Author: Philip Tirone

Scott,
I have a question about rolling credit card debt into a home mortgage.
If I have a current mortgage balance of around $66,150 at 8.25% fixed rate, monthly payments, with 21 years left on a 30 year mortgage, How much do I save if get a 15 year mortgage at 4.85% fixed rate, biweekly payments, with $10,190 of credit card debt added which is currently at 9.99%?
I have been a subscriber for some time now, and our local credit union recommended we do this instead of doing just the home mortgage and then a separate loan for the credit cards. They also told us that by paying biweekly we would knock a few years off the 15 year mortgage.
I read your newsletters all the time and have found it helpful in helping us to get our finances in order before I retire in 8 years. We are almost debt free of credit cards and we look forward to being able to live without being enslaved to the credit companies. If you use this in your newsletter use my first name and last initial.
Thanks Scott you are an asset and inspiration to millions of people in these terrible economic times.
Shawn M.
This is an involved math problem–which I love. 🙂 It’s important that we do an apples-to-apples comparison. That means we have to keep your payments constant. Here we go…
STEP 1: Figure out the numbers AFTER you refinance at 4.85%.
Current Mortgage Balance: $66,150
Credit Card Balance: $10,190
—————————————
Total Principal: $76,340
Refinance APR (Annual Percentage Rate): 4.85%
Loan Period: 15 years
Using the DebtSmart Loan Calculator…
Monthly Payment: $597.75
Biweekly Payment Amount: $597.75/2 = $298.88
Using the DebtSmart Loan Calculator…
Loan Repayment Time with Biweekly Payment: 13.35 years (347.20 biweekly periods)
Total time paying $647.57 per month is 13.35 years or 160.2 months.
STEP 2: Find the total time to repay original loans based on the amount you’re willing to pay for the refinance in Step 1.
Total willing to pay is $298.88 every two weeks.
Monthly: ($298.88 x 26)/12 = $647.57 (same monthly amount as the refinance in Step 1)
Using the DebtSmart Loan Calculator…
The monthly payment that will repay the $66,150 mortgage balance at 8.25% APR, in 21 years: $553.20
From the $647.57 you will use $553.20 for your mortgage and the difference, $94.37, for the $10,190 of credit card debt which is currently at 9.99%.
Using the DebtSmart Loan Calculator…
Time to repay $10,190 at 9.99% with $94.37 per month: 276.48 months which is 23 years. Therefore the mortgage will be paid off first.
Using the DebtSmart Loan Calculator…
The balance remaining on the credit card after 21 years is: $2,082.19
Since the mortgage is paid off, you can use the entire $647.57 to repay the credit card debt balance.
Using the DebtSmart Loan Calculator…
Time to repay $2,082.19 at 9.99% using $647.57 per month: 3.36 months
Total time paying $647.57 is 21 years, 3.36 months or 255.36 months.
CONCLUSION:
The comparison is based on the fact that an apples-to-apples comparison dictates that you pay the same amount per month to both cases and then figure out which case is best and how much is saved.
When you refinance at 4.85% you pay $647.57 for 160.2 months.
With the 8.25% mortgage and 9.99% credit card rate you would have to pay $647.57 for 255.36 months.
Therefore, the amount saved is the difference in payoff time multiplied by the monthly payment:
$647.57 x (255.36-160.2) = $61,622.76 (TOTAL SAVINGS)
That is the amount you could save, instead of spend, by doing the refinance at 4.85%.
You may be interested in reading more on what I think about biweekly mortgages in my article, Biweekly mortgage may be rip-off.

Shawn M.
Author: This article was contributed by DebtSmart.com.
Source:

Before the holidays are over, many consumers will charge an extra $600, $800, even $1,000 to their credit cards. Most shoppers don’t plan for this—it just happens. Department stores tempt them with offers of retail store credit cards, two-for-ones, and big discounts …
But by the time January rolls around, they have giant credit-card-debt hangovers that leave them wondering how they can preserve their finances when they have migraine-headache-sized debt looming over them.
Though they are supposed to be joy-filled, the holidays represent a giant danger to your credit score and your pocketbook. Come the New Year, you will have to battle with your credit card bills as well as increasing interest rates. Remember that when your credit card debt increases, your credit score decreases, which translates to growing interest rates.
But this year can be your breakthrough year. Here are a few of my 10 Holiday Shopping Rules.
1. First and foremost, plan in advance.
This means that before you head to the department stores:

• Make a budget.
• Prioritize your gift list.
• Assign a dollar value to each person on your list.

