Real-Life Math
When you were in college, you never imagined yourself working as a credit counselor. You enjoyed math classes, but you really enjoyed the classes that dealt with people and their emotions -- psychology and sociology.
When you took the job as a credit counselor, you thought it would be something to get you through the last year of college. You soon learned that what you were doing was really about dealing with people. Like the couple you have sitting in front of you now.
When they came into your office, they appeared worried and worn out. As you listened to them describe their situation to you, you could tell that their debts were weighing heavily on their relationship with one another. No wonder they were worried.
"OK," you tell them. "What we need to do first is to determine what your debt-to-income ratio is. Then we can find a program that will help you solve this problem."
Their debt-to-income ratio is the percentage of their income that is paid towards bills. They have to know this before they can make changes in the way they manage their finances.
Two heads droop a little more as they place a folder filled with payment due notices on the desk in front of you. You smile and tell them it's going to take some work, but there is a way to make their financial lives easier. That confidence seems to help and both of them brighten a little.
You work through their bills, writing the total amount and the monthly payments in two columns. Their bills, though numerous, are not as bad as the folder made them appear. They look like this:
| Total Due | Payment |
| Student Loans | $1,757 | $51 per month |
| Car Payment (his) | $18,096 | $359.47 per month |
| Car Payment (hers) | $10,567 | $239.65 per month |
| Mortgage | $85,342 | $643.17 per month |
| Credit Card (Visa) | $1,200 | $12 per month |
| Credit Card (MasterCard) | $2,498 | $28 per month |
| Credit Card (dept. store) | $750 | $30 per month |
| Personal Loan | $1,457 | $125 per month |
| Insurance (auto) | $965 | $80.42 per month |
| Insurance (life) | $432 | $36 per month |
| Cellular Phones | $840 | $70 per month |
In addition to those bills, there are living expenses that the couple must pay: groceries, electric, gas, water and telephone. Both of your clients work, but neither makes a great salary. His salary, after taxes, is about $19,670 per year. Her income, after taxes, is about $10,800.
Using this information, determine what their debt-to-income ratio is using monthly figures.