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Francis Vayalumkal

When you think about getting a mortgage, you get concerned about credit scores. There are few other things that you should think about as well. One of them is your debt-to-income ratio. Fortunately, getting this number is not as hard as getting your credit score and it doesn’t cost you a penny. You can calculate this in just a few minutes at your desk or kitchen table

By spending few minutes to figure out your ratio and how to improve it, you can increase your chances of getting a better mortgage, a better car loan and even better credit card rates.

Your debt-to-income ratio is exactly what it sounds like: the amount of debt you have in the form of mortgages, car loans, student loans and credit card debt, as compared to your overall income.

To calculate your overall debt-to-income ratio, sometimes known as a back-end ratio, add up all of your monthly debt obligations, often called recurring debt, including your mortgage (principal, interest, taxes, and insurance) and home equity loan payments, car loans, student loans, your minimum monthly payments on any credit card debt, and any other loans that you might have. Do not include expenses such as groceries, utilities and gas. Take this total and divide it by your gross monthly income from all sources. The result is your back end ratio.

Debt-to-income ratio is almost as important as your credit score when you try to get a loan. Banks use this as a tool to decide if they will lend you money or not. While other factors, such as your credit score and length of time in your home or job will come into play into this equation, a good debt-to-income ratio can give you leverage to negotiate if other factors aren't in your favor.

Reducing your debt-to-income ratio can be challenging, since these financial obligations are ongoing. But there are tactics you can use to start addressing the problem. See where your money is going and decide where you can cut back.

Find areas to cut costs. After you've looked at your budget and done some cost cutting, take the money you've saved and put it into your highest-interest loans and debts – most likely your credit cards.

Double up on credit cards’ minimum payment to start chipping away at your debt-to-income ratio. If credit cards aren't the problem, you also can pay more on any other loan as long as there are no prepayment penalties. Stop charging. Once you've started making progress, make sure you don't rack up more credit card debt.


There's also a second, related ratio that's helpful if you want to judge whether you can afford to buy a certain house or if you want to know you can still afford to live in your existing home. This figure is called the front-end ratio and you can calculate it by adding up the monthly principal, interest, taxes and insurance, and divide it by your gross income. That number generally should be no more than 28 percent. You might see exceptions for a first-time home buyer or someone with marginal credit, but in general, you don't want to go above that.

In case of mortgage, limit on ratios vary depending on the program you chose. Certain documentation types could even ignore ratios all together. However, having ratios in check will help you get the best deal when looking for a loan and also make you financially stable.

Francis Vayalumkal is a loan officer at Market Street Mortgage and can be reached at (813) 971-7555 or via e-mail at

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Nitesh Patel

Life insurance should be a fundamental part of anyone’s financial future. It provides financial confidence for your entire family should the unthinkable happen. But beyond that, how does one go about looking for the right life insurance for their needs. This is where knowing the basics become critical.

In general, life insurance offers protection for a pre-determined amount money for your loved ones, or anyone you designate, after you’ve passed away. The person you designate is called the "beneficiary." Life insurance proceeds could be used to pay off debt (credit cards, mortgages and other loans), funeral costs, estate taxes, college tuition, and other current or future expenses.

There are two general types of life insurance: term or whole-life insurance. Term, which covers you for a specified period of time such as 20 to 30 years, pays a benefit only if death occurs within that time period. Whole-life policies, on the other hand, protect people as long as they live, and in many instances, have a built in cash value that can be paid out or borrowed against during one’s lifetime.

When considering purchasing life insurance, it’s important to think through the financial resources you need to leave your family so they can maintain a comfortable lifestyle in case you die. Part of the process is identifying your assets, financial obligations and future expenses.

Nitesh Patel is a financial representative with the Northwestern Mutual Financial Network based in Clearwater for The Northwestern Mutual Life Insurance Company, Milwaukee, Wisconsin). To reach Patel, call (727) 799-3007 or e-mail

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Kamlesh Patel
CRUNCHING ‘EM NUMBERS: IRS releases tax numbers for 2007


The tax law requires that certain tax numbers be adjusted for inflation each year. Take these 2007 adjustments into account as you do your 2007 tax planning.

