Makayla takes home $4400 per month from her job as a physical therapist. If her only debt obligations are a car loan payment of $530 and a mortgage payment of $760 every month, is she in danger of credit overload?

Question

Jeremiah Andrews · Accepted Answer

Total debt obligation is #$530+$760 = $1290 # So available money for other things is #$4400-$1290 = $3110# At this stage she is not going to experience credit overload.
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In real life this can not be answered with confidence as it all depends on what I will call the general running expenses. Food, travel, clothing, whatever the American equivalent of monthly house tax (in England it is called council tax), heating, power demand for cooking etc and so on.

Levi Adams · Answer

undefined To determine if Makayla is in danger of credit overload, we can calculate her debt-to-income ratio (DTI).

First, sum up her monthly debt obligations: 
Car loan payment = $530 
Mortgage payment = $760 
Total debt payments = $530 + $760 = $1290

Then, calculate her DTI ratio using the formula: 
DTI = (Total monthly debt payments / Monthly income) * 100

Substitute the values: 
DTI = ($1290 / $4400) * 100

Calculate: 
DTI = (0.293) * 100 
DTI ≈ 29.3%

A common threshold for DTI is 43%. If Makayla's DTI is below 43%, she is generally considered to be managing her debt well. In this case, her DTI is 29.3%, which is below the threshold, indicating that she is not in danger of credit overload based on her debt obligations and income.