Question

Using the 28/36 ratio, determine the maximum allowable recurring debt for someone with a monthly income of $4,850. A. $388 b. $776 c. $970 d. $1,358 Please select the best answer from the choices provided A B C D.

Answer 1

Recurring debt is the form of a due payment that occurs continuously as the amount of the money cannot be cancelled at the debtor's request it consists of the loan payment, alimony and child support.

$388 is the maximum allowable recurring debt.

What is the 28:36 ratio and how it is calculated?

The ratio states that a family should expend the utmost of 28% of its monthly earnings on entire housing expenditures but not additionally than 36% on complete debt service.

Given,

Monthly income = $4,850

• Maximum expense on housing expense = 28% of 4850

$\dfrac{28 \% \times \ 4850}{100\%} = \ 1358$

• Maximum expense on total debt service = 36% of 4850

$\dfrac{36 \% \times \ 4850}{100\%} = \ 1746$

• Therefore, the maximum allowable recurring debt with a monthly income of $4,850

$\ 1746 - \ 1358 = \ 388$

Thus, option A. $388 is correct.

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