Solution:
=>Debt Safety ratio is the ratio of the monthly consumer bebt payments to the monthly take home pay which is expressed as a percentage.
=>It is genrally used by the financial institutions to check if one is eligible for the loan or credit cards etc.
=>Monthly take home pay of betty = $3200
MOnthly credit card payments = $500
Debt Safety Ratio = Monthly loan Payments / Monthly Income = 500 / 3200 = .1562 = 15.62%
=> Now the monthly credit card payments are $800
Debt safety ratio = 800 / 3200 = .25 or 25%
=> Debt Safety ratio does not include liabililties such as insurance premiums , utility payments as well as monthly mortgage payments .
=> A financially healthy debt safety ratio ranges from 15 to 20 %
In the first case i.e. when the credit card payments were 500$ , she is in the safety zone of 15 to 20%and she can buy a car on loan or can even get a credit card
In the second case the debt safety ratio is 25% and hence getting a loan or a credit card would be an issue.
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