Saving for college is important, but doing so should not trump your financial security. Before contributing a dime to a college savings plan, make sure these costs come first:
Parents rarely forget to buy food and water when saving for college, but many let other necessities like health insurance, car insurance, or renters/home owners insurance slide. Protecting your family from financial disaster is far more important than protecting your child from educational debt. Make sure the major stuff is covered, that you have at least 3 months of expenses in emergency funds, and that you are properly insured before opening a college savings plan.
Credit Card Debt
The big bad wolf of the personal finance world, credit cards oftentimes charge interest fees topping 20 percent. Additionally, credit card debt is not considered in the federal financial aid formula. While the government will examine how much income and assets your family has, they will not look at whether you are up to your eyeballs in credit card debt. Before investing in a college savings vehicle, get out of the plastic trap. It does not make sense to put your money into a savings plan that will generate single digit returns while you are paying double digit interest fees.
Junior can take out loans to pay for college if necessary. Parents have to provide their own retirement funds. Ensuring that your retirement plan is adequately funded before contributing to college savings is beneficial for two reasons—most important, it will prevent you from going broke when you are old and second, retirement funds are shielded from the federal financial aid formula. Contributing to your retirement could land you a bigger check from Uncle Sam and a more comfy life later.
Once you have covered your own financial rear end, you can move to covering your children's.