Understanding Debt-to-Income Ratio
A worksheet for 9th-grade social studies students to understand and calculate debt-to-income ratio and its importance in personal finance.
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Understanding Debt-to-Income Ratio
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Read each question carefully and answer to the best of your ability. Show your work for any calculations.
The debt-to-income (DTI) ratio is a personal finance measure that compares how much you owe each month to how much you earn. Lenders use this ratio to assess your borrowing risk. A lower DTI ratio indicates that you have a good balance between debt and income.
1. Which of the following best defines the Debt-to-Income (DTI) ratio?
The total amount of debt you have accumulated.
A comparison of your monthly debt payments to your gross monthly income.
Your total income after taxes and deductions.
The amount of money you have saved each month.
2. Why do lenders use the DTI ratio when evaluating loan applications?
To determine your credit score.
To assess your ability to repay a new loan.
To see how much money you have in savings.
To check your employment history.
3. A lower Debt-to-Income ratio generally indicates a financial health.
4. To calculate your DTI ratio, you divide your total monthly debt payments by your gross monthly .
5. Explain the difference between 'front-end' and 'back-end' DTI ratios.
6. Sarah earns a gross monthly income of $4,000. Her monthly debt payments include a car loan of $300, a student loan of $250, and credit card payments of $100. Calculate Sarah's Debt-to-Income ratio. Show your work.
7. A high DTI ratio makes it easier to get approved for new loans.
True
False