2. Then, play with cash, and leave your credit cards at home using the “envelope system.”

“I’ll just put it on my credit card, and I’ll pay it off when the bill comes.”
How many times have you said this? The problem is that life tends to get in the way by the time the bills come.
Even to the most disciplined shopper, credit cards are a little like Monopoly money, but if you use cash only, you will limit your spending to the cash in hand.
Before heading to the stores, review your budget and create envelopes with the names of each person you are going to purchase a present for (Son, Mom, Dad, etc.). Within each envelope, place the appropriate amount of money you have budgeted for this person— no more and no less. Each of these envelopes represents the wallet you have for each person on your list.
Though you might want to bring a small amount of cash for parking and lunch, leave all credit cards at home, including your debit cards. When you purchase a present, use the money from the appropriate “wallet.”
This method will create a psychological barrier to impulse shopping. If you are tempted to splurge on a gift, you will be dissuaded when you consider whose wallet you will withdraw money from in order to cover the impulse shopping.

3. Buy your most important presents first.

If you have budgeted appropriately, you will not run out of money, but let’s face it: Money does not go as far as it used to.
When shopping, buy the gifts at the top of the priority list first and, if you go over budget, find substitutes for those people on the bottom of your list. (Your sister would probably love a framed picture as much as a $75 sweater.)
If you buy your most important gifts first, you will be less tempted to charge things to your credit card. But if you save your most important gifts for last, you might find yourself turning to credit cards when all your cash has been spent on less-important gifts.
Finally, never get the credit-card discount.
4. Finally, never get the credit-card discount.
That 10 percent discount you get for signing up for a store credit card might seem like a great deal, but think again. It’s a giant scam because it pales in comparison to the damage this will do to your credit score.
Think about it: If you sign up for a retail store account, you are:

• Inviting an inquiry into your credit score. The retail store will run your credit report, which will hurt your score. Inquiries account for 10 percent of your score.
• Increasing the number of credit cards you have. Credit-scoring bureaus respond more favorably to people with three to five major credit cards (American Express, Discover, MasterCard and Visa).
• Incurring interest, unless you pay the account in full. This interest will compound so that the 10 percent savings ends up costing you 20, 30, 50, even 100 percent more than you had intended to spend!

– Philip Tirone

Three defendants have been sentenced to federal prison on charges of bank fraud and aggravated identity theft; one man committing fraud from prison.
According to United States Attorney Sally Quillian Yates, the charges and other information presented in court: In late January 2011, Samantha Johnson stole the wallet of a 93-year-old woman while she was shopping at a retail establishment in Conyers, Georgia. There Johnson found the victim’s debit card for checking accounts at Georgia United Credit Union along with the personal identification number (PIN) for her debit card and account numbers and personal information that she would need to obtain information over the telephone about her accounts from the credit union.
Johnson shared the victim’s debit card number, PIN, account numbers and personal information with Danyez Hines and Carlos Garcia. At the time Garcia was incarcerated at Valdosta State Prison, having been convicted of identity theft and fraud in which he targeted elderly victims.
Sounds like a real “go-to” person, eh? Nothing like looking for help in committing a crime than with a person who had previously failed at getting away with this crime before. Criminals are so smart ::rolls eyes::.
Unfortunately, incarceration did not stand in the way of Garcia participating in additional crimes. Johnson and Hines were able to communicate with Garcia through a cell phone that had been smuggled to him in the prison.
Which makes me wonder, how in the world would one keep a cell phone charged in jail?!
Using the victim’s account numbers, debit card, PIN, and personal information, the defendants attempted through various means to obtain the more than $120,000 in funds that were in the victim’s accounts at the Georgia United Credit Union. Garcia, using the cell phone smuggled to him in the prison, used the debit card number and PIN to wire transfer money from the victim’s account to his prisoner account at Valdosta State Prison.
Hines and Johnson ordered new checks for the account and directed that they be sent to Hines’ grandmother’s address. Once the checks arrived, Hines forged the victim’s signature on checks and cashed them or gave them to others to cash for him. Using the personal information obtained from the victim’s wallet, the defendants called the credit union, posed as the victim and transferred funds between accounts.
When the victim and her family discovered the fraud, they reported it to the credit union. The credit union froze the victim’s accounts and deactivated the victim’s debit card before a substantial loss occurred.
I’m sure the wiring to a personal PRISON account and the mailing of checks to a personal address didn’t give the police too much of a chase in this case.
Garcia, the already once failed criminal, fails yet again and was sentenced to 6 years, 9 months in prison to be followed by 5 years of supervised release and ordered to pay restitution of $3,104.09.
Hines was sentenced to 2 years, 10 months in prison to be followed by 5 years of supervised release and $1,719.75 in restitution.
Johnson was sentenced to 5 years, 10 months in prison followed by 5 years supervised release and $3,104.09 due in restitution.

