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Having A Baby Can Ruin Your Credit Score: Here’s How

baby holding moneyCan you believe that having a baby can ruin your credit score? It seems unlikely right? How can your bundle of joy ruin anything in your life?

It is difficult to blame babies when it comes to your finances but if you think about, there is some truth to the statement. Having a baby changes a lot about your life. As unfortunate as it may sound, your baby will ruin your sleep. They will ruin your social life. They will ruin even your moment of intimacy with your spouse. In fact, they can ruin every waking moment of your life. Everything changes once the little one is brought home from the hospital.

Of course, we do not mind all the things that babies ruin. We love them that much! But even if that is true, we can take control of certain things that they are bound to change.

Take for instance our finances. This is a major concern for a lot of people – starting with the hospital bills. WomensHealthMag.com compiled accounts from several women about their experience after giving birth. As they struggled with the coming of a new baby, they had to deal with the medical bills that started to pour in shortly after. If you look at the real stories provided, you will see how even those with health insurance are forced to pay huge sums after giving birth. It is surprising to see that those with similar procedures done had to deal with different costs. These differences were sometimes caused by varying health practitioners and insurance coverages.

If you look at the article, you will realize that having a baby can be very expensive. Take note that this is just the beginning. You still have a lot of expenses before you. From the baby equipment, clothing, vaccinations, check-ups, and the toys – all of these expenses can add up. If you factor in the child-care costs, you will feel a bit overwhelmed with the financial burden of raising a child.

It is quite a lot to take in – that is true. But even after all of these changes and responsibilities, you are probably still wondering – how does your credit score fit into all of these?

Different ways that your credit can be ruined after you have a baby

Believe it or not, your credit score is in danger after you have a baby. While your little one is not directly to blame, the changes in your situation can lead to certain mistakes that can cost you a good credit score.

Here are some of the things that you need to look out for because they can increase the chances of you getting a bad credit record.

Setting unrealistic baby costs

It is understandable that you have no idea how much your baby costs would take. However, it is your responsibility to find out. If you fail to consider the amount that baby expenses would cost, you might find yourself using your credit card a lot and failing to pay it off in time. Set realistic baby costs and include it in your budget so you can allot funds for it. This is how you avoid using your credit card on these expenses. According to BabyCenter.com, among the expenses that you need to consider includes the following:

  • Formula (up to $100 per month). You can save a lot by breastfeeding as long as you can.
  • Diaper (up to $85 per month). You can save by using cloth diapers instead. It is messier but a lot cheaper. Or you can buy diapers in bulk.
  • Childcare (up to $1,000 per month). This will depend on what you will choose. Babysitters cost less but is not as reliable as daycare centres – which will cost up to $1,000 a month. It is difficult to save on this especially if you really need to work. If you live near a relative, it may be possible to ask them to look after your child.
  • Baby gear (varies). You can save by opting for second hand gear – as long as these are not broken and you clean them very well.
  • Clothes (up to $50 per month). This is another purchase that you need to buy second hand. Babies grow out of their clothes so fast that buying them new will waste your money.
  • Food (up to $100 per month). This is an expense that you have to deal with after a few months. To save, you may want to make your own baby food. That will be cheaper.
  • Toys, books and DVDS (up to $40 per month). This can also be bought second hand. As long as it is not broken, clean and safe to use – buy them used.

Failing to pay bills on time.

Another way that your baby can make you ruin your credit score is by keeping you too busy! This is expected because babies do need a lot of care and attention – especially during the first year. Your lack of sleep, feeding, bathing and other baby needs that has to be met every now and then will really take its toll on you. This will make you forget a couple of things – including bills payments. When you forget to pay the bills, your credit score will suffer in return. Set up reminders to make sure this will not happen.

Being overcome by medical bills.

As mentioned earlier, your hospital bills will be a major concern months after you gave birth. This can be overwhelming at times. Although recent developments made medical bills less of a problem, it is not something that you should put in stride. With a few tips, you can probably keep your hospital bills from becoming too much of a burden. For instance, you need to double check with your insurance company the details of your coverage. You should also double check what is written on your bill. According to the Women’s Health article, 30% to 40% of medical bills usually contain errors. So take a look at yours. Do not be afraid to ask questions if there are things that you need to clarify. Even if they insist and you believe that there are entries that should not be there – dispute your bill. Do not pay for something that was not given to you.

