Calculating How Much To Save For College: Dealing with Debt

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Your debt probably hinders your plans to save money for college the most. You may find it difficult to justify putting money into a college savings account when you feel swamped by debts that need to be paid, and you may feel like you need to pay off all of your debts before you begin saving for your child's college education. Fortunately for you, you don't need to eliminate all debt before you begin to save. To show you how to save for college while drowning in red ink, discover the difference between good debt and bad debt and begin saving right now, regardless of your debt situation.

Understanding Good Debt And Bad Debt

The good news: Some types of debt are good, are factored into your monthly budget, and shouldn't hinder you from saving for college. The bad news: Some types of debt are bad, should be paid off as quickly as possible, and hinder you from saving for college.

Clearly, you're not planning on paying off your entire mortgage before you start saving for college, at least if you intend for your children to begin college before their hair turns gray. And you probably feel the same about your car payment, which is factored into your budget as a transportation cost, and any student loans that you may still have outstanding.

Even after you finish paying off the loan amounts for your house, your vehicle, and your education, those items should still have value to you. And from a credit-worthiness standpoint, since most credit rating companies expect you to have some form of this debt, the fact that you have these sorts of loans actually makes you more attractive as a potential borrower than having no loans at all (provided that you make your payments on time). This is good debt: debt that you plan for, budget for, and manage appropriately.

On the other hand, your credit cards (if you carry unpaid balances from month-to-month), your rent-to-own accounts, your layaway accounts, in fact, all of your so-called consumer debts are considered bad debt, and you should reduce or completely eliminate them if possible . Consumer debt is money that you have borrowed to purchase something that is either a consumable (like groceries) or something that has a very limited life (last year's clothes, perhaps, that your teenager won't wear this year because they're no longer fashionable). Basically, after you buy things in these categories, they cease to have any monetary value.

Now, I'm not saying that you shouldn't buy food or clothing, or even that new television set. You do need to eat, after all, and watching television is still a relatively cheap form of entertainment. What you shouldn't be doing, though, is borrowing money to satisfy these needs. And that is exactly what you do when you carry balances on your credit cards. You're not only paying interest on last night's dinner, but you also may still be paying for last year's holiday gifts and your wedding dress from ten years ago.

However you dig yourself out from under your debt, you need to also break yourself of the credit card habit. Stop thinking that, just because you still have credit available, you should feel free to indulge yourself in anything that crosses your path. If you can't use your cards responsibly and pay them off in full every month, then it's time to make a plastic salad. Sliced and diced credit cards in a glass bowl can make an attractive focal point in a room, and they also serve as a powerful reminder of spending habits run amok.