Louise McIntyre’s monthly gross income is $3,500. Her employer withholds $820 in
ID: 2729081 • Letter: L
Question
Louise McIntyre’s monthly gross income is $3,500. Her employer withholds $820 in federal, state, and local income taxes and $370 in Social Security taxes per month. Louise contributes $220 each month for her IRA. Her monthly credit payments for VISA and MasterCard are $125 and $120, respectively. Her monthly payment on an automobile loan is $315.
What is Louise's debt payments-to-income ratio? (Enter your answer as a percent rounded to 2 decimal places.)
Is Louise living within her means?
eBook & Resources
Louise McIntyre’s monthly gross income is $3,500. Her employer withholds $820 in federal, state, and local income taxes and $370 in Social Security taxes per month. Louise contributes $220 each month for her IRA. Her monthly credit payments for VISA and MasterCard are $125 and $120, respectively. Her monthly payment on an automobile loan is $315.
Explanation / Answer
Net Monthly Income = $3,500 – (820 + 370 + 220)
= $2,090
Monthly Credit Payment = $2,090 – (125 + 120 + 315)
= $1,530
Debt Payments-to-Income Ratio = Monthly Credit Payments /Net Monthly Income
Debt Payments-to-Income Ratio = 1,530 / 2,090
= 0.7321 = 73.21%
At 73% Louise is spending 3% over the recommended 70% of net income that she should be spending on credit payments, so she IS NOT living within her means.
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