The standard mileage rate for business driving increases from 44.5¢ per mile to 48.5¢ per mile, effective Jan. 1, 2007. The rate for medical and moving mileage increases from 18¢ per mile to 20¢ per mile. The general rate for charitable mileage remains at 14¢ per mile.

The first-year expensing limit for the purchase of business equipment increases from $108,000 to $112,000. The expensing election phases out once total purchases for 2007 exceed $450,000.

The maximum earnings subject to Social Security tax increases from $94,200 to $97,500.

The “nanny tax” threshold remains at $1,500 for 2007. If you pay household workers more than this amount during the year, you’re responsible for payroll taxes. The “kiddie tax” threshold remains at $1,700, but the age threshold was raised last year to age 18. If your child under age 18 has more than $1,700 of unearned income in 2007 (e.g., dividends and interest income), the excess will be taxed at your highest rate.

The maximum individual retirement account (IRA) contribution you can make in 2007 remains unchanged at $4,000 if you’re under age 50 and at $5,000 if you are 50 or older.

The maximum amount of wages employees can put into a 401(k) plan increases from $15,000 to $15,500. The maximum allowed for SIMPLE plans increases to $10,500. If you are 50 or older, you can contribute up to $20,500 to a 401(k) and $13,000 to a SIMPLE plan.

The estate tax exemption remains at $2 million, but the top estate tax rate drops from 46 percent to 45 percent. The annual gift tax exclusion remains at $12,000 for 2007.

you may qualify for a telephone tax refund

Individuals and businesses will be eligible for refunds of federal excise taxes paid on their long distance phone bills, thanks to a recent court ruling. Applicable to calls made from March 2003 through July 2006, the refund is claimed by filing your 2006 income tax return. And better yet, you may not need to search through old phone records to receive it.

Instead of substantiating the actual excise taxes paid during the covered period, individuals may elect a standard amount based on the number of exemptions claimed on their 2006 tax return. For a person claiming one exemption, the reimbursement is $30; two exemptions – $40; three exemptions – $50; and four or more exemptions – a maximum of $60. No other documentation is necessary to receive the refund.

The IRS has created Form 8913 to be used by businesses and tax-exempt organizations to claim their refunds of this tax. They can either tally the actual tax paid on their phone bills during the 41-month period or use a “simplified” method approved by the IRS. The simplified formula involves comparing the phone bill dated April 2006 (when taxes were still being charged) with the September 2006 bill (after the tax was removed). The percentage of the April bill paid in federal taxes is compared to the percentage of federal taxes paid in September, and the difference is your refund ratio. This ratio is multiplied times the total phone charges for the covered period and the result is your refund amount. The refund is capped at 1 percent or 2 percent of total telephone expenses, depending on the number of employees a business has. Options for requesting the refund vary for sole proprietors.

For most Americans, the excise tax refund is fairly negligible, but for businesses with substantial long-distance expenses, the reimbursement might be significant.

don’t overlook these deductions even if you don’t itemize

You’re probably familiar with the deduction choice you must make when you file your tax return. You either have enough deductions (such as mortgage interest, charitable contributions, and medical expenses) to itemize, or you take the standard deduction, a set amount that doesn’t require you to list specific deductible items.

What you may not be as familiar with are those deductions that you are allowed to take “above the line”; that is, deductions that you can take in addition to your itemized deductions or your standard deduction.

Here’s a quick rundown of above-the-line deductions you shouldn’t miss on your 2006 tax return.

A deduction of up to $250 for classroom supplies purchased by teachers for use in their classrooms.
A deduction of up to $2,500 for interest paid on student loans.
A deduction of up to $2,000 or $4,000 for college tuition and fees, depending on your income level.
A deduction of up to $4,000 for individual retirement account contributions if you’re under age 50. If you’re 50 or older, you can deduct up to $5,000.
A deduction for the expenses connected with a job-related move.
A deduction for 50 percent of the self-employment tax and 100 percent of health insurance premiums paid if you are self-employed.
A deduction for alimony paid. (Note that child support is not deductible.)
A deduction for contributions to health savings accounts (HSAs).

