Question:

Vikki Rocco, (age 26) has been living in her apartment for three years. Her savings system is well organized and she feels comfortable about the progress she is making with her financial goals. Her credit card balance is now paid in full monthly. She is continuing to save more than 10% of her gross salary in her 401(k) plan and she stay within budget. After dating for two years, she is engaged to Tim Treble (age 28), and they are planning to be married in nine months.

Because they want to buy a house within the next 2 or 3 years, Vikki and Tim decide to meet with a mortgage lender to determine how large of a mortgage they will be able to afford an what they need to save. The mortgage lender asks them both questions about their finances that they hadn't yet considered. Although Vicky feel comfortable with the questions, Tim is nervous when he forced to take a closer look at his finances. He discovers that he has much more debt than he realized.

Vikki and Tim's financial statistics are shown below :

AssetsLiabilities

Checking Account *$10,500 (Vikki), $4,000 (Tim)

Including their emergency fundsStudent Loan $9,000

Credit Card Balances (Tim)

Car $2,500 (Vikki), $15,000 (Tim)

401 (k) balance $25,000 (Vikki), $8,000 (Tim)

Income Monthly Expenses

Gross Annual Salary

$50,000 (Vikki)

$48,000 (Tim)

After-Tax Monthly Salary

$2,917 (Vikki)

$2,800 (Tim)Rent - $750 (Vikki), $450 (Tim)

Food - $250 (Vikki), $350 (Tim)

Student Loan - $250

Credit Card Payment - $300 (Tim)

Entertainment-$300

Wedding Expenses - $500

Gas/Repairs - $350 (combined)

Retirement Savings :

401 (k)

Vikki - $500 per month, plus 50% employer match on first 7% of pay.

Tim - $400 per month, plus 50% match on first 8% of pay

Questions :

1.Classify Vikki and Tim's credit as open-end or closed-end.

2.Analyse the debt payments-to-income ratios for Vikki and for Tim.

3.Analyse the 5Cs of credit for Vikki and Tim.

4.What is the best way for Vikki and Tim to obtain their credit report?

5.What warning signs of debt problems do they have, if any?

6.How can they use Your Personal Financial Plan sheets 15-17?

Because they want to buy a house within the next 2 or 3 years, Vikki and Tim decide to meet with a mortgage lender to determine how large of a mortgage they will be able to afford an what they need to save. The mortgage lender asks them both questions about their finances that they hadn't yet considered. Although Vicky feel comfortable with the questions, Tim is nervous when he forced to take a closer look at his finances. He discovers that he has much more debt than he realized.