Question

The debt payments-to-income ratio is:

A. determined by dividing your assets by your liabilities.
B. calculated by dividing monthly debt payments (excluding mortgage payments) by net monthly income.
C. calculated by dividing total liabilities by net worth.
D. rarely used by creditors in determining creditworthiness.
E. a useless ratio for determining your credit capacity

Answer 1

Answer: The debt payments-to-income ratio is: calculated by dividing monthly debt payments (excluding mortgage payments) by net monthly income.

This ratio is a measure that analyze an person’s monthly debt payment in accordance with his/her monthly income.

The gross income is the pay before taxes and other variables are deducted.

i.e. debt payments-to-income ratio =
`(Total\: of\: Monthly\: Debt\: Payments)/(Gross\:Monthly\:Income)`

Therefore, the correct option is (b)