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.

Question

Business

Arjun Krause

21 October, 21:42

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.

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Answers (1)

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Nathan Santana · Answer 1

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%).