit card debt is a decision that could haunt you for a very long time.
The problem with credit card debt
Credit card debt is scary for a couple of reasons. First, any time you charge expenses on a credit card and don't pay your balance in full, you rack up interest, which is effectively the same thing as throwing money away. Secondly, too much credit card debt can lower your credit score by raising your utilization ratio, or the extent to which you use the credit that's available to you. That, in turn, could make it more difficult for you to borrow money affordably when you need it for healthy purposes, such as financing a vehicle.
Don't put your finances at risk
Many parents who push themselves financially to help their kids pay for college don't do so with the intent to land themselves in credit card debt. But if you raid your emergency fund, for example, to pay your children's tuition bills, then you may have no choice but to charge up a storm on a credit card when unplanned expenses creep up. And if you take out expensive loans yourself to pay for your kids' college, you may find that those monthly payments make it difficult to keep up with your recurring bills, leading you to lean on credit cards to make up the difference.
It's also worth bearing in mind that the interest attached to student loans -- especially federal loans -- is generally quite reasonable, and much lower than the interest rate attached to most credit cards. As such, having your kids borrow some money to pay for college is not necessarily such a terrible thing, especially if it spares you the financial hassle of having to borrow on credit card form and rack up costly interest.
The takeaway? Help your kids pay for college, but only to the extent that you can comfortably afford to do so. It may be the case that you can contribute $10,000 a year toward your children's education, but not the $30,000 it will take to keep them out of debt. If that's the case, put in that $10,000 and let your kids take out loans of their own to make up the difference. It's a far better bet than taking on that debt yourself, struggling with it, and winding up with a whopping credit card balance when it all gets to be too much.
Finally, remember that children tend to learn from their parents, and the last thing you want is to encourage the practice of carrying a credit card balance -- especially when they're first starting out in the real world.