Question

Francine and Pierre have a combined monthly net income of $2,700. Their fixed monthly expenses include $220

for Francine's student loan payment, and $82 for the stereo they bought last month. Francine and Pierre
would like to buy a new car. How much can they currently afford for monthly car payments and still
maintain a safe debt load?

Answer 1

To determine how much Francine and Pierre can afford for monthly car payments, we need to calculate their total monthly expenses and subtract them from their total monthly income.

Fixed monthly expenses:
- Francine's student loan payment: $220
- Stereo payment: $82
Total fixed monthly expenses: $220 + $82 = $302

To maintain a safe debt load, financial experts recommend that your total debt payments should not exceed 36% of your gross monthly income. Assuming that Francine and Pierre's net income is their gross income, their total debt payments should not exceed $972 (0.36 x $2,700).

To determine how much they can afford for monthly car payments, we need to subtract their fixed monthly expenses from their maximum allowable debt payments:

$972 - $302 = $670

Therefore, Francine and Pierre can afford up to $670 in monthly car payments and still maintain a safe debt load.