Friday, May 11

TJ Maxx VISA Compromise

Compromised accounts from the TJ Maxx fiasco continue to surface.

If you have a VISA branded debit card, you should be very concerned if you've ever used the card at any of the TJ Maxx stores. Your PIN, drivers license number, date of birth and other personal information might have been compromised.

If the institution that issued your card hasn't done so already, you'd be well advised to contact them to order a new card. Because your debit card is tied to your bank accounts, it is possible that someone with your debit card account and PIN number could empty your checking and savings.

At the very least, you may consider putting a fraud alert on your credit report. This will limit your liability if your identity is stolen.

Thursday, May 10

How to calculate interest on consumer loans

Ever wonder why almost every time you make your car payment, the amount that you pay in interest is different? How is interest calculated anyway?
Most consumer loans accrue interest Per Diem; every day that you have an outstanding balance, you pay a 'fee' or interest for use of the money.
Let's say that you have a car loan. The balance owed is $15,500. You have low rate of 5.25%. Your payment is $400 per month.

Your payments are due on the last day of the month. You made you last payment on March 31, and you're going to the bank to give them your April 30 payment today. A total 40 days have passed. How much of your payment will go to interest, and how much towards the principal balance?
There are a number of ways to figure this out. I believe the following is the easiest method.

Step 1 - multiply the current balance by the interest rate.

$15,500 x 5.25% = $813.75

Step 2 - Divide the result from Step 1 by 365 (the number of days in a normal year)

$813.75 / 365 = $2.229 This is your daily interest charge, the fee you are charged each day for the use of the $15,500

Step 3 - Multiply the daily interest charge by the number of days since you last made a change to the loan balance (your last payment)
$2.229 X 40 = $89.16 This is how much interest you owe.

So, out of a $400 payment, $89.16 is will satisfy the interest that is due, with $310.84 going to the outstanding balance.

You can see from this exercise that by making extra payments towards the outstanding balance, you will pay less in interest charges.

Credit card companies will be changing the way that they calculate interest on your outstanding plastic card balances. Read this article at Kiplinger's for more about this.

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Tuesday, May 8

Money and Credit: Parasites in your wallet!

Parasites in your wallet!

Check out this site, Unfair Credit Card Fees . Those of you who have paid them know what they mean by unfair!

Credit cards certainly fill a need for us, and the banks who issue them should be paid a fair price in exchange for the service. But is a $39 over limit fee really fair? What about a $39 late fee or 30% interest?

We, as credit card users must REVOLT! These fees are simply outragous and do more harm to the consumer than any good. Remember, the bank is not your friend!!! They live like a parasite in your wallet!!!!

How to Calculate your Debt Ratio

In one of my previous posts about debt ratios, I talked about whether or not they're important in this day and age. What I didn't share was how to calculate your debt ratio. I'll discuss that today.

In mortgage lending, we look at two debt ratios; the front end and back end ratio. In the old days of manual underwriting, the rule was 28/36. This meant that your housing payment should not exceed 28% of your total gross income, and that your total monthly obligations including your housing payment should not exceed 36% of your total income.

Note that debt ratios take into consideration only your revolving and installment obligations, not your food and utilities.

So, how do you calculate your debt ratio? If you have a mortgage loan now, follow these steps:

  1. Determine your total Monthly Gross Income- example $3500

  2. Calculate your total monthly housing expense- this includes your mortgage payment, real estate taxes and homeowners insurance. If your taxes and insurance aren't escrowed, then you need to figure out what they cost on a monthly basis and add that amount to your mortgage loan payment. To do this, simply add your annual real estate bill(s) to your annual homeowners insurance premium and divide by twelve. Add the result to your mortgage payment. For example:

    • Annual Real Estate tax of $4000 + Homeowners of $800 = $4800/12= $400

    • $400 plus your mortgage payment of $700 = $1100

  3. Your front end ratio is calculated by dividing your total housing of $1100 into your total income of $3500. The front end or housing ratio in this example is 27.5%

  4. Now, to determine your back end ratio, add up all of your monthly obligations, i.e. car payment, boat payment, credit card payments, etc. and add the total to your total housing of $1100. For example:

    • Car Payment- $200

    • Credit Cards- $140

  5. Divide your total expenses (including housing) into your total income to arrive at your back end or total debt ratio. In this example the total expense is $1440, divided into the total income of $4000, for a total debt ratio of 36%