Problem Analysis
The image shows a
Debt to Income Ratio (DTI) Calculator with the following components:
-
Income Section: Lists sources of income.
-
Loan Section: Lists monthly debt payments.
-
Calculated DTI Ratio: 33.34%
-
Guidelines: Interpretation of DTI based on percentage ranges.
We are tasked with:
1. Verifying the
debt-to-income ratio calculation.
2. Interpreting the result based on the provided guidelines.
---
Step 1: Calculate Total Income
From the
Income table:
| Item | Amount (USD) |
|------------------|--------------|
| Salary | $2,500.00 |
| Part-time | $500.00 |
| Financial Aid | $200.00 |
|
Total Income |
$3,200.00 |
✔ Confirmed: Total Income =
$3,200.00
---
Step 2: Calculate Total Debt (Monthly Payments)
From the
Loan table:
| Item | Amount (USD) |
|--------------------|--------------|
| House Mortgage | $599.00 |
| Auto Loan | $199.00 |
| School Loan | $49.00 |
| Credit Card 1 | $50.00 |
| Credit Card 2 | $50.00 |
| Personal Loan | $120.00 |
|
Total Debt |
$1,067.00 |
✔ Confirmed: Total Debt =
$1,067.00
---
Step 3: Calculate Debt-to-Income Ratio (DTI)
$$
\text{DTI} = \left( \frac{\text{Total Debt}}{\text{Total Income}} \right) \times 100
$$
$$
= \left( \frac{1,067}{3,200} \right) \times 100 = 33.34375\% \approx 33.34\%
$$
✔ The calculator correctly shows
33.34%.
---
Step 4: Interpret the Result
According to the color-coded guide:
| DTI Range | Interpretation |
|------------------|----------------|
|
0 - 36.99% | Healthy debt, as long as you have a steady income.
✔ |
| 37% - 42.99% | Try to avoid additional usage on credit cards or loans. |
| 43% - 49.99% | Consider reducing debt by paying off some loans. |
| > 50% | Eliminate some loans unless you can pay regularly. |
Since
33.34% < 36.99%, this falls in the
healthy range.
---
✔ Final Answer and Explanation
-
Debt-to-Income Ratio:
33.34%
-
Interpretation: This is a
healthy debt level because it's below 37%. As long as your income remains stable, you're in good financial standing.
-
Recommendation: Continue managing your finances responsibly. Avoid taking on new debt unless absolutely necessary.
> 💡 Tip: You could improve your financial flexibility by paying down high-interest debts (like credit cards) faster, even if not required.
Let me know if you'd like help creating a repayment plan!
Parent Tip: Review the logic above to help your child master the concept of debt to income ratio worksheet.
