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The "Debt Ratio" is a number that helps figure out how much debt a person or a household can handle based on their income. It's used by banks or other lenders to decide if someone can afford to take on more debt, like a mortgage, car loan, or credit card debt.
Emily wants to buy a new house, so the bank needs to calculate her Debt Ratio. They divide her total monthly debt payments (like her car loan and credit card bills) by her total monthly income. If her Debt Ratio is 40%, it means that 40% of her income goes toward paying her debts, and the bank will decide if that's a reasonable amount for her to handle.
"Wit & Whimsy with the Dumb Ox: Unlocking Knowledge with Rhyme:"
The Debt Ratio, a curious thing,
Helps lenders know what debt will bring.
It measures how much, oh me, oh my,
A person's debts and income tie.
By dividing debts by income, we see,
A percentage that helps lenders agree.
Can this person handle more, or not?
Debt Ratio, a helpful thought!