I bough some of these t-shirt iron on transfers (although I can't quite remember whether it actually is this brand, it might be another one, but I think you get the picture. Important: it has to be for DARK clothes, so the background is white) http://www.avery-zweckform.com/avery/de_de/Produkte/Kreativprodukte/Textil_Folien/Textilfolien-fuer-farbige-Textilien_MD1003.htm?N=0&Ns=&refchannel=259c8e9a44f8c110VgnVCM1000002218140aRCRD
then i used word.docx to create my own labels which look like this. :)
I usually iron them in after I've finished them, but you can also put them in, before you put the garment together, sometimes that is easier. I don't know, why I've not come up with this idea a long time ago... So I thought I'd share this idea.
The cost depends entirely on the paper you buy (the tags are about 6x3,6cms big, I printed 21 tags on an A4 sheet so in my case that was about 5 cents per tag) plus the cost for a washproof textile marker.
I've washed them quite a lot already (children...), I have no complaints so far, the labels don't come off, the colour does fade a little bit but not too much and it is not itchy. I think it's pretty nifty.