Finding the best card to pay for child care expenses

To Her Credit columnist Sally Herigstad
Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006). She writes "To Her Credit," a weekly reader Q&A column about issues involving women, credit and debt, for CreditCards.com, and also wrote for MSN Money, Interest.com and Bankrate.com, and has guested on Martha Stewart Radio and other programs.

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Question Dear To Her Credit,
I currently have two kids in day care that are costing over $1,500 a month. I am looking for a credit card to have only this charge applied to the credit card and hopefully paid off each month. But, if there is a monthly charge that rolls over to the next month (for example, in case of emergency and I don’t pay the entire $1,500), I don’t want to be charged a ton of interest that I have to pay along with the next month’s day care bill. What is the best card for this? – Amy

Answer

Dear Amy,
I would get the lowest interest rate card I could find, and I’d stick to one that doesn’t have an annual fee. Because you will be putting such a significant amount of money on the card every month, you might as well get a rewards program you really like, too. I’m partial to airline cards, but a cash back card may help offset some of expense. You can find some of the best low-interest deals here.

You’ll notice that the cards seem to compete for a low introductory rate. Looking at the cards listed, it’s impossible to say what your regular interest rate will be. The APRs are stated as a range; for example, the Discover card shows a regular rate of 11.99 to 23.99 percent. That’s quite a disparity! The more creditworthy cardholders typically get the lowest rate, but there’s no way of knowing what APR you’ll get until after you are approved. If you belong to a credit union, you may want to check into any cards offered there as the APRs may be lower.

You’ll notice that some cards offer a super low or 0 percent introductory rate for a fixed period of time. However, time flies after you get a card with an introductory rate before it reverts to a regular APR, so if you don’t think you can pay off any balance within that time frame, you may be better off applying for a card listing the lowest possible APR. But if the monthly day care expense is for just the summer months, for example, then a 0 percent promotional rate for, say, 12 months, may be your best bet.

A financial backup plan for emergencies
What worries me more than the rate of interest you may pay on your credit card, however, is the fact that you seem to have no backup plan for financial emergencies other than not paying your credit card off every month. It sounds like your financial situation is precarious – you’re so far stretched paying for your child care that one car repair, dental bill or other unexpected expense could make it difficult for you to pay your bills.

If you do have an emergency and can’t pay the $1,500 day care bill one month, by the following month you will have a $3,000 bill, plus interest. Things could quickly escalate from there, until you have a debt balance you don’t know how you will ever pay.

To prevent this from happening and ease your financial stress level, it’s important that you take a close look at all your expenses to try to lighten up your financial obligations. Your goals should be to create more leeway in your monthly budget, find or create some other emergency fund than relying solely on credit cards, or preferably both.

One place you may be able to look is for more reasonably priced child care. Of course, you want the best for your children. And in some parts of the country, it’s hard to find quality care for less than $1,500 a month for two kids. However, more money does not always equal better care. It pays to shop around and see what else is out there. You may even find a child care center that charges on a sliding scale, based on family income.

Another option may be to find another source of cash. You may be able to sell a vehicle, for example, or move an investment into something where it is accessible for emergencies, or cut out or reduce other monthly costs, such as cable or a landline or streaming services.

If you own a home and have substantial equity in it, you could also consider taking out a home equity line of credit for emergencies. If you took out a home equity line of credit at 4 percent, that would be a much cheaper source of credit than the regular rate on a credit card. Plus, you can generally deduct the interest on your tax return.

No matter what you decide, I would encourage you to try to start building an emergency fund as quickly as possible, so you don’t have to wonder what you would do if you couldn’t pay your bills one month. Everyone has emergencies – it’s only a matter of when, not if. By cutting back on expenses, possibly selling items large or small, and working extra if feasible, you could stash away a fund that helps you sleep better at night, knowing you can pay the kids’ day care bills and all your other bills for the near future, no matter what.

See related: High-cost child care: Pushing families into debt?, Credit card rate ranges make comparison shopping difficult

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Updated: 11-20-2017