Six Financial Hacks For When Your Kid Needs Braces

Ah, Murphy’s Law. Welcome back. I see you know we recently paid off our mortgage, and are planning a dream trip to Japan, and so decided to pay a visit in the form of braces for our oldest son.

When he was little, his tiny teeth were straight as an arrow. But as he’s grown older, and become a teenager (he’s 15.5), he’s developed an under bite. We took him to an orthodontist years ago, when this first became noticeable, who at the time said he needed to finish growing before it could be corrected. His dentist suggested going again, to a different doctor, who said treatment before he stops growing is key.

Side rant – this is one of the most frustrating things for me as a parent and a patient. I rely on the medical advice of professionals who are supposed to know what they’re doing and counsel me correctly. I should not be expected to become an expert on orthodontics in order to make sure my son has the right treatment.

So now we’re in for two to three years of braces, to the tune of about $4,750 after insurance – discounted 5% to about $4,500 if we pay in full. He has an appointment tomorrow to have them installed.

Given that this is a very large purchase, I was curious what advice my money-minded Twitter friends would have. So I launched a poll to see what they would do, and got back some very good ideas. Today I’m going to tell you the top six ideas they recommended, and what I see as the pros and cons of each one. Be sure to stick around to the end of the article and leave a comment with your tips and hacks.

So on the braces front, my husband is taking my oldest on Thursday to have them installed.

Curious how you would fund something like this? Out of pocket cost is $4,500. 5% discount for paying in full. Comments welcome!

— Liz @ Chief Mom Officer (@LizOfficer) April 9, 2019

1 – Pay in full in cash

If you have the cash lying around to pay a bill like this, it’s straightforward. Just pay cash (or more likely, debit card) and get the 5% discount. You’ll save money over selecting the payment plan.

Pros:

• This is an easy hack that doesn’t take much work on your part
• It’s done and over with – you don’t have to worry about paying over time, or juggling payment plans
• You save a few hundred dollars

Cons:

• You have to have a lot of cash sitting around for this to work – or you’re depleting an emergency fund

2 – Pay in full using an existing cash back credit card (then pay it off)

If you have an existing cash back card, with enough room for a purchase this large, and cash in the bank to pay it off, this is a quick and easy way to save a bit of money.

Not only will you get the “paid in full discount” of 5%, you’ll also get cash back from your card. As long as you pay the card off in full before the due date, you’ll have saved a few hundred dollars off the bill.

Can’t pay the bill in full? You could try transferring to a zero percent interest card and pay it off before the promotional period expires. However, this will usually incur a balance transfer fee, so you need to make sure that doesn’t eat into your savings.

Pros:

• This is an easy hack that doesn’t take much work on your part
• It’s done and over with – you don’t have to worry about paying over time, or juggling payment plans
• You save a few hundred dollars

Cons:

• You have to have an existing cash back credit card. If you don’t, you’ll need to sign up for a new card – and if you’re doing that, you should go for the next hack
• You have to have the cash to pay the bill in full once it arrives. Otherwise, your savings will be eaten up by interest charges
• If you transfer to a zero percent card to pay over time, you need to watch out for balance transfer fees. Plus that somewhat negates the “easy” part of this hack, because you need to open another card.

3 – Sign up for a new credit card to get a sign-on bonus, plus cash back if available, then pay it off in full

This isn’t quite as easy as the first step, since you’ll need to research and open a new card. But it can be quite lucrative.

Paying the bill in full lets you snag the 5% discount, and using a credit card sign on bonus could get you hundreds of dollars in cash rewards, or travel credit. Again, you need to pay off the bill in full once the statement arrives in order to not pay interest or late fees (which would eat up your savings).

This way, your kids braces could be taking the whole family on a fun trip. Hopefully, it will be fun enough where they forget the pain of the braces for a while!

Pros:

• It’s done and over with – you don’t have to worry about paying over time, or juggling payment plans
• You save a few hundred dollars by paying in full upfront
• You get a promotional credit for a few hundred dollars for cash or travel

Cons:

• You have to qualify for a new card with a promotional value if you spend $x within a few months.
• Just like the prior hack, you have to have the cash to pay the bill in full once it arrives. Otherwise, your savings will be eaten up by interest charges
• If you transfer to a zero percent card to pay over time, you need to watch out for balance transfer fees.

4 – Use an FSA (Flexible Spending Account) to pay for braces

The FSA, or Flexible Spending Account, isn’t often discussed on financial websites. But when it comes to pre-planned dental work – and especially orthodontics – it can be a powerful tool.

Like an HSA (Health Savings Account), you contribute to an FSA pre-tax and can use the money tax-free for medical, dental, and vision expenses. Even if you have an HSA, you can typically have what’s called a “Limited Purpose FSA” that can be used for dental, vision, and post-deductible medical expenses.

There are certain downsides to the FSA, like the fact that you have to “use it or lose it” (unless your company offers rollovers to the next year). Also the contribution limits are low, at $2,700 per person this year. But you save on taxes, which can be a much bigger discount than 5% off.

