Maddie's monthly take home pay is $3,500. She is making monthly payments of $250 for a student loan and $218 for a credit card. What is the maximum monthly car payment she can make without going in credit overload?

Question

(1 point)
Responses

She is already in credit overload.

$232

$482

$700

GPT-4o mini · Answer

To determine Maddie's maximum monthly car payment without going into credit overload, we first need to calculate her total monthly debt payments.

Maddie's current monthly payments:

Student loan: $250
Credit card: $218

Total monthly debt payments: \[ 250 + 218 = 468 \]

Now, we'll assume that "credit overload" means that she should not exceed a certain percentage of her take-home pay for debt payments. A common approach is to keep debt payments below 40% of take-home pay.

First, we calculate 40% of Maddie's take-home pay: \[ 0.40 \times 3,500 = 1,400 \]

Next, we determine how much she has left for the car payment after her current debts: \[ 1,400 - 468 = 932 \]

However, since none of the answer choices seem to suggest a payment of $932, we may also consider if there is a smaller criteria implying a more conservative spending approach. If we calculate only the total of her debt payments instead of using the 40% guideline:

If Maddie makes the additional car payment as a portion of her remaining take-home pay, she needs to stay under 40%: \[ 3,500 - (250 + 218 + x) \geq 0 \] Where $ x $ is the new maximum car payment.

Since the questions offer fixed amounts (like $232, $482, or $700), we'll go through these options:

Subtracting each option from her total: \[ 468 + x < 1,400 \]

Calculating for provided values:

For $232: \[ 468 + 232 = 700 \text{ (below 1,400, valid)} \]
For $482: \[ 468 + 482 = 950 \text{ (below 1,400, valid)} \]
For $700: \[ 468 + 700 = 1,168 \text{ (still below 1,400, but closer to the debt limit)} \]

So the maximum allowable car payment that doesn't push her into an overload situation according to lower constraints provided by mentioned response would be the amount that won’t exceed the safe debt limit. Assessing further evaluates that means a total payment would do therefore fits the needs of avoiding strictly debt issues hence the highest without hitting possible overload comfortably was $482.

Thus, the maximum monthly car payment Maddie can make without going into credit overload is $482.