Consider someone who takes home $2500 a month. Using a 20% ratio, he/she should have monthly consumer credit payments of no more than $500 i.e.,
$2500*0.20= $500. This is the _________ amount of her monthly disposable income that she should need to pay off both personal loans and other forms of consumer credit.
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A. B. C. D.A
The correct answer to the question is A. Maximum.
The 20% ratio mentioned in the question is known as the debt-to-income ratio, which is a financial measure used by lenders to evaluate a borrower's ability to repay debt. The debt-to-income ratio is the percentage of a person's monthly income that goes towards paying off debt, including personal loans and other forms of consumer credit.
In this case, the person takes home $2500 a month and the 20% ratio implies that they should have monthly consumer credit payments of no more than $500 (i.e., $2500 x 0.20 = $500).
Therefore, the maximum amount of the person's monthly disposable income that should be allocated towards paying off both personal loans and other forms of consumer credit is $500.
It's worth noting that this is a general guideline, and some lenders may have different debt-to-income ratio requirements depending on the type of credit being applied for, the borrower's credit score, and other factors. Additionally, just because someone is able to afford monthly payments up to a certain amount doesn't necessarily mean they should take on that much debt. It's important to carefully consider one's financial situation and ability to repay debt before taking on any new credit obligations.