Bad Debt
Bad debt describes the college funding options that carry the highest costs, and the highest risks.
Credit cards. Credit cards are considered a poor funding option for college costs because they carry much higher interest rates than federal and private education loans. And, while interest on education loans is often tax deductible, credit card interest is not.
Home Equity Loans. Using funds from home equity loans also may not be a sound funding option because the interest rates are higher, and often variable. If you should have a medical or financial emergency and a payment isn’t made within 90 days, you could risk losing your home.
401K and Investment Funds. Money taken from 401(K) plans or mutual funds may also be poor funding sources since they are often intended for retirement. If you are borrowing from these sources your investment funds stop growing exponentially. You can always repay a student loan, but you can’t replace the account growth or interest you would have earned back into your investment account.
Savings Accounts. Interest rates on savings accounts are so low that insufficient interest accrues over time, and the interest or earnings is taxable, as opposed to an educational savings account.
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