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21 October, 09:24

Louise McIntyre's monthly gross income is $2,000. Her employer withholds $400 in federal, state, and local income taxes and $160 in Social Security taxes per month. Louise contributes $80 each month for her IRA. Her monthly credit payments for Visa and MasterCard are $35 and $30, respectively. Her monthly payment on an automobile loan is $285. What is Louise's debt payments-to-income ratio? Is Louise living within her means?

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  1. 21 October, 09:54
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    Louise's debt payments to income ratio = 25.73% She is not living within her means because her debt payments to income ratio exceeds 20% of net income

    Explanation:

    First we must determine Louise's net income:

    net income = gross income - taxes - IRA contributions

    net income = $2,000 - ($400 + $160) - $80 = $2,000 - $560 - $80 = $1,360

    Now we must calculate her total debt payments:

    debt payments = credit card payments + auto loan

    debt payments = $35 + $30 + $285 = $350

    Louise's debt payments to income ratio = debt payments / net income

    = $350 / $1,360 = 0.2573 = 25.73%
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Home » Business » Louise McIntyre's monthly gross income is $2,000. Her employer withholds $400 in federal, state, and local income taxes and $160 in Social Security taxes per month. Louise contributes $80 each month for her IRA.
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