Business, 17.02.2020 22:29 dilly2277

Madeline Rollins is trying to decide whether she can afford a loan she needs in order to go to chiropractic school. Right now Madeline is living at home and works in a shoe store, earning a gross income of $820 per month. Her employer deducts a total of $145 for taxes from her monthly pay. Madeline also pays $95 on several credit card debts each month. The loan she needs for chiropractic school will cost an additional $120 per month. Help Madeline make her decision by calculating her debt payments-to-income ratio with and without the college loan. (Remember the 20 percent rule.)

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Answer from: micahsocool23

Conclusion: Madeline should not ask for the loan

1. With college loan:

DTI = 43.9%

2. Without the college loan

DTI = 29.3%

Explanation:

Calculate the DTI for both scenaries, with and without the college loan.

DTI = (monthly debt payments) / (gross monthly income) × 100

With college loan W/O college loan

Monthly debt payments($)

Taxes 145 145Credit card 90 95College loan 120 0

Sub-total 360 240

Montly gross income ($) 820 820

1. With college loan:

DTI = (360/820)×100 = 43.9%

2. Without the college loan

DTI = (240/820)×100 = 29.3%

There are several rules to assess if a DTI is good or not.

Some of those rules include that:

A DTI without mortage should be below 28%, thus 29.3% is slightly over the limit.A DTI with mortage should be below 43%, thus 43.9% is slightly over the lilmit.The 20% rule states that the debt without a mortage should be no more than 20 percent of the annual income after taxes.

Since the DTI is already higher than 20% the conclusion is that Madeline should not ask for the loan.

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Madeline Rollins is trying to decide whether she can afford a loan she needs in order to go to chiro...

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