Question:
Use Worksheet 6.1. Katherine Hunt 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 Katherine’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 Katherine can have if she wants her debt safety ratio to be 12.5 percent? Given her current monthly debt payment load, what would Katherine’s take-home pay have to be if she wanted a 12.5 percent debt safety ratio?
Transcribed Image Text:
Worksheet 6.1, Chapter 6, Exercise 4
Name Katherine Hunt
• Education loans
Type of Loan*
Auto and Personal loans
.
. Overdraft Protection Line
• Personal line of credit
Credit Cards
MONTHLY CONSUMER LOAN PAYMENTS & DEBT SAFETY RATIO
Dated
• Home Equity Line
Debt Safety Ratio:
1.
2.
3.
OR
1.
2.
1.
1. Department store
2. Bank
3.
4.
1.
TOTAL MONTHLY PAYMENTS $
*Note: List only those loans that require regular monthly payments.
Monthly Take-Home Pay
1.
2.
Lender
Total monthly payments
$
$
Total monthly take-home pay
Changes needed to reach a new debt safety ratio
1. New (Target) debt safety ratio:
2. At current take-home pay of
total monthly payments must equat
x 100
TOTAL MONTHLY TAKE HOME PAY $
3. With current monthly payments of
total take-home pay must equal:
Total monthly payments
New (target) debt safety ratio
x 100 =
$
645.00
3,320.00
$
12.5 %
3,320.00
Total monthly take-home pay x Target debt safety ratio**
$
x 100 =
3,320.00
645.00
0.125
$
$
$
**Note: Enter de bt safety ratio as a decimal (e.g., 15% = 0.15).
Current
Monthly (or Min.)
Payment
19.4%
x 100 = $ 5,160.00
Required take-home pay
380.00
120.00
60.00
85.00
645.00
3,320.00
3,320.00
0.125 $
New Monthly Payments
645.00
415.00