“Identity theft has the potential to decimate its victims bank accounts and credit history. These defendants targeted a 93-year-old woman and attempted to defraud her of her life savings. Thankfully, the victim and her family discovered the crime before the defendants were able to empty her bank accounts,” said United States Attorney Sally Quillian Yates. “They exhibited a remarkable callousness toward the impact that their criminal conduct would have on their elderly victim” – Source.

Folks, DO NOT KEEP YOUR PIN NUMBERS AND PERSONAL INFORMATION IN YOUR WALLET. That’s right, I went all CAPS on y’all.
Author: This article was contributed by GetOutOfDebt.org, a site that provides free help for people looking for debt consolidation and advice on getting out of debt. Source: If At First You Don’t Succeed, Commit Fraud and Fail Again : Defrauding From Behind Bars

If you ever took a traditional economics course, you learned that human beings make rational decisions about their finances, and choose things that are in their best interests.
But you only have to look around you to find evidence that human beings are far from rational, particularly when it comes to finances.
We all consistently make irrational and stupid choices that cost us more, both in the short and the long run, because we are not always capable of deciding what is in our best interests.
This understanding of how real people make real financial decisions comes from the (relatively) new field of Behavioral Economics. This discipline looks at the intersection of psychology and economic theory, and it paints the human animal as a far more irrational creature than Adam Smith ever imagined.
Check out these five ways that humans make poor money decisions, and see if you can recognize any of your past blunders:

1. Seeing a High Price Can Make us Pay More

We like to think that we know a fair price when we see one, but the truth is that we’re remarkably suggestible. For instance, take a look for the most expensive wine on the menu the next time you are out to a nice dinner. Often, you will see a single bottle listed at $100 or even more, while the rest of the wines are listed at about $25-$50 per bottle. That one expensive bottle is listed on the menu to make the $50 bottles seem much cheaper in comparison.

Many restaurants literally only keep one bottle of the expensive stuff, because they don’t intend for anyone to actually buy it. It’s there to sell the $50 wine, which would have otherwise seemed far too expensive compared the other options.

What’s happening here is something Behavioral Economists describe as anchoring. Once we have a number in our heads, it anchors our expectations for price. Dan Ariely, in his book Predictably Irrational tells how Williams-Sonoma was frustrated at poor sales of its bread machine, priced at $275. The solution they came up with was to offer another model – one that was larger and priced at $400.
Suddenly, sales of the cheaper model rose, while no one bothered with the spendy version. This was because shoppers suddenly had something to compare the original to, and $275 no longer seemed like too much to spend- at least not compared to $400.

2. We Hate to Lose, Even When we Already Have

If you’ve ever held onto a tanking stock because it’s sure to regain its value, then you have been a victim of loss aversion. Loss aversion is psychological quirk that makes us work much harder to avoid a loss than we will to achieve a gain. In terms of the stock market, once a stock starts doing poorly, we think of the money we have already lost, and we fear further losses. But instead of cutting our losses, and accepting the fact that the money we’ve already spent is a sunk cost, we hold onto those stocks in the hope that they’ll pick back up again.
You can see loss aversion in nearly every aspect of life. This is the reason why we keep those bread machines we spent nearly $300 on, even though we never make bread in them – and we could certainly get something for them at a garage sale. The simple fact that we will never see that $300 again is enough reason to let the machine gather dust, because we’ll kick ourselves for “only” getting 10 bucks on a resale.

Loss aversion is also why we are so unwilling to cancel memberships to gyms we don’t attend, clubs we don’t go to, and cable packages we don’t use. We think about how much it will cost to rejoin if we were to quit- forgetting that every month we’re allowing more money to go down the drain for fear of “losing” the original enrollment fee.

It’s very difficult for us to remember that that money is already gone.

3. We Overvalue Free Things

How many times have you ordered a book that you’re not entirely certain you want, just to make sure you qualify for free shipping from Amazon?
When you do that (and we all do), you end up paying more money overall and end up with an unwanted item, to boot.
This is clearly irrational.
For some reason, the word “free” seems to scramble our brains. When we are offered a free item or service, we forget what other costs there might be to that item or service because we are so focused on the fact that we’re not paying money. What’s really interesting is that we are willing to pay more in order to get something free. That’s why Amazon offers free shipping for orders over $25, and why many marketers and retailers give out free gifts with purchase.

