Question

John just moved out of state and, in doing so, had to take a salary cut. At his previous job, his annual salary was $47,000 and his monthly expenses included a $850 rent payment, a $325 car payment, and $375 in minimum credit card payments. His new job has a salary of $43,500. He has the same car payment and minimum credit card payments, but his new apartment costs a mere $625 per month. How did John's move affect his debt-to-income (DTI) ratio?
a.
John's DTI ratio decreased by 3%.
b.
John's DTI ratio increased by 3%.
c.
John's DTI ratio decreased by 9%.
d.
John's DTI ratio increased by 9%.

Answer 1

Compute monthly incomes and DTI (monthly debt ÷ monthly gross income).

Previous:
- Monthly income = 47,000/12 = $3,916.67
- Monthly debt = 850 + 325 + 375 = $1,550
- DTI = 1,550 / 3,916.67 ≈ 0.3961 = 39.61%

New:
- Monthly income = 43,500/12 = $3,625
- Monthly debt = 625 + 325 + 375 = $1,325
- DTI = 1,325 / 3,625 ≈ 0.3655 = 36.55%

Change = 39.61% − 36.55% ≈ 3.06% → about a 3% decrease.

Answer: a. John’s DTI ratio decreased by 3%.