IE 11 is not supported. For an optimal experience visit our site on another browser.

Money 911: Build better credit, cut energy costs

If you have questions about your money in today's economy, you're not alone. Here, TODAY personal finance editor Jean Chatzky tackles reader concerns about a few financially sticky situations.
/ Source: TODAY contributor

If you have questions about your money in today's economy, you're not alone. Here, TODAY personal finance editor Jean Chatzky tackles reader concerns about complicated financial issues:

Q: This week we've been hearing the Senate debate the bailout put on the table by Treasury Secretary Paulson. It is clear this problem isn't going away anytime soon. What is the average consumer/investor supposed to do? — Anonymous

A: Spend a little less. Look, this bailout may help stabilize the markets, but you and I can't do anything to control whether it passes or not. What we can do is protect ourselves and our families by saving a little more so that if we need cash we have it — which means we don't have to try to borrow (at a time when borrowing is more difficult), we don't have to raid our retirement plans, we don't have to sell stocks when they're down. Anything you don't need is a purchase you should reconsider.

Q: The company I've worked for the last 23 years is closing. They are offering a severance that  will be paid from our overfunded salary pension plan. What are my options to avoid the heavy tax penalty, but still have the money available to me in case of an emergency? — David, Mich.

A: The good news is that you're getting a pretty nice package, particularly in this economy. The bad news is that severance payments are treated as — and taxed as — income. And particularly, if you should find another job quickly (which of course I hope you do), the new salary on top of the severance could push you toward a higher tax bracket. There are not a lot of ways to dodge the new taxes you'll owe, but there are a couple to know about.

You can deduct the cost of your search for a new job — as long as you are staying in the same field. These go on your return as "miscellaneous itemized deductions" and have to exceed 2% of your adjusted gross income to qualify. Travel expenses to and from interviews may boost you into that category. You can also write off education expenses that enhance your current job skills (not those that help you switch careers). Medical expenses can be deducted if they top 7.5 percent of gross income. Your COBRA payments to maintain health insurance — which can be very pricey — are included in this total, so they may push you over the top.

The more important thing to keep in mind is that this is actually a pretty tough market in which to find a job. Make sure you plan carefully to make that severance go as far as possible. And be sure you know how much tax you'll actually owe on it. If you're already in a high tax bracket, the government might not take enough off the top. You don't want to find yourself in a hole next April.

Q: In the last six months, my electricity bill has risen from $50 a month to over $320 a month. Obviously, the summer costs more for air conditioning (I don't use it weekdays when I'm at work), but perhaps there are other tricks I can use. Do cell phone chargers use electricity if plugged in with no phone attached? Do other items? — Craig, New York City

A: Craig, if I were you, my first call would go out to my electric company. Make sure that the charges are correct, because that's a pretty big jump, even after you factor in the air conditioner. Then, look at your usage.

You're right, things that remain plugged in all the time are sucking up electricity, even when they're not in use. The best way to save money and energy is by buying a few power strips. Get one for your television/entertainment center, one for your computer and printer, and one for your cell phone and other chargers. Then, you can pull just a few plugs when you leave your apartment or go to sleep, rather than running around trying to get them all.

Other ideas? Buy CFL bulbs to replace the regulars. CFL bulbs use 75 percent less energy than regular bulbs and a six-pack can save you $200 over the course of its lifetime, according to the NRDC. Check your refrigerator and other major appliances to make sure that they're Energy Star approved, which means they're more efficient and therefore zap less energy. And if you have one of the big flat-panel TVs that are popular now, use it wisely. Some models use two or three times more energy than smaller televisions.

Q: I'm a sophomore in college and so far I've been taking out private student loans to pay for whatever my financial aid package hasn't covered. After taking out my private student loan this year, I got a federal direct and subsidized loan for $2,000. So I have that extra money in my student account. I was wondering what I should do with that money. I have private loans and federal student loans from last year as well as a little bit of credit card debt. Thank you. — Alison, Maine

A: You got that extra $2,000 because of a temporary measure that Congress enacted in May that increased the borrowing limits for the 2008-2009 school year.

Here's the deal with loans: You always, always want to max out your federal loan money before you turn to private loans, because private loans are typically more expensive interest-wise and they are often variable-rate loans, which means the interest may adjust on you. So, you learned your lesson for next year.

As for what you can do with the money now that you have it, your best bet is to pay off that $400 in credit card debt, then stash the remaining $1,600 in a high-yield savings account. When it comes time to borrow for next semester, you can use that money to minimize or completely eliminate the amount you need to borrow from your private lender.

Q: I recently graduated from college and have a debit card and some savings sitting in my checking account. I'm wondering what is the best credit card to use to start building credit and how should I invest my money? Money market? IRA? What's the best and safest for the long term? — Emily

A: If you haven't already, I'd pull your credit report before applying for any cards. You can do this for free three times a year by going to Once you know where you stand, you'll be able to gauge whether your application will be accepted for a standard credit card, or if you'll need to start with a secured card, which basically allows you to deposit money as an assurance to the card company that you'll pay your bill each month. The amount you deposit will become your credit limit, and if you regularly pay on time, most cards will automatically turn into a traditional credit card in 18 or 24 months.

If your credit history qualifies you for a standard card immediately, you just want to look for one with a low interest rate and no annual fee. If you're going to pay the bill in full each month — and you should — then you can also look for extras like reward points, which often come with a higher interest rate.

As far as investing, if you don't have a 401(k) through work, look into a Roth IRA, which will allow you to automatically invest an amount you can afford each month. A life-cycle or target-date retirement fund will do the investing work for you.

Q: I wanted to consolidate my unconsolidated last year's Parent Plus Loan with my previously consolidated Parent Plus Loan, taking advantage of the lower interest rate. When I called Sallie Mae to do so, I was surprised to be informed that they have stopped consolidating loans. Can you provide me with more information about this and whether I have any other recourse? – Cherry, Conn.

A: Sallie Mae did, in fact, step out of the loan consolidation business, as did many other lenders. Because of the credit crunch and budget cuts by Congress earlier this year, it's simply just not as profitable as it once was. But that doesn't mean you're without options — you can consolidate with any lender, not just Sallie Mae. And Sallie Mae continues to make federal student loans (Stafford and PLUS) to all students at all schools, and they are still lending private student loans, as well.

One of the best places to consolidate these days is through the U.S. Department of Education at Also, speak to a financial aid counselor at your child's school for more leads.


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 2004’s “Pay it Down! From Debt to Wealth on $10 a Day” (Portfolio). To find out more, visit her Web site, .