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Jun 11, 2006    |      0 comments

January thru May Expenses

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Last time, I posted January thru April, and I kept in finance charges and interest expense. While they are true expenses, including them can be misleading if one just looks at my total expenses, total debt and income. It does appear that there is no way that everything could be paid without going more into debt. When in fact, the finance charge and interest expense is included with my monthly debt payments.

If anyone has any suggestions on what they would like to see, please let me know and I will see what I can do.

The biggest expenses that I would like to see dwindle down are for groceries and dining. With my husband switching shifts, we ended up dining more than we should have adjusting to the change.

A huge problem with groceries are the little visits to the store. We had two major shopping trips at Walmart and then about 10 visits to the local grocery store. It is amazing how those little visits added up to $200 in no time. It’s hard, but I believe that trying to limit shopping trips to once a week will work wonders with our grocery expense. That means creating some lists and sticking to them.

Right now, on a yearly basis our expenses are running $17,800/year. For an income of $40,000/year that leaves over $22,000/year for other things. Just imagine if that money could be put in savings instead of going towards debt. Wow.

Jun 11, 2006    |      1 comment

A Few Important Notes About the Debt to Income Ratio at Prosper

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I’ve been reading how some people think that the debt-to-income ratio isn’t that helpful at Prosper. When I listed my loan, I just plugged in my income and that was it. I didn’t have to verify my income as I believe Tim at My Money Forest had to do when he signed up for Prosper.

Not verifying the income could be one way that the debt-to-income ratio is off if a borrower chooses to exaggerate their income (which, by the way, if discovered will terminate your membership at Prosper and will not be tolerated). Prosper can at any time before your loan is funded request more information about you and it appears that they are doing that to select funded loans.

There’s another way it could be off and I’m proof….it doesn’t take into consideration total household debt!!

My jaw about hit the floor when I saw that Prosper gave me a 24% debt-to-income ratio. I’ve made it public on my blog that it is more around 50% (includes total household income and household debt). That’s about twice the ratio that Prosper gave me.

One difference is that Prosper does not include mortgage payments. That lowers my monthly debt by approximately $340 so that helps to lower my ratio.

The biggest factor is that my husband’s debt is not included. The credit report pulled on borrowers only gives the borrower’s debt. While it is true that my husband’s debt is his and mine is mine (technically), I consider all of it our debt and include it in my ratio.

While I like the 24% ratio that Prosper gave me, it doesn’t give a good representation of our debt load. This may be something for Lenders to keep in mind when they see an attractive debt-to-income ratio. If I wasn’t blogging about my finances, you wouldn’t have any idea that our debt load is that high.

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