Most of these deductions have qualification requirements or income limitations. Don’t overlook above-the-line tax deductions. An added benefit: These deductions decrease your “adjusted gross income,” an important number on your tax return. The lower your adjusted gross income, the more likely you are to qualify for credits and deductions subject to income thresholds.

Kamlesh H. Patel, CPA, can be reached at (813) 289-5512 or (813) 846-5687 or e-mail or

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Satya Shaw

A successful retirement does not just happen; you have got to plan for it. The long ramp toward retirement focuses on saving and investing, but once retirement starts emphasis shifts to spending and safeguarding. Even though the greatest challenge in retirement, and probably your greatest fear, is outliving your money, most people spend less time planning their retirement than they do planning a vacation.

What does retirement planning involve? Here are the steps: First, determine what you would ideally like to do in retirement, and then discuss it with your spouse and other loved ones. Will you spend your time traveling, enjoying hobbies, helping others, working part time, or what? Second, estimate the retirement income you'll have from savings, Social Security, pension and all other sources. Third, estimate your expenses making sure to take account of inflation, taxes and health care costs, which are likely to be an increasing part of your budget.

Steps two and three should be done for each five-year period of your retirement and then revised annually. Fourth, if you have more income than needed, you only need to safeguard your investments to make sure they're not lost or shrunk by bad decisions. If you have insufficient money for retirement (expenses exceed income), then you'll need to postpone retirement, work part-time or possibly use a Reverse Mortgage to access the equity in your home. Either way, it is highly recommended that you minimize your exposure to loss and maximize the full potential of your financial resources by working with a financial adviser. They can help you determine the risk you can afford, investment options and how to position your money for best results without sacrificing safety. Retirement is going to be long, filled with uncertainties, including emergencies, and going it alone is one of the greatest risks you can take.

Be realistic in your planning. For example, be aware that for a couple age 65, there is a 50 percent probability that one will live beyond age 90. Acknowledge that even a low rate of inflation can make a big difference in prices over the 20 to 30 years you'll be in retirement. For example, average inflation of 3 percent means $1 today will be worth only 55 cents in 20 years and 41 cents in 30 years. Since 78 million boomers are entering retirement over the next two decades, the price of everything related to retirement, especially health care, is likely to rise faster than overall inflation. Inflation is a cruel tax for those on fixed incomes, and chances are your income in retirement will increase a lot slower than prices.

The boomer explosion is going to overwhelm government-provided services and benefits. This means that the relative benefits of Social Security and Medicare are going to shrink under the pressure of increased retirees. There will simply be more people receiving entitlement benefits than workers paying the bills. Every study, government and private, indicates there will be a shortage of money to support these programs. To pay for this shortfall, the government must raise taxes of all types. The increased taxes, inflation, relative decrease of benefits combined with escalating medical care costs will be especially burdensome for those in retirement without rising incomes from wages and salaries.

If you haven't evaluated it yet, investigate the risk you're taking with your retirement money. Would you have a loss if the stock market lost ground? You might if your money is still in your ex-employers 401(k) plan, or if you own securities, even mutual funds, whose value is determined by the market. Generally, investments in stock have done well long term, but you may need your money before a long time. From November 1973 to October 1974, the S&P stock market index fell 48 percent, and it took over six years to recover. The last bust in the stock market was 2000-2002, and we have yet to fully recover. In the meantime, inflation marches forward with the shrinking dollar purchasing less. Much of your income in retirement is likely to be derived from your savings and investments, and you simply can not afford risk of loss and the compounding of inflation. If you lose some or all of your retirement money to bad investments, you'll increase dramatically your chances of realizing your greatest fear: outliving your money.

How do you safeguard against the challenge of too many years and not enough money? Like law and medicine, financial planning is best left to professionals. Your job in retirement is to enjoy life free of investment worries.

Satya B. Shaw, CPA, can be reached at (813) 842-0345.

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