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%.


Please select the best answer from the choices provided

A
B
C
D

Answer 1

Answer: A

Work:
- Previous monthly income = 47,000/12 = 3,916.67. Monthly debts = 850+325+375 = 1,550. DTI = 1,550/3,916.67 ≈ 39.57%.
- New monthly income = 43,500/12 = 3,625. Monthly debts = 625+325+375 = 1,325. DTI = 1,325/3,625 ≈ 36.55%.

Change ≈ 36.55% − 39.57% ≈ −3.02%, so DTI decreased by about 3% → A.