Calculating Debt Safety Ratio

Use worksheet 7.1. Every six months, Leo Perez takes an inventory of the consumer debts he has outstanding.  His latest tally shows that he still $4,000 on a home improvement loan (monthly payments or $125); he is making $85/m payments on a personal loan with a remaining balance of $750; he has a $2,000 secured, single-payment that ‘s due late next year; he has a $70,000 home mortgage on which he’s making $750/m payments; he still owes $8,600 on a new car loan (monthly payments of $375): and he has $960 balance on his MasterCard (minimum payment of $40), a $70 balance on his shell credit card ( balance due in 30 days ), and $1,200 balance on a personal line of credit ($60 monthly payment).

Use worksheet 7.1 to prepare an inventory of Leo’s consumer debt.  Find his debt safety ration, given that his take-home is $2500/m. Calculate a 5% savings of take home pay. Would you consider this ratio ratio to be good or bad? Explain.

ws_07.1

AN INVENTORY OF CONSUMER DEBT
NameDateApril 12, 2021
Type of Consumer DebtCreditorCurrent Monthly Payment*Latest Balance Due
Auto loans1.$$
2.
3.
Education loans1.
2.
Personal installment loans1.
2.
Home improvement loan
Other installment loans1.
2.
Single-payment loans1.
2.
Credit cards (retail charge1.
cards, bank cards, T&E2.
cards, etc.)3.
4.
5.
6.
7.
Overdraft protection line
Personal line of credit
Home equity credit line
Loan on life insurance
Margin loan from broker
Other loans1.
2.
3.
Totals$ – 0$ – 0
Debt safety ratio=Total monthly payments× 100 =$ – 0× 100 =0.0%
Monthly take-home pay
*Leave the space blank if there is no monthly payment required on a loan (e.g., as with a single-payment or education loan).

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