Ted and Karen have a combined take-home income of $4,500. Their total monthly payment on consumer debt is $875. What is their debt safety ratio? Are they exhibiting any signs of approaching credit problems?
What will be an ideal response?
Ted and Karen's debt safety ratio is 19.44%, which is calculated by dividing $875 by $4,500. They are approaching the maximum recommended level of consumer debt and hence are exhibiting signs of potential credit problems. Ted and Karen should avoid taking on additional consumer debt. See 6-1: The Basic Concepts of Credit.
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