Good balance transfer deals are getting scarce

Dear Liz: Can we really trust the banks anymore to adhere to the terms they offer us? I liked your suggestion about using low-interest-rate balance-transfer offers to speed up debt repayment. However, one of my credit card issuers has both increased my minimum payments and lowered my limits on my credit card and line-of-credit accounts. When I asked why, they said, “Because we can.” So when they send me a set of balance-transfer checks with a 1.99% interest rate, I don’t trust them to keep their word. Now I am just concentrating on paying off the balance as soon as possible and will keep the card only for emergency use.

Answer: Balance-transfer terms aren’t quite as sacrosanct as they used to be. A few lenders have boosted their minimum payments, and Chase tried charging a $10-a-month “inactivity fee” before customer outrage forced it to back off.

But the biggest risk with balance-transfer offers right now isn’t that lenders will renege on the deals midstream. A greater concern is that the good deals are getting scarcer. It’s possible that when the low teaser rate you’re offered expires, you might be stuck with a double-digit rate and few options to get a better deal.

If you can pay your debt off before the low rate expires, and you would save money even after taking into account the 3% to 4% balance-transfer fee most lenders charge, then you might want to consider one of those low-rate deals. Otherwise, consider looking for a card with a low regular interest rate. Check with your credit union, sites like CardRatings.com or Credit Cards.com, and the finance forum at FatWallet.com.

You don’t need to carry debt to have great scores

Dear Liz: I have no idea what my credit score is, because as my father said, “You never get rich paying someone else interest.” The only reason to borrow money is for a house or a car or for a home improvement for which a home-equity loan would be best. Credit cards, consumer loans and home-equity loans for non-house expenses are folly.

However, you and many other financial columnists are always advising people on how to keep their credit scores high. The implication is that your readers should be borrowing money when they should not. I use credit cards (for most of my purchases, in fact), but I always pay off my balance, so my credit scores are of no interest to me and I don’t know them.

Answer: You’re laboring under two common misconceptions: that credit scores aren’t important and that you have to have debt to have good scores.

It’s precisely because you don’t get rich by paying others unnecessary interest that you should care about your scores. The reality is that good scores have become critically important if you want the best rates and terms on mortgages, auto loans and other lending.

Credit scores are also used by landlords to evaluate applicants and by insurance companies to determine premiums.

But you don’t need to carry credit card balances to have great scores. In fact, the only smart way to use credit cards is to pay your balances in full each month. You also need to pay attention to your credit limits, since maxing out cards, even if you pay in full, can hurt your scores.

Will new bank cash old cashier’s check?

Dear Liz: I have a pack-rat mother. During my most recent “purging” of her boxes of papers, I found a cashier’s check for almost $2,000. The catch is, it’s dated Jan. 15, 1986, and was issued by a bank that’s since been acquired. What are the chances of the acquiring bank honoring the check? My mother is wealthy enough for this to be an amusing, albeit embarrassing, story, but I hate the needless waste of money.

Answer: You and your mother can present the check to the bank, but most likely you’ll be directed to your state escheat office, where unclaimed bank funds typically end up. You can find a link at www.unclaimed.org, a site run by the National Assn. of Unclaimed Property Administrators.

Money troubles? Stop bailing out your kids

Dear Liz: My husband and I are having a rough time making it from paycheck to paycheck. We make pretty good money. We have four children and end up helping them every month. We cannot seem to make it without going in the hole in our checking account. Could you please help me with what we should do?

Answer: As writer Erica Jong once said, advice is what we ask for when we already know the answer but wish we didn’t.

You know what you need to do: Cut off your children (assuming they aren’t minors, of course). If you can’t make it from one paycheck to the next, you’re in no position to help anyone else. Your children may not know the financial straits you’re in, or they may not care; either way, it’s up to you to close the Bank of Mom and Dad.

Once that financial spigot is shut off, you’ll need to look for the other leaks in your financial system. Track where your money is going using personal finance software such as Quicken, online tools such as Quicken Online, Yodlee or Mint, or a notebook and a pen.

If you’re still spending more than you make, you’ll need to find ways to cut back so that you not only don’t go in the hole but are putting aside money each month. You need to save for retirement and for an emergency fund, among other goals.

To do all this, you’ll need to use a word that apparently hasn’t been given enough of a workout around your home: “no.” “No, we can’t help you.” “No, we’re not going to buy that.” “No, I’m not going let my finances be in chaos because I can’t say ‘no.’ “

Should you tap your HELOC while you still can?

Dear Liz: Are banks still lowering the amount of available credit? I’m concerned because we were hoping to use our home equity line of credit to pay for our children’s college educations, if need be.

Our current balance is less than 5% of the total available limit, but my credit reports show our credit line lender recently reviewed our credit history. I am concerned that our bank will lower our available credit as my son is about to start college. Are my concerns valid?

Answer: Perhaps. Lenders have been reducing home equity lines of credit as home values drop. If your mortgage balance and your line of credit total more than 60% of the current value of your home, you may be at risk of having your limit reduced right when you planned to use it.

If that’s the case and your son is heading off to school in the next year, it might be prudent to withdraw the money now and keep it in a savings account.

If college won’t start for several years, though, you might want to explore other options, since it’s generally not a good idea to borrow money so far in advance of when you’ll need it.

Fortunately, you have plenty of options when it comes to paying for college. Just make sure you fill out a Free Application for Federal Student Aid. Even if you don’t qualify for need-based aid, filling out the FAFSA will allow you to apply for federal student loans. Your son can get Stafford loans at a 6.8% fixed rate and you could get PLUS loans with a fixed rate ranging from 7.9% to 8.5%. Although the amount of student loans your son can get is generally limited to $31,000 for an undergraduate degree, PLUS loans allow you to borrow whatever you need to cover any costs not paid for by the student’s financial aid package.