4. Future Needs Vs. Today’s Wants

We think things in the future are less important than things happening now. Human beings have a very hard time planning for the future. Apparently, 75% of Americans nearing retirement in 2010 had less than $30,000 saved, which is a pretty horrifying statistic. But before we write off three-quarters of the retiring population as irresponsible laggards, we should look at our own behavior.

• How many times have you bought something with a credit card without a specific plan to pay it off?
• How often have you promised yourself you’d diet only to be tempted off the path the moment you see a box of donuts?
• How many times have you left work for yourself to do in the morning, only to curse yourself the next day?

What’s going here is something called hyperbolic discounting. That’s a 50¢ word for our unconscious feeling that now matters more than later. We know that we ought to put money aside for retirement, but man is that far away! And the money is here now. So, we tend to think that retirement will take care of itself, while the money can be put to “good use” now.

5. We Overestimate the Possibility of Unlikely Things Occurring.

Our brains are wired to think that things we can easily come up with an example of are likely to happen. This is something called the availability heuristic. What that means is that we think we’re much more likely to win the lottery or win big in Vegas than is statistically possible just because we can think of examples of people who have won.
Since we can think of those examples, we think the outcome is more likely. And every time you read a news story or see a movie about such winners, your brain believes that you winning is even more probable.
Even if you are able to sidestep the availability heuristic, you may still fall victim to the similar gambler’s fallacy. This is when you believe that something is “due” to happen because it hasn’t for quite some time. For example, you might bet on a coin coming up heads on the 21^st toss after it has come up tails every time for 20 tosses. It seems as though the coin is “due” to come up heads, but it’s still only 50/50 odds.
Otherwise rational investors may find themselves following the gambler’s fallacy by avoiding buying stocks that are going gangbusters, for fear that there has to be a fall eventually. Statistics may show a general regression toward the mean (i.e. – everything evens out eventually), but general statistics are meaningless when talking about individual events.

Irrational Money Decisions Affecting Your Life

Approaching all of our financial decisions rationally is remarkably difficult to do. It pays to think about the money choices we make, and try to figure out what our motivation is each time. A little mindfulness and self-knowledge can do wonders for combating irrational decisions.
Source: Good Financial Cents

A decade ago, I was in the mortgage business. Back then, the banks were handing out loans like candy during a parade …
Bad credit? No problem!
No job, no savings, and bad credit? No problem!
As we now know, all sorts of people were getting into loans they couldn’t afford. From where I was sitting, it just didn’t feel right.
So I refused to be part of the problem. I told my clients: “When the rates change and the real estate cycle matures, you won’t be able to afford that loan. Let’s get your credit score up so you can qualify for a loan with better rates.”
It started with just a few clients here and there. I helped them improve their scores, and in short order, they could afford a loan.
Today, about 11,000 people have been through my credit-improvement program. I have another 50,000 people who subscribe to my credit-education list.
And you know what? Even though I’m a long way away from my goal, it feels right …

I feel like I’m on the right side of the equation—helping people take control of their finances and their future.
So it seems appropriate that today, the day of counting our blessings, I say thank you.

Thank you for reading my emails.

Thank you for telling your friends and family members about my program.

And thank you for your feedback.

Happy Thanksgiving!
– Philip Tirone

Here’s a great budgeting tip …
If you’ve been through a tough financial time, I’m sure you’ve renewed your commitments to creating budgets. You probably take a second look at price tags. You ask yourself things like:

Is an espresso really worth $4?

Wouldn’t it be smarter to rent a movie than spend $25 at the theater?

