Debt to Income Ratio - A Calculation Important in Debt Reduction

Ever wonder how much debt is considered by banks and financial institutions to be too much debt? If you don't know where you stand, its time to take a moment and figure out your debt to income ratio.

First, take a moment to figure out your bad debts. This includes credit card balances, store charge cards, car loans, and any debt that is depreciating in value. Don't worry about including good debt like student loans, mortgages, investements, etc. Now you need to figure out your after-tax annual income. Finally, divide your after tax income by the total bad debt (after tax income / total bad debt = debt to income ratio.)

Obviously, the personal finance and frugal communities don't believe in carrying any bad debt, but if you do carry debt you shouldn't carry more than 15%. If you meet a company who is trying to convince you otherwise, RUN! They obviously are only concerned about their bottom line.

Today Was A Very Good Day

I was lucky enough to have two opportunities to earn a bit of extra money. The first was a taste test. The subject was apples and I have to admit it made me think. As most tests are set up, I was asked a number of questions about taste, texture, color, etc., but I found myself falling into the consumerism mindset that makes marketing companies the big bucks. It was the search for the perfect green apple.

I like to think of myself as a bit of a foodie preferring organic, fresh food. I believe I can taste the difference and that the organic will be obvious because it will have flavor. Today I was humbled. I realized I was drawn to the crisp green apple that didn't brown after it was cut. It wasn't until the very end of the test that I realized no natural apple does that. This apple was manipulated through genetic breeding, radiation treatment, injected with toxins or some other torture device designed to make a super apple.

I had ask what is my tolerance for flaws? The apple that browned was just as good as the bright green one. In fact, I think the green one was slightly more tart. How many other things do I look over because it doesn't fit the picture of perfect freshness? How much food goes to waste because others share my ingrained preference for appearance? Don't get me wrong, I'm not typically worried about trends. I try not to judge a person by its cover. I usually value the unique and different. So why is this green apple different?

The second opportunity was much easier. It was a market research panel for a local restaurant. It was really fun. I may have to add these types of panels to my entertainment list. Wow, how sad is that!?!

At the end of the day, I have $67 for debt reduction, $25 for groceries, $3 lunch splurge, and a $50 gift certificate to a fantastic restaurant. Yeah! Now if I could just work more days like this.

Fair Isaac Is At It Again! Are you Ready?

Liz Pulliam Weston at Money Central has written a new post and its a must read! Fair Isaac has revamped their FICO score for 2008. Check out "Build A Killer Credit Score In 2008." There are changes and if you aren't privy to those changes you could be hurting your score without even knowing it. According to the article, some changes include:

• "Applying for new credit accounts may hurt your score less.
• Having high balances on your credit cards could hurt more.
• Actively using the credit accounts you have may be more important.
• Having both revolving and installment accounts on your report could help you more, as the new formula is more sensitive to your ability to handle different types of credit."

Throughout the article, Liz Pulliam Weston stresses the importance of keeping credit balances well below the limit suggesting not to exceed 30%. This is because FICO uses this percentage as the largest factor in your score. Unsure of your FICO? While you can get a free annual report yearly at AnnualCreditReport.com, it's not as easy to find out your FICO score without applying for a loan. Having said that, they will for a price, include your FICO score with your credit report. Each of the three reporting companies will have a different score. To play it safe, use the lowest score.

Weekly Review

The Simple Dollar - Should You Cancel Your Credit Cards Or Not
This has always been a question on my mind. Once you pay off a credit card, do you close it? Some say yes, but others say it will hurt your FICO score. The Simple Dollar weighs in.

Being Frugal - 75 Frugal Hacks For Your Home
This is a great post with 75 frugal ideas from cleaning, to DIY, to planning.

Zen Habits ~ Simple Productivity - The Minimalists Guide To Simple Housework
Anyone that can mediate while cleaning has peaked my curiousity.

Working For Financial Freedom - The Scoop On The Tax Rebate Checks
Are tax rebate checks really going to prevent a recession? Working For Financial Freedom answers all sorts of questions you may have about them.

Sometimes You Need To Power Through a Tough Month

Between the stress of being over extending this month and the inspiration of a 20-something blogger by the name of Saving For A House Of My Own, I have been brainstorming ways to increase my income.

I did get my interest rate lowered on one of my credit cards and I made a payment on another today. That makes me feel a bit better, but I'm still short by about $100 for the month. So, my first step was to take back the pop cans from work and home. I drink most of the pop at work, so no one has any issue with me taking them back. Today's bounty was $3.65. Next, I started collecting those items that need to go on ebay. I put two items up today and have a few more to go tomorrow. I've also been checking out Craigslist to see if there are any market research projects that are looking for participants. I will be participating in a taste test next week which will bring in $20.

Where do you look if you need to make extra cash? Do you rely on the cushions of the couch? Do you partner with area businesses that may need a helping hand occassionally? Post a comment and share your ideas.

Resolution Update for January

- Cutting back on the amount of money going out The second half of the month was easier than the first. I was on vacation for the first half of the month, but since I was visiting family I wasn't paying for meals out. The problem was the exchange rate is $2.00 to the pound.
- Eliminate NSF fees. This is just a stupid fee after all. So far, no NSF fee.
- Cut back ATM Withdrawal fees to a maximum $5/month for emergencies only. Better planning and sticking to my budget should eliminate the need to use other bank's ATMs. The only problem I see is while traveling. Because of the trip I did use the ATMs, but I only had $3.50 at home.
- Cut back on meals out. Another area where better planning will help. I need to work on that menu planning thing. Well, I need a lot of work on this. Jet lag stopped me from shopping for groceries and I didn't have anything in the fridge because of the trip.
- Pay off Visa #2. This will take a bit of work since my budget is pretty tight right now, but if I make sure that the snowflake money goes to it instead of getting used before it makes it to the bank. This will save about $1,000 in interest fees in the next year. I only put the normal amount towards the card, but I'm working on creating snowflakes.
- Contact credit card companies about lowering interest rates. Okay, I'm going to do this tomorrow. I promise!
- Increase Savings- Continue putting $25 per paycheck to IRA January I put $100 towards my IRA because I wanted to take advantage of the market crash. I got 10 more shares of Intel. Yeah!
- Build Emergency Savings to $1,000 I'm working on it, but I may have to use some of it this month.
- Create savings for new tires for the car Nope. This one was a dud.
- Increase Income I've been working on market research opportunities and I have a taste test coming up for $20.
- Look for other employment opportunities with additional compensation Nope
- Invest more time in compensation for hobbies (photography, knitting...) Third Nope
- Look for other income possibilities I am looking, but I did add the Google Adsense to the blog.

It's Back!!! - The Reduce a Bill Challenge is back at Working For Financial Freedom

If you haven't been reading my blog for very long, you may not be aware of the "Reduce A Bill Challenge." Working For Financial Freedom started this Challenge in the fall as a way to motivate and get inspiration from others. To participate go to the "Reduce A Bill Challenge" page and post your goal. Then, make sure you check in during the month and track your progress.

This month I am committing to two challenges. The first is to increase my income by $100. The second is to take my lunch to work at least three days per week. I will keep posts on my progress in this blog as well as at Working For Financial Freedom.