Roberta's annual take-home pay is $54,000. What is the maximum amount that she can spend per month paying off credit cards and loans and not be in danger of credit overload? A.$900

B.$1080

C.$4250

D.$850

B.$1080

Step-by-step explanation:

her monthly income = $54,000 / 12 = $4,500

maximum monthly payment for debt services = $4,500 x 36% = $1,620

the closest amount without exceeding this good debt to income ratio rule is $1,080

generally speaking a good debt to income ratio = 36%, in other words, you should not spend more than 36% of your income paying loans. This "rule" is applied by banks along with the 28% rule for household expenses. Banks use the ²⁸/₃₆ rule when classifying clients. So, if you want to pay lower interest rates it is better if you do not spend more than 28% of your income in household expenses and 36% on debt service. The maximum debt to income ratio allowed in order to qualify for a Qualified Mortgage is 43%, but that is really pushing the banks' limits. It also depends on your total income, e.g. a person earning $1,000,000 per year can easily pay 43% in credit services, but it will be very difficult for someone earning $40,000.