Pros:

• The tax savings can be more than the “paid in full discount”, so even if you need to spread the costs over two years to get full reimbursement from an FSA, you can come out ahead
• Getting money from the FSA is usually pretty easy. Some companies even have an FSA debit card you can use.

Cons:

• You usually can’t start contributing to an FSA in the middle of the year. You’ll need to have made that choice at the start of the plan year, and most people make those choices back in November of the prior year (depends on your company).
• Your company has to offer an FSA – not all companies do
• If you don’t have a debit card available, you’ll need to submit manually for reimbursement, which can be a bit of a pain.

5 – Use an HSA (Health Savings Account) to pay for braces

The health savings account, or HSA, has much higher contribution limits than an FSA. This year, it stands at $7,000 for a family or $3,500 for single filers, with an extra $1,000 catch-up allowed if you’re over 55.

This account is also pre-tax, meaning that you save on all taxes (federal, state, and FICA). Again, this can be much more than a paid in full discount, even if you need to spread the cost over a few years.

Now with an HSA, unlike an FSA, there’s no “use it or lose it” concept. You can invest your HSA, save the receipt from the braces, and reimburse yourself years down the line for these expenses. Check out this article from Mad Fientist on how an HSA is the ultimate retirement account, for more on how to do this.

Pros:

• You can save on all those taxes
• You can save the receipt from the braces and reimburse yourself from the HSA anytime. It doesn’t need to be in the same year you pay for them.
• You may be able to change your contribution mid-year – at least, at my company I can. Check with your company.
• If you delay reimbursement, you can invest the money in the HSA and earn market returns. You can then withdraw the money at the point where you really need it.
• HSA’s sometimes come with debit cards, which you can then just use at the office to pay the bill. You could even set up the payment plan to automatically get taken from your HSA card. This offering varies by employer

Cons:

• You have to be enrolled in a high deductible health plan in order to have access to an HSA. Just like the FSA, you’ll have likely made that choice some time ago.
• If you have an HSA available, you need to be contributing to it.
• If you don’t have a debit card available, you’ll need to submit manually for reimbursement, which can be a bit of a pain.

6 – The Most Powerful Option – A Combination Of One Through Five

Combine some of the options above, and you’ll come out way ahead of the financial pack.

Here’s some examples of how you can do that:

• Get a new credit card with a sign-on bonus. Use that card to pay for braces, meeting the minimum spend amount for snagging the bonus as well as getting the paid in full discount. Then pay yourself back from your FSA or HSA, saving on taxes
• Use an existing rewards credit card to pay the payment plan off over time, and reimburse yourself from an FSA. If you stretch it over multiple years, you’ll be able to select an FSA next year even if you didn’t this year, saving on taxes.
• Get two new credit cards with sign on bonuses. Put half the bill on one card, half on the other. Get two sign-on bonuses by meeting the minimum spend on each (which might require some additional spending, depending on your bill). Pay the cards off in cash. You’ll get the paid in full discount, two shiny bonuses. Invest your HSA money and save your receipt to reimburse yourself years down the line after your investments have compounded.

Basically you take any combination of the above ideas and you can turn those braces into a much less costly endeavor.

Pros:

• This will save/make you the most money

Cons:

• It can be rather complex to implement this strategy since it involves applying for multiple new cards and juggling multiple options. You also may need to run the numbers on several scenarios to see what’s going to work best in your situation
• You have to have a lot of money sitting around to pay the bill in full – or to pay it yourself and wait for your HSA to compound
• You have to have a good credit score to get new cards with good bonuses (or zero percent balance transfers)
• Your employer has to offer an FSA and/or HSA plan

What If None Of These Work For Me?

Honestly, there’s nothing wrong with just setting up a payment plan with the orthodontist.

The payment plan options I saw were all at zero percent interest. You could have it automatically drafted from your checking account, and add it to your budget. I’m sure this varies by office, but mine offered an option to spread the cost over one or two years, with varying down payment amounts.

You could just take the payment plan, have it put on a rewards credit card every month, and pay it in full. You’ll get a bit of cash back/miles without hurting your budget or wiping out your emergency fund.

Also significant dental work, especially orthodontics, is rarely an emergency. Don’t feel pressured into signing up for a plan right away. You can take your time, run the numbers, figure out what kinds of spending accounts your employer offers, and see if you can wait until the next plan year to start the dental work if you need to change plan options.

What Are We Going To Do?

In our case, we’ll likely pay it in full on an existing rewards credit card, pay that off when the bill comes, and save the receipt for future invested HSA reimbursement.

I’ve had an HSA now for the past few years, and have been paying medical bills out of pocket so I can invest that money. I plan for it to be our “retirement medical savings account”. Given that it can also be used to pay for insurance while unemployed, or can pay for COBRA, as well as medical expenses, it also acts as a form of a medical emergency fund.

This will deplete our emergency fund, yes. But it won’t empty it entirely. Without a mortgage to pay, we can quickly ramp that e-fund back up to a level I’m comfortable with.

And if an emergency comes up, I can withdraw the money from my HSA right away using that receipt.

What are your hacks for large expenses? Any specific cards out there you’d recommend? Anything to add to these strategies? Leave a comment to help out your fellow readers.