Question

Sabina makes $2,000 per month. She spends $300 on credit card payments and $450 on an auto loan. Does she have excessive debt?

Yes, because her debt-to-income ratio is higher than 36 percent.
No, because her debt-to-income ratio is lower than 36 percent.
No, because her debt-to income ratio lower than 42 percent.
Yes, because her debt-to-income ratio is 50 percent.

Answer 1

Yes, because her debt-to-income ratio is higher than 36 percent.

Step-by-step explanation:

If Sabina makes $2,000 per month and $300 on credit card payments and $450 on an auto loan, she is $750 into debt.

×
`(750)/(2,000) * 100 = 37.5`

Expressed as a percentage, a debt-to-income ratio is calculated by dividing total recurring monthly debt by monthly gross income. You have excessive debt if your debt-to-income ratio is larger than 36%.

Yes, because Sabina's debt-to-income ratio is higher than 36 percent.

Answer 2

She does not have an excessive debt because of her debt-to-income ratio lower than 42 percent. 42% is a limit of good average debt to income ratio and Sabina's debt to income ratio has not yet exceeded that limit. The debt to income ratio can be calculated by dividing her total debt by her total income which results in 37.5% (($300+$450)/$2000 = 37.5%).