Use Worksheet 6.1. Beverly Smitham is evaluating her debt safety ratio. Her monthly take-home pay is $3,320. Each month, she pays $380 for an auto loan, $120 on a personal line of credit, $60 on a department store charge card, and $85 on her bank credit card. Complete Worksheet 6.1 by listing Beverly’s outstanding debts, and then calculate her debt safety ratio. Given her current take-home pay, what is the maximum amount of monthly debt payments that Beverly can have if she wants her debt safety ratio to be 12.5%? Given her current monthly debt payment load, what would Beverly's take-home pay have to be if she wanted a 12.5% debt safety ratio?

Worksheet 6.1

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MONTHLY CONSUMER LOAN PAYMENTS & DEBT SAFETY RATIO Name Charles & Angie Packard Type of Loan* Lender Auto and personal loans 1. Ford Motor Credit 2. Bank of America 3. Education loans 1. us. Dept. of Education Date June 21, 2010 Current Monthly (or Min.) Payment $ 360.00 115.00 75.00 2. Overdraft protection line 1. Bank of America Personal line of credit 30.00 Credit cards 1. Bank of America visa 28.00 2. Fidelity MC 31.00 3. JC Penney 28.00 4. Home equity line 1. Bank of America 72.00 $ 739.00 TOTAL MONTHLY PAYMENTS *Note: List only those loans that require regular monthly payments. Monthly Take-Home Pay 1. Charles 2. Angie TOTAL MONTHLY TAKE-HOME PAY $1,855.00 2,250.00 $ 4,105.00 Debt Safety Ratio: Total monthly payments Total monthly take-home pay X 100 739.00 = $4,105.00 X 100 18.0 % Changes needed to reach a new debt safety ratio 1. New (Target) debt safety ratio: 15.0 % 2. At current take-home pay of $4,105.00, total monthly payments must equal: Total monthly take-home pay X Target debt safety ratio** $4,105.00 x 0.150 = $615.75 OR New Monthly Payments 3. With current monthly payments of $739.00, total take-home pay must equal: Total monthly payments 100= $739.00 New (target) debt safety ratio 0.150 $4.926.67 New take-home pay **Note: Enter debt safety ratio as a decimal (e.g., 15% = 0.15).