As you enjoy the beginning of summer, as I am doing this week, I’d like to share some questions that came up during an online discussion from readers concerned about saving for college and incurring debt to pay for it. Joining me on the chat was Zac Bissonnette, author of “How to be Richer, Smarter and Better-Looking Than Your Parents.”
Q. I had children in my late 30s, and the two will be one year apart in school. My goal is to finish paying off my house by the time the youngest is looking at colleges. My thought is that any extra money will go to college savings for the children, but since I will be so close to retirement myself, I need to have that house paid off or I will have to go live with them in their dorms. What do you think?
Bissonnette: My one concern for you is that you also need to make sure you’re making retirement contributions at least up to any match, and into a Roth IRA, if you can, for a combined total of something like 15 percent of your income. If you plow everything into the one, you will end up debt-free but overweight in real estate.
Q. At least three parties (in addition to my husband and me) have started 529s for my 9-year-old stepson and my almost 2-year-old son. [There are two types of tax advantaged 529 plans: prepaid tuition plans and savings plans.] None of the other parties will tell us what’s in the 529s. Is there anything we can do besides assume there’s nothing in any of these 529 accounts, hope we can save enough, and be pleasantly surprised by any amount there turns out to be?
Singletary: Try talking to them again. Explain that it will help in your planning. But if you still don’t get any information, save because you are right — you won’t want to come up short.
Q. My husband will be starting his third year of law school next year and while he did have a large sum in scholarship money, we still took out some loans. We will need to start paying those loans six months after he graduates . My husband wants to sell one of our two perfectly fine cars and get a new much fancier car, which we would need to get a loan for. Can you please help me get him to see that a car loan is a terrible idea? Our mortgage is underwater.
Bissonnette: Please tell your husband — if you are in law school on at least partly borrowed money and you have an underwater mortgage, you have no business driving any car nicer than the one Columbo drove.
Singletary: Ditto. But try this. List all your debts including the mortgage. Show him the total amount. Then sweetly say, “Honey, I don’t believe getting more debt is wise. Look at how much we owe already.” If he doesn’t buy that logic, then you should buy a car air freshener that has a new car smell and put it in his old car — and refuse to sign any new car loan documents.