Eating out all the time.

It is a given that expenses usually bloat when a baby gets in the picture. But some of the expenses does not have to happen. One of the bloated expenses involve food because new parents usually develop a habit of eating fast-food instead of cooking at home. There are two reasons why you need to stop this habit. First is the cost. It is more expensive. The second reason is it is unhealthy. Meals cooked from scratch at home will always be the better option. But we all know that the baby usually takes most of your time – that means you cannot cook as much as you used to. This bloated expense could wreak havoc in your finances that could end up compromising your credit score too. This does not have to be a problem if you implement some time management skills. There is this show – Rachael Ray’s Week In A Day, that teaches you how to make meals for the whole week in just one day. When your spouse or partner is at home, you can allocate this time to make your meals for the rest of the week and then store it in the freezer. It just takes a bit of time management for this to happen.

How to keep your child-related costs from destroying your finances

Raising a child is a lot of hard work and it is expensive but the rewards that it will bring to your life is so great that you wouldn’t really mind. However, that does not mean you should let it turn for the worse. You need to learn how to disaster proof your personal finances so you can build a better future for your kids.

This is the reason why couples are warned against being unprepared for parenthood. You may feel like you are physically and emotionally ready for a child. However, if you are not prepared for it financially, then you might end up ruining what you have built so far.

According to the USDA Center for Nutrition Policy and Promotion (CNPP), a couple is expected to spend a quarter of a million to raise a child – at least until they reach the age of 18. What is surprising is that this amount does not even include college expenses. An infographic published on USDA.gov revealed that the $245,340 worth of expenses are divided into the following:

  • 30% housing
  • 18% child care and education (excluding college)
  • 16% food
  • 14% transportation
  • 8% health
  • 6% clothing
  • 8% miscellaneous

With college costs averaging at $18,390 (public) and $40,920 (private), you need to be prepared to spend up to $300,000 for each child.

Obviously, this is a very big amount. You don’t have to save up for it before you have a baby. But it is evident that you need to implement some serious financial management skills to keep your child from ruining your finances and in effect, your credit score. Here are some tips that you need to implement:

  • Follow a budget plan. This will help you keep your expenses from being more than your income.
  • Setup saving goals. These goals should be for both short term and long term. You need to think about what you child will need in 5, 10 or 15 years. Anticipate what expenses you will have and if possible, start saving up for them.
  • Invest for your children. This is obviously referring to their college education plans. When you start early, you do not have to save too much for them.
  • Build up your emergency fund. If you think that you can forego a medical treatment because you do not have the money, this might be a difficult option if it is your kid who is sick. Eliminate the possible instances that you will borrow money. Save for emergencies so your kids will not have to suffer.
  • Get a life insurance. This is very important. Life is fleeting. One moment you are here enjoying your baby and the next, life plays a cruel joke on your family. Make sure that any unexpected passing will not leave the whole family wanting. Insure yourself so your kids will be financially taken care of.

All of these will help you overcome a lot of difficulties while you are raising your child. Of course, practicing the right financial habits will not only do your personal finances some good. It will also allow you to set a good example for your children.

How To Save On Child Care Costs

smiling family with cash at the backgroundParenthood is probably one of the most rewarding experience that you will ever face. But despite the undeniable joys of raising a child, it can also be extremely difficult.

With a child in your house, your household budget will increase to eat off a bigger chunk of your income every month. It seems like the way society is built, we are expected to pay for a lot of things to make our lives comfortable. But despite that, there are many ways that you can save money today and that includes child care costs.

When it comes to our child, we do not want to settle for anything that is second rate. At least, if our finances can help it. We want them to have the best life there is and we do not want them to feel like they are lacking in anything. But like everything else that is important in our lives, this is easier said than done.

How much does it cost to pay for child care?

One of the challenges in raising a child involves the child care costs. It is one of two things. One of you or your spouse can give up their career to stay at home and care for the child. That would mean relying on one income to support the whole household. The other is to spend for professional care so both of you can continue working.

