College tuition could be something fearful since you could spend more than $10,500 a year! However, you could find a solution without really affecting your finances through a credit card. Yes, credit cards can be the solution for your children’s college savings. Know more about how to use credit card for college savings through this article.
The System of Credit Card for College Savings
You may imagine, “How can it work?” when you know about a program using credit card for college savings. Many people think that a credit card is not good for your finances since it can affect your credit score. However, there is a saving plan named 529 College Plans that helps you save for college through your credit card.
a. Getting Know 529 College Plans
529 College Plans gets its name from Section 529 of the Internal Revenue Code. These plans offer you tax benefits when you use them to pay for qualified educational expenses. Through this plan, neither contributions nor earnings are part of federal taxes and you are not required to pay state tax while having a 529 account.
If you use 529 Plans for college savings, your savings will have minimum influence on financial aid qualification. It will invest your contributions in mutual funds or similar investments. These plans offer some investment options you could choose which can go up and down in value based on the performance of your investment options.
b. How 529 College Plans Works Using Credit Card for College Savings?
This is how things work actually. There are some types of credit cards that offer rewards and cashback which could be channeled back into your 529 Plans. Whenever you use your credit card at a certain amount, your rewards and cashback will be accumulated in your 529 account automatically as contributions.
Different banks and different types of credit cards may have different terms and conditions as well as different amounts of rewards or cashback. However, many parents see these plans as a convenient and seamless way to save more for their children’s future since people prefer more applicable benefits for their lives.
Let’s say your credit card offers you 2% cashback for every purchase you made. If you spent $10,000 on the card every year, the total cashback would be $200,000 a year.
Next, if you started with $200,000 savings every year since your child was born plus $200 extra from the earning of 6% interest annually, then by the time your child was 18 years old, there would be more than $7,000 saved. With this much money, it has fulfilled more than half of the average annual tuition fee for public colleges.
c. More Profitable Options for Better Savings
If your child decides to go to more expensive State Schools or private universities, you have to consider more profitable ways to increase the savings rates. Although this way may give you more savings, you have to exert more effort to gain it.
For example, some types of higher-value cards offer you straight cash back to your account. The amount of cashback can be varied from 2% – 5% with a limited amount of spending on certain items that may be different depending on the banks.
Moreover, even though the benefits could be bigger, the cashback does not automatically be transferred to your 529 Savings account. You have to transfer the cashback by yourself. If you have more resources, you could consider this option as it could help you save more using a credit card for college savings.
List Credit Card for College Savings
If you are still confused about choosing a credit card for college savings, we can give you several suggestions for the top 4 credit cards that offer interesting benefits for your 529 College Savings account. Here are the lists:
a. Fidelity Rewards Visa Signature
Fidelity Rewards Visa Signature offers you generous rewards with a simple earnings design. You could get 2% cash back without limitation on spending categories, without spending limitations, and without rewards point expiration. Moreover, you do not need to pay the annual fee at Fidelity Rewards Visa. However, it has a 15.49% APR (annual percentage rate).
The reward money can be automatically transferred to your 529 Savings account and will be used as an investment in mutual funds or similar options. The investment gains are tax-sheltered by the Federal government and if you withdraw the money for qualified educational expenses, it will be tax-free.
b. Upromise Mastercard
Launched by Barclays Bank, Upromise Mastercard offers you a moderate rewards rate of around 1,529% if you connect your Upromise account to an eligible college savings account such as 529 Savings. If you do not do so, the rates will drop to 1, 25%. There is no annual fee and you could get 0% APR for the first 15 months.
Moreover, if you manage to acquire $50 rewards, the money will be transferred to your 529 Savings account automatically the first week of the month. Besides that, this card also offers you additional benefits such as zero liability protection, global services, ID theft protection, FICO scores, and the Round Up program.
c. Fisher-Price College Savings Mastercard
It is a card issued by MRV Banks that offers you a flat 2% cash back without an annual fee, limitation, and expiration date. The rewards can be deposited automatically to your 529 Savings account. The minimum redemption point for a 529 Savings deposit is $25 for each account.
Additionally, this card also provides you with a sign-up bonus of $50 of the cardholders being able to spend $250 within the first three months since account opening and 529 Savings deposit.
d. The CollegeCounts 529 Rewards Visa Card
The last credit card for college savings in this list is The CollegeCounts card offers you a 1, 529% rewards rate for every purchase you made. The cashback will be automatically deposited to your 529 Savings account if you have earned at least $50.
Moreover, even though this card is Alabama State’s sponsored program, the applicants do not have to be Alabama residents to enroll in this program and to get the card.
Things You Must Consider Before Using Credit Card for College Savings
With such great benefits, you could get through 529 College Savings, a credit card for college savings program. You must still pay attention to several things before taking it, such as your priority, the savings amounts, and the states where you live since these factors can affect your savings in the future.
Such many other funds that require strict rules, 529 College Savings also does the same, such as annual fees and the terms and conditions when you want to withdraw the money. Consider these things along with the risks that may occur. Calculating and considering the needs and the risks will help you to set your goals right and precise.