This Mother Used to Pay for Child Care With a Credit Card. Here’s Why She Doesn’t Recommend It

A photo to accompany a story about paying for childcare with a credit card Courtesy of Dyana King
Dyana King, a single mother and money coach, used to lean on credit cards to pay for child care costs for her two children. Now, she cautions others against doing the same.
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Like many parents, Dyana King relies on child care so she can work and support her family. 

“If you don’t work, then you don’t bring in an income. That’s especially true if you’re a single mom,” says King, 29, who lives in Jacksonville, Arkansas. Her 8-year-old daughter and 4-year-old son both attend a day care center while she runs her money-coaching business during the day. “I look at [child care] as a necessity. It allows me to earn an income and gives me peace of mind.”

But that peace of mind comes at a steep price. Nearly a decade ago, as a young single mother, King says child care made up 40% of her budget. She would sometimes rely on credit cards to charge the payments as a last resort option. After years working to pay off nearly $35,000 in total debt, including what she had charged to her credit card, King no longer uses cards to cover child care costs. Now, she warns others against it, too. 

There are specific cases in which you could score credit card rewards by charging child care costs, according to financial experts. But for moms like King and many others, there are safer alternatives to consider to cover the cost of child care. Here’s what you need to know.

How Much Does Child Care Cost?

Child care costs are a strain on American families’ budgets — and for many, the price is rising.

More than 50% of families spent over $10,000 on child care in 2020, and 59% plan to spend more than $10,000 in 2021, according to a recent Care.com survey. Around 85% of parents are  spending 10% or more of their household income on child care, compared to 72% in 2020, according to the survey. That means for the majority of American families, a significant chunk of household spending goes toward child care.

Child care costs ultimately depend on a combination of factors, including where you live, the type of child care you choose, your child’s age, and how many hours per week you need care. 

“Personally for me, my child care is more than what I spend on housing,” says Rita-Soledad Fernández Paulino, a NextAdvisor contributor, mother of two, and the creator of personal finance Instagram account Wealth Para Todos. “I think we as parents know it’s going to be one of our greatest expenses.”

One Case Where It Can Make Sense to Pay for Child Care With Credit Cards

As with any purchase you might not be able to pay off, using a credit card for child care can be a slippery slope if you’re using it to cover costs that aren’t within your budget. You can rack up high interest and fees if the bill isn’t paid on time and in full every month. If you already carry a balance, adding child care costs will only cause you to go further into debt and negatively impact your credit. 

“If you know you don’t have the discipline to swipe it and then pay it off in full, I do not recommend going this route,” says King. “A few cash back dollars or trying to get your credit score stable isn’t worth having a lingering debt balance.”

But if you want to use credit to pay for child care because of convenience or rewards — not relying on it because you don’t have the money — there are times it can make financial sense.

Paying for child care with a credit card lets parents earn rewards, automate payments, and keep records easier. Daniella Harrison, a financial planner and founder of Harrison Financial Planning in Columbia, Missouri, says she and her husband paid for her first child’s monthly day care bill by credit card for years without a hitch. 

“As long as parents have the discipline to pay off their credit cards in full every month, I don’t see any issue with using a credit card to pay for child care expenses,” Harrison says. “With the reward points you can receive for purchases, it can be advantageous.”

You also have to consider whether your preferred child care center or school-based program accepts credit cards. Some don’t — and even if they do, there could be fees involved. Harrison says credit card fees at day care or other child care centers can range from 1% to 3%, wiping out the rewards you’ll earn with most cards. If you prefer a babysitter or nanny, you’ll likely pay them by cash or check. 

“The only reason why we stopped paying for day care bills by credit card is because our son changed schools and that school did not offer payment by credit card,” Harrison says. “Our youngest son’s center does allow credit card payments for tuition but charges an extra 1% fee for paying by card.”

Alternatives to Paying for Child Care with Credit Cards

Using a credit card to make ends meet should only be a last resort. If you’re thinking about using a credit card to pay for child care because you’re unable to pay in cash each month, here are a few other options to consider first:

Flexible Spending Account

If you have access to a benefits program through your employer, you may be eligible for a flexible spending account (FSA). These accounts can help you cover a number of different expenses — from medical expenses to adoption. There’s also an FSA you can use for child care expenses, known as a dependent care flexible spending account. 

A dependent care FSA allows you to put pre-tax money from your paycheck into a dedicated account for child care expenses. Because the money you contribute is added to the account pre-tax, you’ll reduce your federal tax burden when you add money to your account.

“I’m still paying for child care, but now I mostly use my FSA funds for it because of the tax benefits,” King says.

The American Rescue Plan expanded contribution limits for dependent care FSAs. The maximum amount you can contribute is $10,500 for married couples and $5,450 for single filers in 2021. You can find a list of eligible expenses that qualify for dependent care FSA funds at FSAFEDS

Child Tax Credit

If you qualify, take advantage of the Child Tax Credit to cover the costs of child care. Under the American Rescue Plan, the expanded credit allows qualifying families to receive up to $3,000 per qualifying child between 6 and 17, and $3,600 for kids under the age of 6 in 2021.

The expanded credit also distributes half the amount they qualify for to eligible families in advance monthly payments through the end of 2021. If you haven’t received payments you’re eligible for, there’s still time to sign up and receive monthly payments for the rest of the year and claim the rest in 2022 once you file your next tax return. 

Fernández Paulino is using her Child Tax Credit advance payment toward child care costs while saving money for a future down payment on a home. She recently told NextAdvisor that parents shouldn’t “feel guilt or shame for putting that money toward overdue bills, groceries, debt, child care, or other things you see fit.”

Emergency Fund

Don’t go into debt or borrow money for necessary expenses that an emergency fund could cover. If you have an emergency fund, whether big or small, use it to cover your child care costs before relying on a credit card. Then use whatever cash you may still have coming in to begin building the savings back up little by little. When you are in a better financial position later, you can focus on replenishing your emergency fund. 

If you don’t already have emergency savings, you don’t have to wait for a financial rebound to begin saving money. Even if child care is taking a large chunk of your budget, contributing to a savings account little by little can help secure yourself against unexpected payments. Putting away just $5 to $10 a week can add up in the long run. 

Government or Nonprofit Child Care Programs

If you’re consistently struggling to pay for child care, look into child care assistance programs in your local area and state. Each state runs a child care subsidy program, and there are also state-funded kindergartens that your child may qualify for. Eligibility requirements are different in each state, but you can find more information on your state’s program at Childcare.gov

Many communities also have options for before- and after-school care, or day care for younger children. Research nonprofits and churches that offer childcare services in your area, like the YMCA and Boys & Girls Club of America, which are often more affordable than private care.

Bottom Line

Child care is expensive, but charging the cost to a high-interest credit card you’re unable to pay off can lead to even more expensive, long-lasting debt. Consider other options, like subsidized care or Child Tax Credit payments, before leaning on credit.

However, if you do pay off your balances in full each month and you’re looking to maximize rewards, you can earn cash back, travel, or other perks on your child care spending. Just consider any fees the provider might charge that can wipe out the value you’ll get. In most cases, you’re likely better off sticking to cash or a check to cover your child care expenses.