No parent will pass up the chance to watch their child every single minute. But that is not the reality for most of us. Some of us need the dual income or are single parents. So if it cannot be us, we obviously want someone who is trained to be a professional child care specialist.

The Census.gov shows us some interesting statistics about child care here in the country. Here are the statistics that includes child care costs.

  • 32.7 million children are currently in child care arrangement. 12.5 million are preschoolers (0-4 years) while 20.2 million are in grade school (5-14 years).

  • 27% of child care arrangements are with relatives (grandparents, siblings, etc) while 25% are with organized facilities (day or child care centers, preschool, etc).

  • 22% of the children are being cared for by a stay at home parent.

  • 88% of preschoolers have employed moms and that means they are most likely in a child care arrangement.

  • 55% of stay at home fathers who have employed wives are caring for their children (5 years and below).

  • As of 2011, the average child care costs in a week is $143. For preschoolers, the cost is $179 while grade schooler care cost $93.

  • In 2011, 32% of families are paying for child care arrangements.

  • For families in poverty, child care costs take up 30% of their income.

Source: http://www.census.gov/how/pdf/child_care.pdf

Tips to lower your child care expenses

All of these statistics can make your head spin because you want to make sure that you can afford to pay for your child’s comfort, safety and protection. $143 a week is $572 a month and $6,864 a year. If your household only live on $30,000 a year or less, that can really be a huge dent on your budget.

But just like everything else, there are ways for you to lower your child care costs – if you only know where to look. Here are some tips that we have for you to help make child rearing more affordable.

  • Ask for child rearing benefits. There are companies who offer this benefit to parents to help ease their worries as they work. Not only that, some of them even have their own child care facilities near the office so you can stay close to your child as you work.

  • Child care cooperatives. It is possible to organize a child care cooperative between employees with young children. You can help coordinate with your office and the employees involved will be in charge of running the facility. All the company has to do is to provide a place within the workplace and purchase a couple of items for the child care center. You can also arrange this in your neighborhood. It is a more complex form of babysitting for a group of parents. You may even have a local child care cooperative near your neighborhood. You can check out Preschool.coop to check how you can join this network.

  • Look for tax breaks. The Child and Dependent Care Credit is a tax break that you can claim to help cover your child care costs. Even during the summer time, you are eligible to get these credits for day camp (not overnight camp).

  • Use the flexible spending account. Some employers will allow you to put as much as $2,500 a year per parent into a savings account that will be taken from your pretax income. Since this is a flexible account, you can take your child care costs from this fund. If both of you will put money here, you have $5,000 a year.

  • Apply for government assistance. The Office of Child Care (OCC) used to be the Child Care Bureau and they provide support for low income families. They help in providing high quality yet affordable child care services. This is done through the Child Care and Development Fund that the OCC administers.

How to prepare for the high cost of rearing a child

Overall, the cost of raising a child can be very costly so parents are encouraged to prepare for it. Most of the time, the option that parents take is simply to have one of the couple give up their career to stay at home and care for the children. This may seem impossible given the high cost of living but with a little preparation, you can actually make it work without feeling too deprived while living on a very restricted budget.

A website called TheMomiverse.com provided some statistics about the general costs that parents face in child rearing.

  • The cost of raising a child until they are 17 years old costs $234,900.

  • 74% will cut back on their usual budget to afford buying baby items.

  • 13% will buy less than what they intended for baby items.

  • 37% feel guilty for the times when they cannot afford a baby item.

If you think that staying at home for the child is more rewarding for the child in the long run, here are some tips that we have for you.

  • For a year or a couple of months before having a baby, transition into a one income household budget. While the two of you are still working you can start living on one income so that the full income of the other can be put into your savings. This will boost your savings exponentially by the time the wife conceives.

  • Continue with the dual income right before the baby is born. This will allow both parents to take advantage of benefits offered by the company.

  • Do not buy any big purchases and just put the money in your savings.

  • Look for ways that the stay at home parent can earn from home. Remote work is ever increasing and this is one option that you can look into. There are a lot of stories of stay at home moms with successful blogsites that earn them on the side. It just started as their online journal and as it gained followers, they started earning through advertisements. This is something that you can look into.
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