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Beware of hidden credit transfer fees

TODAY readers get smart advice from financial expert Jean Chatzky about improving their credit, getting out of debt and saving for the future.
/ Source: TODAY contributor

Q. I keep getting those balance transfer offers in the mail. Let's say I have $7,000 at 7.9%. The offer charges me 3% to move that debt to 4.9%. Is it worth my time to transfer, as the 3% is the difference overall, yet I'm paying 3% upfront? —Bill, Denver, Colo.

A. You're right to notice the fact that there's a fee associated with balance transfers these days. Many people don't take note of the fact that a) they exist and b) they've gone up lately. (They used to be about 1-2 percent, now they run 3 to 4 percent).

The question you need to ask yourself is whether there's a cap on the fee. Most balance transfers have a floor on the minimum fee of $10 and a ceiling on the maximum of $75 to $100. Others have no cap at all. So you have to read the terms associated with your card or call the toll-free customer service number and ask.

So, let's do the math for you. You have $7,000 in debt.

At 7.9% interest, it's costing you $553 a year.

At 4.9%, it's costing you $343 a year.

The difference is $210.

That's what it would cost you to do the balance transfer if there's no cap on the fee. Essentially, you'd come out even after one year. But if it takes you longer than a year to pay off the $7,000 you'd come out ahead. And if there's a cap on the balance transfer fee, you come out ahead immediately. I say do it.

Q. My husband and I definitely live beyond our means. We live paycheck to paycheck and when I try to put money away it only lasts a few days. He will ask to buy something and I feel bad saying no. We have two girls and I am actually teaching them to save. I want to save and want to make everyone happy. Can I do both? —Amy, Bel Air, Md.

A. Amy — I want you to listen to me because this is really important. Saving money is the very best thing that you can do for your husband and your family. It buys you crucial things: not just college for the girls and eventual retirement for you and your husband, it buys you the ability to make choices in medical care if you have a health emergency, get a replacement car to get your husband back and forth to work if yours dies. Without savings you have no options.

Your husband needs to understand that as much as you do. Right now, your relationship with him is on shaky ground because you are parenting him financially as much as you are parenting your kids. He wants something. You have to be the police.

No more. Here's what I want you to do. Set up three bank accounts. One for the house. One for you. One for him. His paycheck goes into the house account and on the very same day it goes in, I want you to transfer money into a savings account. Start small — with $100 or whatever you think you can manage. And if that feels easy, increase it the next month. Tell yourself those savings are hands-off. Also transfer a small sum into an account to be used at your discretion and another to be used at his. If he wants to buy something, he can use his money rather than asking you. As for the girls, this is what allowances are for: They can save for the things they want and you can put an end to the whining.

Finally, I don't like the idea that you have no retirement account of your own. If there's nothing else you want to spend your money on, put your discretionary funds into a Spousal IRA.

Q. I fell behind on my credit card payments resulting in a poor credit rating. Now I am paying my bills on time but I'm noticing that even one late payment will indicate on my credit report that it is a bad debt. I paid a credit repair company to "fix" my credit, but my credit score has not changed. The credit repair company is telling me not to pay off collection items because they are five years old and if I did, it would show paid but still have a negative impact on my credit. I don't know what to do? —Kellie, Ft. Mitchell, Ky.

A. Kellie — You're asking two questions here, so let's deal with them one by one. I hear this from people all the time: They're good paying their bills most of the time, so they wonder why one late payment shows up on their credit report. The answer is that your credit score and credit report are not computed by people. There is one computer talking to another computer. And computers are notoriously unforgiving.

Look, it's not my style to yell at you or shake my finger at you to get you in line. But the fact is, your credit score is one way the world views how responsible a person you are on this planet and decides whether it wants to do business with you. So you have to come up with a way to not make even one late payment. I'd suggest online banking. If you schedule payments to be made to your creditors a week or so before the due date, you know you'll never be late again. This is very easy to do with car payments because they're the same each month. For your credit card, pick an amount you know will be over the minimum. Then go in and make a second payment or edit the first (very easy to do online) once you get the actual bill.

