5. Calculating t he Debt Payments–to–Income Ratio. Kim Lee is trying to decide whether she can afford a loan she needs in order to go to chiropractic school. Right now Kim is living at home and works in a shoe store, earning a gross income of $820 per month. Her employer deducts $145 for taxes from her monthly pay. Kim also pays $95 on several credit card debts each month.

The loan she needs for chiropractic school will cost an additional $120 per month. Help Kim make her decision by calculating her debt payments–to–income ratio with and without the college loan. (Remember the 20 percent rule.) (Obj. 3)