Question

Rachel Johnson has net monthly income of $5,210. She has a monthly auto loan payment of $685, a student loan payment of $375, and a credit card minimum payment of $125. What is her debt-payments-to-income ratio?

Answer 1

Answer:

Debt payments to income ratio = 22.74%

Explanation:

Debts payment to Income ratio is calculated as follows:

= $\frac{Total\ debt\ payment}{Total\ Income}$

We have total debts payment = auto loan payment $685 + student loan payment $375 + credit card payment $125 = $1,185

Total Income = $5,210

Note: Credit card is also a kind of debt as firstly all the expenses are met during the period and then the payment is made at the end of the period, therefore, there is a loan in the period. Therefore, it will be considered for payment of debt.

Debt payments to income ratio = $\frac{1,185}{5,210} = 22.74$

That means the debts are 22.74% of income.