As far as your other question, I agree you shouldn't open the can of worms with collections that are five or si years old. At seven years, those will start to fall off your credit report. But if you go back now and start trying to deal with them, you'll reset the clock and drag your credit score down for a longer period of time.

Q. Currently I get paid monthly. Before I started this job, I was paid weekly. Since I started my new job, I spend a majority of my monthly budget the first week of the month, right after I get paid, and then have to scrimp and save for the rest of the month until I get paid again. This cycle has been going on for months. How do I make my budget last all month? —Kerstin, Seattle, Wash.

A. Kerstin — What you're describing is a problem every person who works freelance or in a job where income rolls in sporadically faces. Including me! What you're going to do from now on is pay yourself weekly. Deposit your monthly paycheck into your savings account. Every week (you can do this automatically or online) transfer one-quarter of the money into checking. Then, make a deal with yourself that the money in savings is not to be touched. Note: You may find as you go through the process that you have to tweak it a little bit based on things like when your rent or mortgage or car payment or other big bills are due. The other thing I want you to do is to PLAN your savings rather than simply allow saving money to happen to you out of necessity. You know what's possible now, having lived frugally three weeks out of the month. So decide upfront how much of that paycheck is reasonable to save (if you can hit 10 percent you're doing extremely well!) and transfer that money into a long-term savings account, a money market or an IRA as soon as you receive that paycheck and BEFORE you have the chance to spend a dime.

Q. My fiance works over 80 hours a week. We have three children and since we moved to another city, I have not been able to find work that would be worth the child care expenses and gas prices. We are hardly able to pay our bills. We cut our spending by going to a debt consolidator and closing all credit cards. We even traded in my car and bought a motorcycle to cut the gas expense. We are in dire need of resources, something like work from home to help us. What do we do? —Wendy, Florence, Ariz.

A. Wendy, you're thinking along the right lines. You need to do one of two things — either find a part-time job that you can handle while your children are in school. (This will also mean finding an inexpensive program for them during the summer.) Or find a way to earn money while working from home and taking care of your children. Since one of the issues is your children, you may want to consider becoming a licensed child care provider. To do this in Arizona, you'll need to get in touch with the Arizona Dept. of Health Services in Phoenix. But for other people with the same question, every state has different licensing requirements: You can find them online.

If that doesn't appeal, then I'd look at other options for working at home. Q. My husband and I had our first son a year ago. We are stumped on what to do to start saving for his college. My husband and I both make the maximum contribution to our roth ira's and save $1,000 a month in a money market account. Although we know we can't foot the entire bill for his college education, we would like to be able to help some. Which products would be best for us? —Rebecca, Gales Ferry, Conn.

A. Rebecca — What many people don't understand about the Roth IRA is that it is an excellent college saving fund as well as a retirement fund. One of the things I like so much about the Roth — besides the fact that your contributions grow tax-free forever and you don't have to pay taxes on them when you pull the money out — is that you can make withdrawals, without penalty, for things like education and buying your first home. So when your child gets to college 18 years from now, you can look at the balance in that Roth and decide if you want to use some of the money for education rather than retirement.

As far as other options, I'd look at the Coverdell Education Savings Account and the 529 College Savings Plan. The Coverdell works like an IRA. You can contribute up to $2,000 annually if your modified adjusted gross is less than $95,000 as a single tax filer (or married filing separate), or $190,000 to $220,000 as a married couple filing jointly. You can open a Coverdell at pretty much any brokerage firm (I'd use the same one that houses your Roth for sanity's sake). Then you invest the money as you choose. You can contribute substantially more to a 529 College Savings Plan. Connecticut has a very well regarded plan run by TIAA Cref. You get a deduction for contributions of up to $5,000 (single) or $10,000 (married) on your state tax return, which is a nice plus. If you want to read more about the plans in your state, I'd go to, a terrific Web site that rates plans kind of like Morningstar rates mutual funds.

Jean Chatzky is an editor-at-large at Money magazine and serves as AOL’s official Money Coach. She is the personal finance editor for NBC’s “Today” show and is also a columnist for “Life” magazine. She is the author of four books, including “Pay It Down! From Debt to Wealth on $10 a Day” (Portfolio, 2004). To find out more, visit her Web site, .