Question

Every 6 months, Leo Perez takes an inventory of the consumer debts he has outstanding. His latest tally shows that he still owes $2,500 on a home improvement loan (monthly payments of $250); he is making $75 monthly payments on a personal loan with a remaining balance of $875; he has a $1,500, secured single-payment loan that's due late next year; he has a $85,000 home mortgage on which he's making $1,100 monthly payments; he still owes $12,600 on a new car loan (monthly payments of $675); and he has a $1,230 balance on his Mastercard (minimum payment of $50), a $45 balance on his Shell credit card (balance due in 30 days), and a $700 balance on a personal line of credit ($80 monthly payments).

1. Use Worksheet 7.1 to prepare an inventory of Leo's consumer debt.
   

   Type of Consumer Debt	Creditor	Currently Monthly Payment	Latest Balance Due
   Auto loans		$	$
   Personal installment loans		$	$
   Home improvement loan		$	$
   Single-payment loans			$
   Credit cards	Mastercard	$	$
   (retail charge cards, bank cards, T&E cards, etc.)	Shell	$
   Personal line of credit		$	$
   Totals		$	$

2. Find his debt safety ratio, given that his take-home pay is $3,500 per month. Round the answer to 1 decimal place.
   %
   
3. Would you consider this ratio to be good or bad?
   

Answer 1

a)

Type of Consumer Debt	Creditor	Currently Monthly Payment	Latest Balance Due
Auto Loans		$675	$12600
Personal Installment loans		$75	$875
Home Improvement loan		$250	$2500
Single Payment loans			$1500
Credit Cards	Mastercard	$50	$1230
(Retail charge cards, bank cards, t&e cards etc.)	shell	$45	$45
Personal line of credit		$80	$700
Totals		$1175

b) Debt Safety Ratio = (Total Monthly Payment / Monthly Take Home Pay)*100

= ($1175 / $3500)*100

= 33.6%

c) This Ratio is Bad, Because this ratio more then 20%.