Derek has liquid assets of $4,450 and he saves $615 a month. His current liabilities are equal to $1,750 and monthly credit payments of $425. Derek’s gross income is $5,900 each month and a take-home pay of $4,775. What is Derek’s debt-payments ratio?

7.20 %

Explanation:

Debt to income ratio is a measure of an individual's monthly debt repayment ability. The ratio is used in assessing the individual capability of absorbing more debts.

It is calculated by the formula.

Debt to income ratio = Total of Monthly Debt Payments/Gross monthly income x 100.

Total monthly debt is the aggregate or all debts payable on a monthly basis.

Gross income is the income before any deductions.

For Derek, gross income =$5900

Monthly debts =monthly credit card of $425

DTI= $425/ $ 5900 X 100

=0.0720  X 100

=7.20 %

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