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What a mess! 5 financial cleanup tips

Have you backed yourself into a financial corner? TODAY financial editor Jean Chatzky bails readers out with advice on debts, money markets, long-term care insurance and more.
/ Source: TODAY contributor

Q: I received a credit card in the mail from my bank and I activated it thinking it was a renewed checking account card. Later, I realized the checking account card didn't expire for another year. I called the credit card company to ask them what the new card was for and who requested it. They told me that the bank preapproved a credit card for me and sent it. I did not personally sign for or request this card. Can they do this without my permission? If I close it out will it drop my FICO score? What should I do, Jean? — Brent, Texas

A: The first thing I'd do in this situation is call the card company and complain. Ask to speak to a manager, and find out how and why this happened, and let them know that in the future, you're not interested in a new card unless you specifically request one.

Next, you want to pull a copy of your credit report. You can do this for free by going to See if the new card is registered on the report. If it is, and you close out the card, it will ding your credit score a bit. The general rule is once you've activated a card, you shouldn't close it. So I'd leave it open, but that certainly doesn't mean you have to use it. Stick it in a drawer, and eventually it may even help raise your score because by not carrying a balance on it, you'll be contributing positively to your debt to income ratio, an important factor in FICO's credit scoring methods.

Q: I have a couple of small debts that have been on my credit report for about 3-4 years. I didn't pay them because I just wasn't making enough money. I am now making a little bit more money and would like to take care of these debts. But I have been reading some articles on the Internet that say debts usually fall off your report after seven years from the last activity date, so I'm afraid to touch them and have them stay on there for another seven years. Also, if the creditors are willing to work with me to pay a settlement amount instead of the full amount owed, how would that affect my credit rating? — Simone, Fla.

A: Actually, "debts" do not fall off your credit reports after seven years. I think you may be referring to negative information and how long it remains on your credit files. If those debts are in collection or otherwise negative then yes, they will be removed once they reach the seven- year mark. The "date of last activity" is a bit of a misleading term.

When it comes to negative information it doesn't actually mean that if you make a payment then your "activity" is recent and the item remains for another seven years. That would act as an incentive to NOT pay off your negative debts. And, it would cause the negative item to remain on your credit files for more than seven years, which is a violation of federal law.

Go ahead and pay off or settle those debts. It's best to have them paid in full so the collector isn't tempted to do something like sue you or sell the debt to another collector. Settling the collection isn't the best option for your scores, paying it in full is. But, you may be able to find an in-between when you offer a settlement amount, but the creditor reports it as paid in full.

Q: Can you tell me when is the best time to purchase long-term care insurance? Our financial adviser told us that your 40s is the best time because you get the best rate. Yet another financial advisor suggested mid- to late-50s. Our children are quite young — 5 and 7 — and the second financial adviser suggested that our priorities right now should be saving for retirement and financing their education, and then move into the long-term care insurance later. —Cynthia, Ill.

A: It's true that the longer you wait to purchase long-term care insurance, the more expensive it will be. But I think 42 is a bit young. The key is to find a balance, and I say the time to buy is in your early 50s. Any later, and you run the risk of your premiums skyrocketing. Earlier, and you're paying too much too soon.

Aside from age, the other factor that comes into play when you're considering long-term care insurance is investable assets. If you have between about $300,000 and $1.5 million, you're likely a good candidate. Less than that and you'll run through your money pretty quickly, meaning Medicaid will step in to pay for care. If you have more than $1.5 million, you should be able to foot the bill for care on your own.

Q: My husband and I are going to be moving in April/June. Because of this we are looking to buy a new home beginning in February. As of right now, we have been able to save enough money for a down payment. Since our money has been kept in a regular bank account we are attempting to find a investment to keep it in ... I have been informed that money markets, high interest savings accounts and CDs are the way to go. Is this true? If so, which is the best route and which firm is the best to look into? We need an investment that does three things: 1) keeps our money extremely liquid; 2) brings growth to our investment; and 3) does not cause us any loss. My question is, which type of investment is the best? — Stacy, N.C.

A: Stacy, if you're going to need that money in February, that means you have about five months for it to grow — not a huge amount of time, but long enough to accumulate something. A six-month CD is going to lock up your money for too long, but that's okay — when I checked on, the national average was only 3.14 percent. You can do nearly as well by putting your money in a money market account or a high-yield savings account. Shop around the banks in your area for the best rate, or go with something online. HSBC Direct, an online-only savings account, was offering 3.5 percent last week, which is pretty good these days, but you can get similar rates elsewhere. Flagstar Bank in Troy, Mich., has a money market that will earn you 3.65 percent.

Q: My father has passed away and I am now looking to decide what to do with my mother's invested money. She is 77, has no debt, will be staying in the house she's lived in forever, and her Social Security is enough to support her. Should she keep her money in the falling stock market or put it in something safer like CDs? — Diane, Texas

A: Something safer. Your mom is fortunate enough not to have to take substantial risk with her investments in order to make ends meet. Instead, you'll want to encourage her to keep it safe — in case she does need it — in a place where she earns a decent rate of interest but not risk. Refer to the money market and savings accounts I mentioned previously, or try a 1-year CD.

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, .