Should I buy a new pair of running shoes for $90, or can I make do with my old pair?
These are good questions to ask, but instead of looking solely at price tags, let’s also start considering this question:
How much is my time worth and how many hours will I have to work to pay for an item?
I call this association between how much your time is worth and how many hours or days you will need to pay for the item the “Hour Factor.” Figuring out your “Hour Factor” by asking a series of questions is critical in helping a person get a budget under control.
I created the Hour Factor after I wrote 7 Steps to a 720 Credit Score because I began to realize that creating a budget wasn’t enough for people who struggled to stop spending money. Instead, they have to develop an entirely new mindset that guides them when making a buying decision.
For instance, imagine that you are considering buying a $250 gadget. To determine the item’s Hour Factor, start by asking: How much is my time worth?
An attorney might make $250 after taxes. A minimum-wage worker who does not pay taxes might make $7.25.
Next ask: How many hours will this item cost me?
The gadget will cost the attorney one hour; the minimum-wage worker will pay thirty-eight hours for the same gadget.
Is the latest gadget worth thirty-eight hours? If you cannot afford your insurance premium, is it worth even one hour?
Only you can answer this question. They trick is twofold: First, begin associating purchases with the amount of time you must work to secure them. Next, consider the opportunity cost associated with each purchase.
The Hour Factor process works like this:
* Answer the question: How much is my time worth?  Determine this as an after-tax figure. If you are paid hourly, this calculation is simple: divide your take-home pay check by the number of hours you worked in that pay period. If you are paid a salary, divided your annual after-tax income by 2080 (the number of hours a full-time employee works in one year, assuming a two-week vacation).
* Relate all spending to your hourly wage. For instance, let’s assume your hourly wage is about $16.50. If you are going to buy the latest $200 cell phone, divide its cost by your hourly wage to determine the Hour Factor. Ask yourself these questions: How much is my time worth? Is this cell phone worth twelve hours of my time? “
* You must also know your weekly “disposable” hours. Let`s say, for instance, that your weekly expenses cost you twenty hours, meaning you have an additional twenty hours to “dispose” of. When we put this in terms of time, you can begin to see that you are “disposing” of one about hour of your life when you treat your friends to $15 of coffee drinks. You are disposing of five hours of your life when you splurge on a lavish meal complete with appetizers, dessert, and drinks.
* Finally, consider the opportunity cost for each of your purchases by asking these questions:
1. What else could I buy with ___ hours of my time? Twelve hours could be directed toward health insurance, a car payment, a retirement account, or your child’s college tuition. When asking, “What is my time worth?,” you begin to see that twelve hours of your time might be worth a car payment, but it certainly isn’t worth a new pair of shiny shoes if you cannot afford your car payment otherwise.
2. What investment and savings opportunities am I losing by disposing of these hours? Consider, for instance, that your goal is to purchase a home. You know that you must save $60,000 for the down payment on a $300,000 home. Assuming you make $16.50 hourly and you have twenty “disposable” hours each week (that is, once you have paid for all necessities, you have twenty hours left over for savings, impulse shopping, entertainment, or whatever else you choose to buy), you must save  about 3,640 hours to afford the down payment. If you saved each of your disposable hours, you could afford the down payment in about three and one-half years.
Or, you can buy that cell phone, take a lavish vacation, and splurge on expensive dinners. Only you can decide what your time is worth.

It’s that time of year where I have to issue my big warning:
Steer clear of retail store credit cards!
From now until Christmas, you will likely spend a few days in shopping malls. And more than a few of the retail stores you visit are going to try to seduce you into applying for a retail store credit card.
“You’ll save 10 percent on today’s purchase by applying for a retail store credit card,” they will tell you.
You’ll hear it over and over. In fact, just about every major store has a promotion intended to lure people into signing up for a retail store credit card.
Beware!
Retail store credit cards will hurt your credit score.
And they will hurt your wallet.
Let’s say that you go into Banana Republic to buy your mother-in-law a sweater. The cashier tells you that if you sign up for a Banana Republic Card, you will get a 15 percent discount on that day’s purchases.
Let’s do the math and see how this adds up …
Imagine that the sweater costs $55. This means you will save $8.25 if you sign up for a Banana Republic Card.
But consider all the different ways you might end up spending MORE money:

1. You will have to pay interest on the sweater, assuming you do not pay the bill immediately. And you will also have to pay interest on all future purchases.
2. And there will be future purchases. If you have a credit card, you will be more likely to engage in retail therapy, and you will be more likely to spend more money at the store. (In fact, this is why the stores want you to sign up for their credit cards. They know people who use credit cards end up spending more money than people who use debit cards or cash.)
3. You might even spend more money that day. I should take advantage of this offer, you might think, piling a few more items in your shopping cart and thinking that you are “saving” money because of the 15 percent discount.
4. You have added a credit inquiry to your credit report. Credit inquiries count for 10 percent of your credit score, so your score drops a few points. This will cost you money in the future as a lower credit score means you will have a higher interest rate on other credit cards, your home loan, or your car loan.

My point is this: The $8.25 “savings” ends up costing you a bundle.
Think of it this way: Why would retail stores promote these cards with discounts unless they know they can eventually make money off the retail store credit cards?
As always, be sure to leave a comment below, particularly if you successfully fight off a pushy sales clerk trying to get you to sign up for a retail store credit card!