Every 6 months, Sean Ma takes an inventory of the consumer debts that he has outstanding. His latest tally shows that he still owes $4,000 on a home improvement loan (monthly payments of $125); he is making $85 monthly payments on a personal loan with a remaining balance of $750; he has a $2,000, secured, single-payment loan that’s due late next year; he has a $70,000 home mortgage on which he’s making $750 monthly payments; he still owes $8,600 on a new car loan (monthly payments of $375); and he has a $960 balance on his MasterCard (minimum payment of $40), a $70 balance on his Exxon credit card (balance due in 30 days), and a $1,200 balance on a personal line of credit ($60 monthly payments). Use Worksheet 7.1 to prepare an inventory of Sean’s consumer debt. Find Sean’s debt safety ratio given that his take-home pay is $2,500 per month. Would you consider this ratio to be good or bad? Explain.

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Worksheet 7.1, Chapter 7 Exercise 3 Name Sean Ma Type of Consumer Debt Auto loans Education loans Personal installment loans Home improvement loan Other installment loans 1. 2. 1. 2. 1. 2. 3. 4. 5. 6. 7. Single-payment loans Credit cards (retail charge cards, bank cards, etc. Overdraft protection line Personal line of credit Home equity credit line Loan on life insurance Margin loan from broker Other loans 1. 2. 3. 1. 2. 1. 2. Debt safety ratio 1. 2. 3. AN INVENTORY OF CONSUMER DEBT Date Creditor $ Totals $ Total monthly payments Monthly take-home pay Current Monthly Payment* -x 100 =- $ $ 375.00 $ 85.00 125.00 40.00 70.00 60.00 755.00 $ 755.00 2,500.00 Latest Balance Due *Leave the space blank if there is no monthly payment required on a loan (e.g., as with a single-payment or education loan). 8,600.00 750.00 4,000.00 2,000.00 -x 100 = 30.2% 960.00 70.00 1,200.00 17,580.00